Too Much Debt Man!
Recently the blogmaster received an email expressing concern about Barbados’s foreign debt stock as the economists refer to it. A look at Central Bank’s Review of Barbados’ Economic Performance (January to December 2021) listed the following.
Gross Central Government Debt stood at (BDS $millions):
Gross Central Government Debt = Domestic Debt + External Debt+ Domestic and External Arrears
Of the gross debt owed by government, external debt stood at (BDS $millions):
According to the central bank report the uptick in in external debt was due to an increased reliance on policy based loans, the benefit of which kept the average interest rate on debt stable. The blogmaster assumes the benefit of a policy based loan besides its purpose of targeting specific sectors for reform and strengthening is the low interest rate.
In the period 2018 to 2021 the government borrowed as seen on the central bank graph, total debt to GDP was recorded at 136.3% with foreign debt being 33.9% of total debt. It should be obvious a large component of USD1.5 billion in foreign reserves is the result of heavy inflows from policy based loans contracted in the pandemic years of 2020 and 2021.
From the following graph it should be clear Barbados’ debt load should not be viewed through a political lense. Successive governments have accessed heavy borrowing – both local and foreign to finance government’s operations over the years. The slowdown in the global economy caused by the ongoing pandemic has had a devastating effect on the economy of Barbados by eroding gains from the debt restructure administered in 2018. With the fickle tourism sector the major foreign exchange earner, Barbados has to be hopeful it continues to rebound to be able to honour its external debt obligations. Hopefully our planners at the strident insistence of the citizenry will make this a strategic priority.
This raises the point of concern indicated in the email received from a concerned BU family memeber, who are our foreign creditors and are Barbadians comfortable that having mortgaged the future of our great grand children, there is sufficient capacity of the country to service its debt. In 2018 local and foreign bondholders suffered a ‘haircut’ because debt to GDP was too high and the country suffered several downgraded by credit rating agencies.
The blogmaster does not have a listing of our local and foreign creditors. However the concern China has aggressively been increasing its stock in the island has been refuted by financial consultant to the government Avanish Persaud, evidencing that China’s exposure in Barbados represents ‘only’ $300 million or less than 3% of the 13.3 billion gross government debt.
While it is comforting that foreign debt as a % of GDP is low, in real terms in represents a liability the country will struggle to honour given our heavy dependence on one sector to earn foreign exchange. To make matters worse, in the short – and possibly medium term – the ongoing conflict in the Ukraine will create additional economic pressure with the price of commodities forecast to spike.
The government owes it to the country to implement a plan to disrupt consumer behaviour. The typical Barbadian aspires to buy a car, travel and to engage in a level of consumption spending on durables that is inimical to the national interest. The blogmaster is not suggesting that individuals should not aspire to acquire material things to appease a sense of aggrandizement. However, if it means Barbadians are being encouraged to cut off the nose to spite the face then we are spitting in the air.
Are Barbadians aware of the perilous state of affairs we are operating in?