How sustainable is nat’l debt? Worrell wants to know

The former Governor of the Central Bank of Barbados, Dr Delisle Worrell, has raised concerns about the sustainability of the Mia Mottley administration’s financial strategy, warning that prioritising debt servicing over essential government spending could undermine the country’s economic stability.

In his March economic letter, Making Sense of Government’s Finances, Dr Worrell warned that if debt is being treated in such a way, government finances may not be sustainable, even though the primary deficit is in surplus.

Dr Worrell outlined several considerations for the Mottley administration as he sought to make sense of its finances.

In contextualising the matter, the international economic consultant referenced the Estimates of Revenue and Expenditure laid in Parliament on February 11, showing government’s intended finances for the fiscal year that begins in April and ends on March 31, 2026.

He acknowledged that the cover page of the document states that the excess of expenditure over revenue is expected to be equivalent to US$600 million ($1.2 billion), or about 8.5 per cent of GDP. “What are we to make of this number?” the former bank head queried.

Dr Worrell pointed out that the government is living within its means when tax and other revenues are sufficient to cover current spending, including all wages, purchases of goods, supplies and services, subsidies and transfers to statutory bodies and individuals, interest payments and depreciation.

He identified this as the balance on the current account, contending that prudent management suggests that current expenses should always be fully covered by current revenues, with something extra to contribute to capital expenditure projects.

“When the government maintains a surplus on the current account, we know that all borrowing is for roads, ports and airports, hospitals, schools and other public facilities. All government loans are devoted to capital expenditures that improve public services and enhance the attractiveness of the economy to local and foreign investors. Other concepts of the government deficit are often found in public discussions,” he asserted.

The overall deficit is defined as the difference between government revenue and total expenditure—the sum of current and capital expenditure. Dr Worrell said the overall deficit is less informative than a breakdown into the current balance and capital expenditure.

“Government finances,” the senior economist warned, “will not be sustainable if the government maintains an overall balance at the expense of capital expenditures which are essential to maintain the country’s international competitiveness. Loss of international competitiveness because of deteriorating infrastructure and public facilities results in economic stagnation, declining government revenue and shortages of foreign exchange.”

He suggested that the primary balance is mainly of interest to the International Monetary Fund (IMF) and international lenders.

“However, the primary deficit does not tell us whether the government is servicing debt at the expense of other government priorities, either on the current or capital account. Should that be the case, government finances may not be sustainable, even though the primary deficit is in surplus,” he added.

Returning to the deficit, the former central banker suggested that the government used none of these definitions.

“In addition to all current and capital spending, the Barbados government adds to expenditure the total of all debt that matures in the 2025/26 fiscal year. The amount of US$600 million is the total required to finance the overall deficit for the fiscal year plus the amount of debt that will have to be repaid or refinanced,” he explained.

The founder/president of Delisle Worrell and Associates added: “The most informative indicator of prudent management of government finances in the interests of economic growth and balance-of-payments stability is a small surplus on the current account, together with affordable local and international borrowing to finance capital expenditures. The other measures of deficit have more limited usefulness and are mainly relevant for borrowing strategies and debt management.”

emmanueljoseph@barbadostoday.bb