There’s a lot of hysteria around the subject of the national debt. I think we all accept that debt is an unavoidable recourse if we want to get by in life, unless of course you are fortunate to have won the lottery or have access to family wealth. As individual citizens, we borrow to build a house or buy appliances like fridges and stoves. Well, it’s the same thing with governments, only on a much larger scale. Governments have an entire country to service, so naturally the size of their loans will be much larger than ours, in the millions, sometimes billions. That money is used to pay for roads, hospital operations, water and sewage infrastructure, buses and trucks, and all of the other things the government buys from abroad to make our lives satisfying. But are we borrowing too much? Some people think. Here’s how the governor of the central bank, Dr. Kevin Greenidge, sees it. ” What matters is your debt to GDP ratio. Is your ratio. So we compare debt for countries (1:11) based on the ratio of how much they produce. It’s like me and you, you may be fortunate to have, (1:18) let’s assume you earn an income of $100,000, and I’m earning an income of $10,000, and we both go to the bank for a $9,000 loan .$9,000 over $10,000, 90%. I’m 90% in debt. $9,000 over $100,000 is 9%. So who the bank is going want to deal with, even though our absolute number is the same. So we’re talking about ratios. Now, where we are now is that our ratio is 105%.As I said before, it came down from the beginning of the programme, 178 to 105, and it’s the anchor of the Barbados Economic Recovery Programme, which means everything hinges on how we treat our debt. And we have anchored in there that we are going to do, we have thought a path from 100, where it was, down to 60%, like 20, 35, 36. Now, in order for that to be sustainable, it means that your debt borrowings must be anchored in an economic programme that is generating economic growth, so that the denominator, one, is growing, and two, you’re able to repay, whether it be domestic or foreign, when the time comes to pay the debt.The borrowings have been project related , and they develop, whether it was sub-borrowings during COVID, et cetera, you have to respond to emergency, you’ve got to respond to emergency in Hurricane Elsa, you’ve got to respond to Hurricane Burrell, and that’s why you have the space to borrow, when things happen. But borrowing really is project related, you’re developing roads, you’re building roads, you’re building, you’re improving, government buildings, you’re improving, even sanitation, you’re doing things that’s productive, borrowing. Yes, the nominal value might $9,000 bond, might go to $9,100, but the denominator, is your GDP is growing sufficiently fast, that is generating income for you, payback, at the same time, and it’s pushing debt down that the rating agencies and potential investors going to say, well, yeah, that is sustainable, the debt is on a downward trajectory, our loan is going to get payback”.
Governor of the Central Bank of Barbados, Dr. Kevin Greenidge.
Straight from the Heart by Olu Walrond
