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Region struggles with debt

Tony Best

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A MOUNTAIN OF DEBT is hanging over Barbados and some of its Caribbean neighbours, sapping government revenues and retarding economic and social expansion.
As outlined by Standard & Poor’s, Wall Street’s leading credit rating agency, the pile of debt accumulated by Barbados, Jamaica, The Bahamas, Grenada and Belize since the turn of the 21st century has skyrocketed since the turn of the 21st century.
The financial situation has gotten much worse in the wake of the global financial crisis that began four years ago. Some of those nations – Jamaica, Belize and Grenada – have even restructured their debt without “reducing the principal” while pushing the burden to a higher level today than in 2001. The upshot: almost every Caribbean state, Barbados among them, has seen its credit rating downgraded by Wall Street.
That depressing picture of the impact of rising debt on Caribbean island nations was painted by S&P in an analysis entitled Caribbean Debt Is On The Rise. The paper was written by Kelli Bisset, a credit analyst who told BARBADOS BUSINESS AUTHORITY that the debt was having a negative impact on all of the countries, including Barbados.
S&P indicated that at a time of great “economic weakness”, many governments maintained their levels of public spending and in the process probably made a bad situation worse.
“The economic recession in 2008-2009 was severe and despite tepid recovery, the economic weakness has lasted longer than many policymakers and societies expected,” Bisset said.
“Many Caribbean governments have maintained, to the extent possible, their current levels of public spending and sustained their social safety nets during the downturn, and now in the tepid recovery to mitigate the economic contraction on societies. As a result, public sector debt increased for many.”
Take the case of Barbados and The Bahamas. Barbados’ net public sector debt as a share of its gross domestic product was 110 per cent greater at the end of last year than it was in 2001. At the same time, Bahamas’ debt jumped even higher by 128 per cent, she explained.
That was why S&P downgradedThe Bahamas to BBB+ in 2009 and last year to BBB while it lowered Barbados’ rating to BBB+ in 2004, to BBB five years later and BBB-minus in November 2011. Since the turn of the century Barbados’ once stellar credit rating has gone from A-minus to the brink of junk-bond status.
“For both nations, debt management strategies will continue to be important considerations” in the years ahead, warned Bisset.
As for Jamaica, Belize and Grenada, struggling to finance their debt burdens – which are now between 76 per cent and 129 per cent of gross national product – the outlook is just as ominous.
“This debt accumulation places a drag on fiscal spending and lays claim to general revenue that would otherwise go toward social safety nets, infrastructure investment and other spending priorities,” Bisset wrote.
“In addition, a high interest bill makes the structure of fiscal spending rigid and reduces a government’s flexibility to quickly reduce spending downturn which may, in turn, require cuts in social spending.”
Figures tell much of the story. At 44 per cent in 2011, Jamaica allocates the largest single share of government revenue to service its debt. Bahamas at 13 per cent and Barbados 12 per cent were next in line among Caribbean nations.
Not far behind were Grenada and Trinidad and Tobago at nine per cent. At one stage in 2000, Trinidad and Tobago was paying 21 per cent of revenue to service its debts but its robust energy industry has enabled it to lower its indebtedness.
Aruba is much better off, with interest expense standing between six and seven per cent since 2006, thanks to external financial assistance from the Netherlands and other countries.
The public sector debt profile prepared by S&P showed the heavy price the countries are paying:
• “Caribbean governments’ increased public sector debt jumped sharply after the financial crisis of 2009,” rising to 57 per cent of GDP.
• The global crisis can’t be blamed for all of the debt problems. “The rise” was “fuelled, in part, by low national savings, reliance on external financing for investment, and volatile current account balances.
• Jamaica’s public debt was well over 120 per cent of GDP, up from 100 per cent in 2006; Barbados’ was 98 per cent in 2011, an increase of almost 20 per cent in five years; Bahamas’ was 48 per cent as compared with about 22 per cent in 2006; Belize dipped from more than 80 per cent to 78 per cent, while Trinidad and Tobago’s was less than 30 per cent of GDP in 2011.
• Domestic debt, more so than foreign loans, was tapped to finance development.