Senior economist Anthony Wood says the pronouncements of Professor Emeritus Michael Howard on Barbados’ precarious debt situation must be taken seriously by Barbadians. Wood noted that the International Monetary Fund (IMF) debt since government entered the programme in late 2018 amounts to $870 million with the government expected to repay $928 million by 2029.
Wood, who once served in the Cabinet of late former prime minister Owen Arthur, said Government’s senior economic adviser, Dr. Kevin Greenidge, the IMF and the USA Treasury Department, were optimistic that Barbados will be able to service the debt in full within the stipulated repayment period. Conversely, he noted Dr Howard, a retired Professor of Economics and specialist in Public Finance, had serious reservations about Barbados’ ability to repay the IMF loan based on the current economic trajectory of the Mottley administration.
“Professor Howard’s contention must be taken seriously given what has transpired since the administration was able to reduce the national debt from around 17.1 billion dollars to just under 12 billion dollars (and the debt to GDP from 171 per cent to just under 120 per cent) in late 2018 when the debt restructuring/repudiation programme was concluded. We should be reminded that domestic debt holders (National Insurance Fund, Central Bank of Barbados, Private Financial Institutions and individuals) suffered in a disproportionate manner compared to external debt holders when the administration repudiated (refused to pay) about 4.5 billion dollars of the 17.1 billion dollars in debt.
“At the time of the debt restructuring/repudiation programme the size of the Barbados economy was over 10 billion dollars and the important foreign-exchange generating tourism sector was performing well. However, during the period of the IMF and other external loans accumulating, the Barbados economy declined to around 8 billion dollars at one point and the tourism sector virtually ground to a halt at the height of the coronavirus pandemic. Excessive borrowing during a period of rapid economic decline will naturally present difficulty for a government to service its debt,” Wood told Barbados TODAY.
He explained that despite the economy showing signs of improvement over the last six months, driven mainly by the tourism sector, the government has continued to borrow substantial sums from external sources. In fact, he indicated that the national debt has risen to approximately 13.5 billion dollars and the debt to GDP ratio to around 130 per cent. He stated that given the paucity of financial and economic information provided by Dr. Greenidge, the IMF and the USA Treasury Department, Barbadians could not accept their optimistic view of Barbados’ ability to easily or adequately repay the IMF loan in full by 2029.
Wood, a former lecturer in Economics, Banking and Finance at The University of the West Indies, Cave Hill Campus, added that it was nonsensical to discuss the IMF loan in isolation from the other loans granted to Barbados and the reality that other loans will have to be sought over the short to medium term to keep the Barbados economy afloat. He suggested that one source of new loans commencing within six months is very likely to be the same IMF as the government enters a new programme with the institution before year-end. He said the amount owed to the IMF by 2029 is expected to be substantially more than $928 million.
“Without appropriate economic and financial policies over the short and medium term to return Barbados to a sustained growth path, with tourism and other
foreign-exchange generating activities yielding very good results, the country’s ability to service the IMF and other external loans will be seriously compromised. If the current situation has to be extended, Barbados will have to engage in heavy external borrowing to prop up the foreign reserves and help with its external debt obligations. In this case Barbados will be plunged further into the debt trap as stated by Professor Howard.
“The discussion on debt should not escape the domestic component of the national debt. The country cannot afford the administration making the mistakes of the past in incurring substantial debts to the National Insurance Fund, the Central Bank, private financial institutions and individual investors. Such reckless behaviour will undoubtedly stop the economy from progressing and keep the country in the debt trap,” Wood asserted. (WG)
