Reduce appetite for borrowing

IT IS A SOURCE of national concern that the Barbados Labour Party (BLP) continues to communicate erroneous information to the public that the national debt is on a downward trajectory.

The most recent attempt was in the Budget. Pages 144-145 state that “contrary to all the lotta long talk that is misleading people, this Government is not increasing debt. It has been consistently lowering the debt and barring nothing unforseen this year, we look forward to reducing our debt to GDP (gross domestic product) ratio from three figures to two figures”.

To suggest that the debt has been consistently lowered in circumstances where every citizen knows that the Government is engaged in excessive borrowing is untrue.

The facts about the public debt are as follows. First, the public debt was $15.84 billion or 158.3 per cent of nominal GDP when the BLP initiated the debt restructuring with the default component in late 2018. Second, the only time there was a reduction in the debt was with the unprecedented decision to default on the country’s debt. This action resulted in a reduction of approximately $4 billion or 26 per cent of the debt. The debt was reduced to around $11.7 billion or 117 per cent of GDP.

Third, subsequently, the country’s debt has increased consistently despite two debt swaps and reached about $15 billion on March 31, 2025. The debt to GDP ratio declined to 103 per cent as a result of an increase in GDP and not a reduction in the level of debt.

Fourth, between June 2018 and February 2025, gross borrowing was $7.3 billion (and net borrowing $3.3 billion). Borrowing increased from $427.96 million in the financial year 2018-2019 to $1.64 billion in 2024-2025.

Fifth, debt repayment between financial years 2018-2019 and 2024-2025 increased from $484.4 million to a record $2.2 billion. From the financial year 2025-2026 through to 2029-2030, debt service is projected conservatively to be $8.45 billion, an annual average of $1.69 billion.

It should be easy to comprehend that debt and debt to GDP ratio are not the same measures. The absolute level of debt is indicative of a country’s indebtedness, while the debt to GDP ratio is an indicator of a country’s ability to repay its debt.

Using the two terms synonymously is misleading and not expected from a person with training in economics. A country repays its absolute level of debt over time through amortisation and interest payments irrespective of movement in the debt to GDP ratio.

The best way of achieving a lower debt to GDP ratio from a sustainable economic management perspective is through the reduction of the level of debt rather than via the growth in nominal GDP, which can be influenced in a disproportionate way by price increases in a high-inflation environment (Wood, 2025).

Of course, it is desirable that the reduction in the level of debt be achieved through interest and amortisation payments rather than via debt default or debt repudiation.

The administration should face the reality that focusing on the debt to GDP ratio (at the expense of the level of debt) is a convenient simplification in its debt management policy. The real focus should be moderating its appetite for borrowing, reducing the level of debt and diversifying the economy in order to contain the debt overhang challenge.

– ANTHONY P. WOOD

DAILY