In the recent launch of the BERT 2.0 the term lost decade is still a heavily used term in that document that can be reinforced by the unassuming mind in reading a recent article published by Professor Justin Robinson on Thursday 27th October 2022 on the level of government debt in Barbados. Professor Michael Howard, Professor Don Marshall and Economist Carlos Forte offered that Barbados is in a debt trap.
To add facts and context to Dr Robinson’s naked assessment of Barbados’ public debt . The global financial crisis which is categorized as a shock similar to covid hit in 2007-2008 and Barbados’ public finances saw an upsurge of domestic debt. The economic strategy of government at the time relied heavily on local debt from the Central Bank of Barbados via money printing, the NIS , Treasury Bills and debt and interest payments owed to these local Barbadian institutions skyrocketed causing unsustainable fiscal deficits.
In the table produced by Professor Robinson in Thursday’s Oct 26th Nation Newspaper he highlighted that . The most significant increases in debt over this period occurred in 2017, 2013, 2009 and 2007, while there was a major reduction in debt in 2018 largely related to the debt restructuring exercise conducted by the Government of Barbados.
Massive interest payment bled government between 2007- 2018 as payments went from $343 Million in 2007 to $764 million over the 10 year period. Due to the downgrades the cost of borrowing went up and therefore all debt attracted large interest rates. The upside and constant reference point from government is the low interest rate attached to borrowing from IFI’s. There is a visible reduction in interest payments since 2018 not by paying down old debts but by the restructuring, reprofiling and retiring old debts that were not included in the restructuring.
Between 2007-2017 Foreign reserves were depleted as large loan payments that were borrowed from international capital between 1994-2008 became due and in quick succession, No massive increases in foreign debt were recorded between 2007-2017
During the highlighted years 2007 to 2017 the country was able to avoid entering into an IMF program and foreign debt was only a small percentage of GDP as in 2007 foreign debt stood 1.9 Billion to 2.9 Billion at end of 2017. That’s close to $1Billion borrowed in 10 years internationally
In 2018 external debt skyrocketed from 2.9 Billion to 4.6 Billion at end of September 2022. That’s close to 1.7 Billion borrowed in 4 years internationally
In 2012 the external debt to GDP ratio stood at 28.4% or 2.6 Billion as compared to 2022 which is 43% or 4.6 Billion.
Between 2007 – 2017 Barbados had access to domestic credit markets with a thriving and rapid growth in uptake of locally issued central bank bonds and treasury bills as compared to 2018-2022 . T-Bills grew from $569 Million to 3.3 Billion at end of 2017 to finance government operations and as September 30 2021, T bills stood at 451 Million . As part of world economic history Barbados became the 4th country in world to restructure treasury bills akin to Russia , Ukraine and Uruguay . The debt restructuring bill was outfitted with a collective action clause which forced the hands of unwilling investors to take unwanted losses.
The Barbados government in 2018 defaulted on both domestic and foreign debt. Barbados’ local debt only dropped because of the draconian restructuring as mentioned by Professor Robinson and not by paying any debts down as he would’ve claimed. It is noteworthy that most of the foreign loans restructured in 2018 were loans borrowed between 1994-2008 under the Arthur government.
Many Barbadians are still owed debts from government with a promise to pay in bonds as repayments to local hurt from the restructuring has not started to fully occur as yet. The international debt repayment schedule only started this year after 2022 September. The only debts that could’ve been paid are the debts excluded from the debt restructuring. Professor Robinson made a point that debt being repaid are not being highlighted however based on the factors above he should specify which debts that were paid between 2018-2022 that were not highlighted as it is common knowledge that Barbados has not been repaying debt between 2018-2022.
The recent BOSS plus failure is another indication of a domestic borrowing market that has been obliterated by the 2018 debt restructuring. this indicates serious market failure of the domestic credit market in Barbados as all of the recent attempts by government to raise funds locally since the restructuring has failed to meet the required threshold including the original boss plan and the 125 M central bank bond offering in Nov 2021
Barbados continues to be barred from international capital markets because of the voluntary debt default also in 2018.
The only lakes of finance available to government is from international financial institutions or from Bilateral country to country lending hence why Barbados is more reliant on the Chinese for investment.
In 2012 debts owed to the international financial institution was a meagre 718 Million which by 2018 increased to 1.3 Billion and by September 2022 increased to $3 Billion. That is an increase of 1.7 Billion in a 4 year span in foreign debt owed to these banks .
Government is forced chained to the IMF , IADB , World Bank and as another world recession is on the horizon , the hope of a profitable tourism product has diminished as travel receipts would need to earn the country 1.3 Billion more in revenue by year end in to reach 2019 levels. Government tied it’s own hands locally by restricting central bank financing , restructuring NIS and by destroying the treasury bill market causing domestic financial markets to crash. Government continues to be banned from international capital markets due to the default. Hence the reason why the IMF, IADB , World bank and Chinese dependency.
The current account deficit or in simply terms foreign exchange loss at Sept 2022 is $967.2 M which by year end will surpass $1B and my further prediction is that Barbados will record it’s largest current account deficit i.e foreign exchange loss in it’s economic history by year end. This is the second consecutive year for abnormally large foreign exchange deficits as in 2021 the country recorded $1B in deficit as well. As this hole gets larger the more Barbados will have to borrow from the IMF as the country’s main source of foreign exchange. This analysis was predicted in my mid year review of the central bank report which was carried in the Nation Newspaper and also in my book Alternate Views: Barbados’ Economic Road to Republic . The debt bill to these institutions will grow as Barbados has no clearly defined strategy to earn foreign exchange income.