THE ISSUE: No change in consensus
The amount of debt Government has on its books has been a hot topic of discussion among economists, accountants and financial analysts for some time.
The longer Barbados’ economy has remained in recession and the wider the fiscal deficit has become, the debate on debt, especially the interest costs, has continued. Given its importance and the related imminent announcement of another fiscal adjustment by Government, BARBADOS BUSINESS AUTHORITY revisits this important issue this week.
While officials, including Central Bank Governor Dr DeLisle Worrell, do not think Barbados has a debt problem that should worry the population, Barbados Economic Society president Jeremy Stephen is one individual who differs.
In 2014 the economist has voiced primary concern about Government’s short term debt and interest payments.
“Short-term debt as a percentage of long term debt grew by 25 per cent over the last fiscal year. What that means is that there is a heavy reliance on short-term debt as we have been hearing about. It shows that there is almost a reversal in terms of new long-term debt coming into Government versus short-term debt,” he said in an analysis on the issue.
“Government is relying more on this short term debt than its long-term debt but yet the likelihood of it being able to repay the short term debt without infringing on salaries, without being able to reconcile means that there are severe challenges in convincing not only the international ratings agencies but local investors as well as overseas investors that short-term debt is not as desirable as it once was.”
Economist Dr Clyde Mascoll also thinks debt is an increasingly worrying problem for Barbados.
At a recent Barbados Chamber of Industry & Commerce discussion he said while the current administration said in 2009 it would cut debt and grow the economy, debt had in fact grown by about $5.3 billion in the last six years, compared to $3.5 billion between 1994 and 2008.
“The only way to do it is to set targets for your debt going forward and control those targets. If you control Barbados’ national debt and allow it to grow at five per cent per annum, there can be some implications for growth,” the former Minister of State in the Ministry of Finance said.
In its third quarter economic review released in October, the Central Bank said “Barbados’ net public sector debt at end-September was equivalent to 75 per cent of GDP [gross domestic product], up from 67 per cent at the end of last year”.
Last month, Minister of Finance and Economic Affairs Chris Sinckler said a major aim of Government’s revised fiscal consolidation programme introduced a year ago was to “eventually cut the growth of the public debt”, while the primary focus was reducing the fiscal deficit to more manageable levels.
He said having generally achieved mixed results, Government would have to take additional steps by the time the financial year ended on March 31 given the continuing difficult circumstances.
Debt was one of the major concerns that resulted in credit rating agency Moody’s Investor Service giving Barbados a triple notch downgrade in June.
At that time, the agency said it was concerned about Barbados “increasing Government debt ratios projected at above 100 per cent of GDP by financial year 2014/15, coupled with elevated short-term debt issuance and gross financing needs in excess of 30 per cent of GDP in 2014 and 2015”.