By: Staff Writer
May 7, 2021
The financial burden for Caribbean economies was severe in, 2020, states a United Nations Economic Commission for Latin America and the Caribbean (ECLAC) report.
ECLAC put out its Fiscal Panorama of Latin America and the Caribbean report earlier this week, where it highlighted: “The fiscal deficits of the Caribbean grew significantly in 2020, putting additional pressure on countries that already had fiscal vulnerabilities. Overall deficits were either unchanged or grew, significantly increasing gross financing needs in the sub region, especially in countries with high levels of debt. The cases of Barbados, Belize and Jamaica stand out, where public debt exceeds 100 percent of GDP. For example, in Belize, gross financing needs in the first nine months of fiscal year 2020/21 amounted to 10.3 percent of GDP, more than 100 percent higher than in the same period of fiscal year 2019/20 (Central Bank of Belize, 2020). The larger primary deficit also exacerbated negative debt dynamics, as GDP contracted.
This comes as no surprise by observers who noted the hundreds of millions of dollars of support that came into the region through the various multilateral agencies like the Caribbean Development Bank, Inter-American Development Bank, the International Monetary Fund and even the World Bank in some instances.
The report also said: “In the case of the Caribbean, at the time of writing, only seven countries in the sub region had information on gross central government public debt in December 2020. Of these countries, three had debt-to-GDP ratios of over 100 percent at year end 2020, including Barbados, with a ratio of 144 percent. In all the countries there was a considerable increase in debt, with rises relative to GDP of 24 and 36 percentage points in Barbados and Belize, respectively. As will be examined later, unlike Latin America, the Caribbean mainly financed the costs of the COVID-19 crisis with loans from multilateral agencies; only the Bahamas and Trinidad and Tobago were able to issue sovereign debt on the international market, for US$ 825m and US$ 500m, respectively, between January and December 2020.”
The build-up of gross central government public debt reflects various internal and external factors such as primary fiscal deficits, GDP growth, implicit interest rates and exchange rates. Based on the above and available data, the composition of public debt by currency and residence of creditors gives an overview of the exposure of national public debt to external factors.
The report continues, “In the Caribbean, public spending also rose in most countries, but this increase reflected differences in the composition of this type of spending compared to Latin American countries. In this regard, the higher capital spending in several countries stands out, particularly in Belize, Grenada and Saint Vincent and the Grenadines. In Belize, spending was associated with investment projects aimed at addressing the COVID-19 crisis (Central Bank of Belize, 2020) and, in Grenada, the existing public investment programme drove capital spending. In Saint Vincent and the Grenadines, the increase stemmed partly from spending on projects aimed at reducing vulnerability to disasters, the acquisition of the Buccament Bay Resort and various road projects (Ministry of Finance, Economic Planning, Sustainable Development and Information Technology of Saint Vincent and the Grenadines, 2020).”
“Current transfers and subsidies increased in several countries, reflecting the implementation of programmes aimed at supporting households and the economy during the crisis. In Barbados, for example, notable measures included the monthly grant for vulnerable families under the Household Survival Programme, the creation of programmes to support the unemployed, and transfers to public institutions to carry out reactivation programmes.
“Similarly, in Grenada, current transfers were boosted by spending associated with programmes to support household income and companies’ payrolls in the face of COVID-19 (0.5 percent of GDP) (Ministry of Finance, Economic Development, Physical Development, Public Utilities and Energy of Grenada, 2020). In Jamaica, the increase derived partly from spending on the COVID-19 Allocation of Resources for Employees (CARE) programme, equivalent to 0.8 percent of GDP, which provided temporary cash transfers to individuals and businesses affected by the crisis. Interest payments in Barbados rose as a result of the resumption of external debt servicing.”
The report also advises a cocktail of policy recommendations for countries to climb themselves out of debt, from expanding public spending in a strategic manner, for example targeting small and medium sized businesses and promoting employment intensive investment projects, to establishing a baseline income for people living in poverty and investing heavily in the digital revolution.