A lot is being said about the national debt in general and most of it is unnecessarily alarmist. The thing that we have to worry about in this country is foreign exchange and the debt that can blow us off course is the foreign debt, and as far as the foreign debt is concerned we are in a very comfortable place.
Barbados in relation to Central America and the Caribbean in terms of our external debt to GDP we are well down in the league.
And in terms of what it costs us to service that external debt, it’s this year about six to seven per cent of everything that we earn in foreign exchange so it’s really not a serious burden.
What is a burden is the interest cost of servicing the debt but even the foreign interest costs, the part that we have to find foreign exchange for, is quite small, it’s five per cent of our total revenues, but the domestic interest is quite large.
When I say to people that this is a redistribution problem, people don’t seem to understand me but it’s not rocket science. All I am saying is that this debt is bonds that the Government has issued which have been bought by Sagicor, pension funds, retirees and so on.
It is funds that the commercial banks have in surplus over what they are lending out to you and me and to businesses and they take that and they buy Treasury bills.
These are funds that they have raised from depositors in Barbados Barbados dollar funds. So the Government is saying, ‘You lend this money to us and we pay you an interest’ and the pensioners and the pension funds are depending on that interest so that they have money to pay their obligations.
What’s wrong with that? How could we pay that back? What would the pension funds invest in? So the notion that the debt is too high and we have to pay it back is a ridiculous notion and it doesn’t matter how many economists with how many PhD’s get up and tell you that it is a problem.
So because our debt is owed to Barbadians, because it provides an investment opportunity for Barbadians, it is us investing in ourselves in our own economy. Now insofar as the taxpayers who have to contribute the funds to pay the interest are by and large not as well off as the beneficiaries from the debt, you may want to consider that over time you don’t want the debt to grow too fast.
But if you don’t want the debt to grow too fast, the only way that you do that is by cutting the deficit because any time you have a deficit you have to finance that, you have to borrow. And that is what we are doing; we are reducing the size of the deficit so you don’t have to borrow so much. That is why our policies are appropriate to our circumstances – they do not need to be changed.
The so-called rollover risk, the risk that when debt matures the holders of the debt will choose not to put it back into Government securities is very low because people need the income.
Dr. DeLisle Worrell is Governor of the Barbados Central Bank.
