Barbados is in a serious debt trap and the sooner government is willing to admit this and come up with a strategic development plan, the better.
This is the view of retired university Professor of Economics Michael Howard who laments that while borrowing is necessary for economies like Barbados, the country is facing a major problem because government’s present borrowing is unsustainable.
“There is a danger of borrowing too much and this is what [Prime Minister Mia] Mottley seems not to understand,” he told Barbados TODAY.
Howard’s comments came on the heels of Government’s announcement on Wednesday that an agreement had been reached with the International Monetary Fund (IMF) for a fresh Extended Fund Facility (EFF) arrangement to support the new three-year Barbados Economic Recovery and Transformation (BERT) programme. Under the EFF, which is to become available as early as November, the island will get access to about US$110 million over the three years, an equivalent of $85.05 million of Special Drawing Rights (SDR).
Professor Howard acknowledged that the Mottley administration had to borrow money in its attempt to get the economy back up and running and to build infrastructure and get people to work, since as he noted, Barbados’ largest foreign exchange earner, the tourism industry, was recovering from the COVID-19 pandemic at a sluggish pace.
He contended that if there is not enough foreign exchange the island’s ability to import certain goods and materials, intended to increase the level of economic growth, could be hampered. But Howard’s main grouse was Government’s plan to repay the borrowed millions, of which more than $900 million is expected to be repaid by as early as 2029.
Painting an alarming picture of the island’s future prospects, Howard maintained that Barbados’ continued borrowing from overseas entities was “scary” as it means that in order
to repay, Barbadians will be caught up in a revolving cycle of “borrowing from Peter in order to pay Paul”.
“You find you might be in the hands of the IMF all the time because you can’t pay back this money. . . . Borrowing places a heavy debt on the future generations and this is where we find ourselves right now.
“We are in a debt trap. People don’t like to say it and I don’t think that the government wants to admit that,” he said.
“I think the government needs an operational plan, what we call a development plan in Economics. We need to outline, not just this thing about we are going to build 10,000
houses and we are going to build these hotels.
“What is their development plan? That is, how much money they are going to spend on certain areas of the plan, where you are going to get this money from, how it is going to impact on jobs and that sort of thing. They’ve got to do that work. Right now, they are just scatter shooting little projects. I have not seen any firm development plan outlined in order to carry Barbados forward, no current strategy of growth.
You only hearing a lot of talk,” Howard stated.
The retired lecturer, author of The Fiscal System of Barbados (1946-1965), Howard called attention to what he
deemed a lack of transparency relating to the funds being borrowed, and how they were being spent and the conditions that were attached since “borrowing money is not free”.
He queried if in the promised pension reform Barbados would move to make contributory pensions mandatory, what the reform of the National Insurance Scheme (NIS) would look like and the future of government footing the bill for tertiary education.
He contended: “What I find difficult is that with this government you don’t . . . have any details in terms of their development plan, in terms of the sources and usage of funds. It is difficult to advise them to do anything because . . . you only get pieces of information now and again.
“I know nothing about the details of how the funds are spent and a lot of other people don’t know either. You don’t get the impression that they are volunteering information. The
government would come and say, ‘we are borrowing $200 million’ and you don’t know exactly sometimes where it is going to be spent, the cost of it, how it will impact the economy – you don’t get the overall picture.” (KC)