#BTEditorial – Fears still linger on economy’s future

The current administration can rightfully boast of its many successful initiatives to attack the debt crisis Barbados struggled with when it came to office in 2018.

The country’s credit rating had been shattered by a never ending series of downgrades. It was difficult for the country to access significant loan funding, even from the locally-based Caribbean Development Bank (CDB).

If the comments of former President of the CDB Dr Warren Smith were anything to go by, Barbados was simply avoiding the inevitable. It needed to seek international help with its debt situation and accompanying lack of economic growth.

During his 2017 annual economic review and media conference, the Jamaican straight-shooting economist did not mince words.

“In economic matters, delay is never a good strategy because the problems that we find ourselves in, the challenge that we now are faced with, has been made more difficult as a consequence of the accumulation of the problem, so that this is an important lesson to learn. I think it is also important to appreciate that we need action now. The government of Barbados knows what to do,” Smith stated.

He disclosed that CDB had entered talks with the then Prime Minister Freundel Stuart and made it clear there could be “no painless way out of this problem” that confronted the island.

Dr Smith revealed that his advice to the then government  was to do what was  necessary to return growth to the island’s economy and that he was confident Barbados would be back on a path to recovery as long as such actions were taken.

The electorate of Barbados was convinced also that we needed to right the ship with a change in government. That matter was addressed in the two subsequent general elections, providing an overwhelming victory to the Mottley-led team.

Having endured the pain associated with the debt restructuring that included a historic sovereign default on debt payments, the country was being prepped for takeoff.

While many Barbadians clutched their pearls at the thought of a default, and some suffered a haircut on their investments, the country is certainly on a much stronger footing than it was in early 2018, when we were unable to access credit except at horrendously high rates.

Today, people are slowly returning to the market and investing in government instruments. Frankly, there are very few options around. The 4.5 percent interest bearing BOSS+ bonds represent the most attractive instrument available.

The purchase, earlier this year by CIBC FirstCaribbean International Bank of more than $100 million of these bonds, was just the right promotion to the rest of the country.

In all the excitement about the country’s economic future, with tourism on the rebound, the 2023 Crop Over Festival in full flight and unemployment dropping, there still seems to be some worry about the amount of debt the country is incurring.

Barbadians are cognizant of where we were in early 2018, and how we struggled in the early 1990s barely staving off a devaluation of the Barbados dollar.

The consternation is that we might not be generating enough economic activity to sustain the debt levels. Barbadians are also worried that the amount of foreign investment and foreign exchange earning activity leave us very exposed if we are unable to service the massive foreign loans.

The International Monetary Fund (IMF), which has backed the Barbados Economic Recovery and Transformation (BERT) programme, does not share the trepidation being expressed in some quarters on the island.

The Washington-based multilateral institution is very confident the country has accumulated debt that is sustainable.

According to figures provided by the Ministry of Finance, Barbados’ public debt was $14.6 billion when the 2022/2023 financial year ended on March 31. This included $5.5 billion of external debt or 37.6 per cent, while domestic debt stood at $9.12 billion or 62.4 per cent of overall debt.

The IMF notes that the island’s public debt “continues to be assessed as sustainable but subject to high risks”. The main risks rest with how the tourism sector performs, which then informs how the rest of the economy goes. ]]>