BARBADOS IS FACING the increasingly “dark” prospect that its high debt levels will stall hopes for economic growth.
That warning came from the Inter-American Development Bank’s Caribbean economics team in their latest Caribbean Region Quarterly Bulletin.
They cautioned that Barbados, like The Bahamas and Jamaica, was in danger of making the “high debt, low growth” moniker reality.
The bank team said Barbados’ medium-term growth outlook “is positive and modest”. The International Monetary Fund estimated economic growth will be 2.1 per cent this year, while the Central Bank’s forecast was 1.6 per cent economic growth.
But the problem confronting Barbados, the bank said, was that its macroeconomic stability “is challenged by primary deficits and high levels of public debt”. As a result, it said “greater fiscal effort” was needed to stabilise public debt.
“Fiscal consolidation has not stabilised an increasing trend in debt. In financial year 2015/16, while undergoing consolidation, Barbados accumulated over eight per cent percentage points of GDP in debt. Currently, indebtedness stands at 141.3 per cent of GDP when holdings from the [National Insurance Scheme] are included,” the report stated.
“Obligations accumulated at a rate of around eight to nine percentage points per year. Two-thirds of the liabilities are domestic debt with short-term maturity that are exposed to rollover risk. Debt service at over 18 per cent of GDP has become the largest budget item.
The IDB publication said excessive debt was problematic in several ways.
“When the debt level is too high, downward pressure on economic growth occurs, and, combined with a low credit rating, this implies high interest rates hence interest payments that squeeze out governments’ investment and social expenditure,” its Caribbean economics team noted.
“A steep rise in public debt could place a country into a vicious unsustainable cycle of increasing debt and rising interest payments.”
Barbados was not alone with its debt woes, though.
The IDB publication stated: “Barbados, The Bahamas, and Jamaica are on the dark side of the debt-growth relation, that is, with debt levels that put negative pressure on economic growth. Guyana and Trinidad and Tobago are expected to join them. Only Jamaica and, to a lesser extent, Barbados are expected to reduce their debt levels in the next two years, albeit remain on the dark side of the growth- debt relation.” (SC)
