UWI academic says Barbados has no choice but to borrow

In the absence of buffers and with less access to financing than bigger countries, the Barbados Government has very little option other than to borrow money to keep its economy afloat.

So says Pro-Vice Chancellor of the Board for Undergraduate Studies of The University of the West Indies, Professor Justin Robinson, who added that access to financing was critical considering Barbados’ extreme vulnerability to external shocks and the length of time it takes the country to rebound from them.

He made the comments on Friday afternoon while delivering the Democratic Labour Party (DLP) Astor B Watts Lunchtime Lecture on the topic, The Global Financial System and the Caribbean, at the party’s George Street headquarters.

Professor Robinson said that while debt and borrowing were often seen in a negative light, accessing financing was extremely important as the Government required around $3.5 billion annually just to pay its bills.

He said it was projected that in 2022, the Government would collect $2.8 billion and spend $3.6 billion.

“If the Government couldn’t borrow from somewhere, what would it mean? It would mean that this financial year the Government could only spend $2.8 billion. Now, all of the expenses of the Government that have been budgeted for, things that we know we have to pay for in this financial year are expected to cost $3.6 billion.

“So, if there was no way to borrow or raise money it means the Government would have to limit its spending to $2.8 billion. How would that happen and what would be the implications of that? You wouldn’t be able to do a lot of things and there would be loss of jobs,” Professor Robinson pointed out.

He added that external shocks were more detrimental to small countries like Barbados that have neither savings to fall back on nor easy access to financing.

To explain that point, Professor Robinson said that while Hurricane Ian had caused tremendous damage across the southeast United States, it would have little to no effect on that country’s Gross Domestic Product (GDP).

He suggested, however, that had the system struck Barbados it would have set the country back substantially.

The university academic said the evidence showed that Barbados’ economy contracted every time there was an external shock, as he noted that the country was still reeling from the effects of the COVID-19 pandemic.

“One of the stories that I am trying to tell here, really, is that we are very vulnerable to external shocks,” Professor Robinson said.

“A lot of these are international shocks. They are coming out of advanced countries which are also suffering those shocks; however, they are not taking as long to recover as us. Why? Again, because they have buffers in terms of having savings, they have access to money. So the US, UK, Japan, China, when they get hit with these crises, the loss of GDP tends to be smaller and they rebound from the crisis faster….”

He pointed out that years of gains were usually erased by those external shocks.

Professor Robinson said external shocks were inevitable.

“I would argue that external shocks are inevitable, given the nature of our economy, but what if we could do two things? What if we could avoid homegrown fiscal crises? What if we could manage our own financial affairs in a manner that we don’t have these fiscal crises and also have buffers to avoid painful fiscal adjustment programmes,” he said.

randybennett@barbadostoday.bb