BRIDGETOWN, Barbados (CMC):
The Barbados government has put a temporary freeze on borrowing even as it reported an improvement in the island’s economic position.
“Over the next four years the Barbados government will not borrow any new funds. To put the impact of that into context, over the past four years the government of Barbados has borrowed almost two billion dollars,” said Minister of Economic Affairs Marsha Caddle, adding “that’s two billion dollars of new Barbadian savings that were drawn into and trapped by government debt”.
GDP DECLINE
Caddle, speaking at the 2019 planning conference for the Barbados Association of Insurance and Financial Advisers, said the island’s debt had already declined from near 170 per cent of gross domestic product in May last year to 124 per cent this year.
She said that last May, reserves stood at BDS$400 million, but the government’s US$290 million Extended Fund Facility with the International Monetary Fund and other international financial agencies, including the Inter-American Development Bank, have helped to improve the economic situation.
Caddle said that in bringing the economy to this new place, the Mia Mottley-led administration has also settled one of the largest domestic debt restructuring in the island’s history.
But she said that unless the government provides new safe avenues for persons to invest, those excess funds run the risk of sitting idly in banks as the current rate of interest being offered is close to zero.
“Where will the two billion dollars of new savings go over the next four years? If we do nothing these savings will only compete for existing assets while the banks will be awash with more deposits than they know what to do with. The bank interest rates are going to remain near zero. Government bonds that seem plentiful today will be in short supply, while equity markets will see prices skyrocketing.”
Caddle told the insurers and financial advisers that as a result of the zero-borrowing policy in the future it would bring back liquidity to the local market, make it easier for those with long-term bonds after the debt restructuring to sell them and revive the local market.
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