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Caribbean SIDS and debt

"Most of the economies (Antigua and Barbuda, Barbados, Belize, Dominica, Grenada,

Guyana, Jamaica, The Netherlands Antilles, St. Kitts and Nevis, Saint Lucia and St. Vincent and

the Grenadines) record some of highest debt to GDP ratios among emerging market economies.

More specifically, Antigua and Barbuda, Belize, Dominica, Grenada, Guyana, Jamaica, the

Netherlands Antilles and St. Kitts and Nevis rank among the 10 most indebted market emerging

economies." (, Accessed on 12 February 2013)

Rising Debt Presents Caribbean with “difficult” financial problems

By Tony Best

A debt bomb is hanging over several Caribbean nations, sapping government revenues and retarding economic and social expansion.

And the countries range from Jamaica, the Bahamas and Barbados to Grenada and Belize, all of which have seen mountains of debt skyrocket since the turn of the 21st century. The financial situation has gotten much worse in the aftermath 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 has seen its credit rating downgraded by Wall Street.

That depressing picture of the impact of rising debt on Caribbean island-nations and territories was painted by Standard & Poor’s, the Wall Street credit rating giant, which has just released a report on the Caribbean debt problem. IN it, S&P stated that at a time of great “economic weakness” many governments have 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 policy makers and societies expected,” Kelli Bisset, an S&P credit analyst, stated in New York. “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.”

That certainly was the case in the Bahamas, Jamaica, Barbados and Belize. For instance, Barbados’ net public sector debt as a share of the country’s 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, explained Bisset, author of the report.

That explains why S&P downgraded the Bahamas to BBB+ in 2009 and last year to BBB. In Barbados’ case its rating was lowered 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 went from A-minus to being on the brink of junk bond status.

“For both nations, debt management strategies will continue to be important considerations” in the years ahead, warned S&P.

As for Jamaica, Belize and Grenada, which are struggling to finance their debt burdens, which are now between 76% 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 has the largest single of government revenue allocated to service its debt. The 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 9%. 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 at between 6-7 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 “fueled, in part, by low national savings, reliance on external financing for investment, and volatile current account balances.”

•Barbados’ national savings have fallen from 13 % to 7% of gross domestic product over 2008-2011 while the Bahamas’ plummeted from an average of 15% during 2003-2007 to 10 per cent since 2008. In Trinidad and Tobago’s case, its savings remain above 35%.

•Jamaica’s public debt was well over 120% 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; the Bahamas’ was 48 per cent as compared with about 22 per cent in 2006; Belize dipped from more than 80% 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.

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