A leading economist has sounded an alarm over what he has described as a significant decline in domestic investment and a stall in the renewable energy thrust that could threaten Barbados’ economic development in the new year.
Professor of Economics Justin Robinson has suggested that the government find a way to treat these issues as a matter of urgency if it is to effectively manage the national debt.
Speaking to Barbados TODAY, Professor Robinson identified these issues as the primary challenges facing the government this year and likely to persist into the next. Regarding the decline in project financing by local investors, he noted the government’s heavy reliance on borrowing money, deeming it a risky practice.
The university academic highlighted the challenge of financing the rollover of government debt, pointing out that the absence of substantial investments by domestic investors requires foreign borrowing to meet financial needs
“The major challenge for the government finances would have revolved around financing the rollover of government debt; that’s where the principal on government debt would have matured and had to be paid, because we still haven’t seen the local investors come back into the market in significant amounts.
“It was better than the previous year but the amount of financing that was provided by domestic investors was still small compared to historic trends, which meant that the government again had to substitute, it had to engage in foreign borrowing to meet its financing needs. So think of it in two parts: there is a deficit for the year which it has to finance but then also the debt that is maturing.”
The Pro Vice Chancellor for Undergraduate Studies at the University of the West Indies emphasised the importance of attracting local investors in sufficient numbers to cover a substantial portion of government financing needs.
He acknowledged investors’ lack of confidence in financing major government projects, possibly stemming from past debt restructuring or other undisclosed concerns.
But the economist commended the government’s management of public finances, reflected in solid primary surpluses, reduced deficits, and debt-to-GDP ratios. Despite positive indicators, he noted the scepticism among domestic investors, emphasising the need for a balance between foreign and domestic financing to address concerns about foreign exchange.
He told Barbados TODAY: “The government has done extremely well in managing public finances, it’s been running solid primary surpluses. The deficit has come down, the debt-to-GDP [ratio] has come down as well, and that has been reflected in what we have seen from the credit rating agencies. However, domestic investors still remain sceptical, or maybe people are badly burned by the debt restructuring and there’s still a sour taste from that or they have other concerns that I am not aware of.
“So I expect there to be a continuing question mark about [the involvement of the] domestic investors or if this strategy of seeking foreign financing will have to continue.
“I would say [it is] a major concern. I think any administration in Barbados would be concerned about managing the mix of foreign and domestic financing, and the majority of the financing in the last five years has been foreign. I think the administration would be anxious to really switch that back to having a majority of domestic financing because of the foreign exchange issue.”
While forecasting four per cent economic growth for the island in the coming year, Robinson stressed the dependence on effective project execution by the government and the private sector to achieve growth targets.
Looking ahead to 2024, he identified setbacks in the renewable energy thrust, citing warnings from the Barbados Light & Power Company (BLPC) about the national grid’s limited capacity for solar photovoltaic systems.
Earlier this year, BLPC warned that the national grid was running out of space to accommodate electricity from the hundreds of solar photovoltaic systems that were recently installed, which stood at about 89 megawatts of the current 100-megawatt capacity limit as of September this year.
“This is another major challenge because the progress is now dependent on adequate investment in storage or some sort of base load energy source that can continue to add more renewable energy to the grid,” said Professor Robinson.
“It’s certainly a big challenge for persons who would have invested money, maybe taken loans, acquired panels and are yet to get onto the system and generate revenue. I think that’s a major issue of the economy because [it has been a main] strategy of the government [in terms of growth coming out of the difficulties associated with COVID-19]. So certainly unblocking this constraint is going to be critical if we are going to make further progress on that.”
sheriabrathwaite@barbadostoday.bb
