The region’s leading lending institution is cautioning Barbados and other borrowing member countries to be careful how they allocate and use their stock of debt.
The warning came from President of the Barbados-based Caribbean Development Bank (CDB) Dr Hyginus Gene Leon during the final episode of the Central Bank of Barbados’ 2021 Economic Forum on Thursday night.
Speaking on the topic Promoting Economic Growth and Development in the Caribbean, Dr Leon argued that in principle, a country needs to have more debt in order to grow, when it is considered that debt is accumulated over time to invest in quality activities and projects that should generate growth, assuming it is done well.
He said there is a link between the accumulation of debt and the activity that is generated from that.
“So in principle, you can say you need to have more debt to be able to grow. But at the same time if you also are able to grow because you did those activities appropriately and you implemented them well, the larger growth pie you would have engineered, would now allow you to be able to repay that debt that you would have taken in the first place,” the CDB head told a panel discussion which comprised three other academics.
“And so, the relevant measure is the extent of your ability to remain solvent to be able to repay your debts over time. So debt in itself is not the issue, it is when debt has gotten to a limit that is over powering, over burdening and uses up resources that could be doing something else, that debt becomes an issue,” he warned.
Dr Leon pointed out, though, that there is a twist to this position which is peculiar to the region and that is the vulnerabilities faced by countries when events occur that effectively decimate a country’s capital stock.
The CDB boss identified a natural hazard such as a hurricane as one example.
He observed that the hurricane would get rid of all the money borrowed but leaves the debt behind.
“And in order to rebuild, you end up having to borrow again. So we need to be careful that when we look at that debt stock, how much of it is potentially due to situations outside of our control like natural hazards and how much of it is due to poor policies or inadequately targeted investments,” the lending agency’s president contended.
He further suggested that countries such as Barbados should therefore see the borrowing of financing in general as a means to growth but should also consider the implementation and better targeting of investments.
The question of the impact of climate change on growth and development and what can be done to tackle this was also raised.
In dealing with this issue, Chairman of the Network of Caribbean Chambers of Commerce Brian Louisy suggested that the $150 billion which was pledged at the recent climate summit in Glasgow must first become a reality.
Louisy lamented that rich countries have been “kicking the can down the road” by continually pledging but never delivering.
“I believe it is absolutely essential that we get not just the countries in public sector, but the private sector to understand the implications and impacts of climate change, how they operate and what they themselves can do,” the spokesman suggested.
He said one of the things the network of chambers of commerce has done was to place high on its agenda, a key pillar of disaster resilience.
“And we have developed a whole programme of activities, or knowledge sharing, of information sharing, of training and development. One of the things we recently did was develop a business guide for small business on climate change, on business continuity planning. We developed a tool that we can help small businesses to use to develop their own business continuity planning,” Louisy revealed.
Secretary General of the Caribbean Community (CARICOM) Dr Carla Barnett – another panelist – sees the use of technology and innovative initiatives as key to assisting countries boost growth and development.
“The way governments deliver services, using the IT…so that e-government has finally risen to the top of everyone’s agenda, all of these things are going to be really very important for us to transform our economies and do the things that we have been talking about [for] a long time; and there is a greater impetus now for addressing these things,” Dr Barnett stated.
“One of the critical things we are focusing on in CARICOM aside from what I have mentioned is the transformation of agriculture,” she said.
The CARICOM Secretary General added: “One of the things that happened as a result of COVID when the airports shut and the sea shipping routes got disrupted, we didn’t know where the food was going to come from…and we could not determine we were secure in our food supply.”
Barnett said the emphasis now on making sure that governments are investing in an agricultural sector which is more modern and can produce food more efficiently, has all become very important.
Jamaica’s Minister of Finance and Public Service Dr Nigel Clarke spoke of how his country was taking steps to realize growth and development.
One example which Dr Clarke pinpointed was an effort to revive the manufacturing sector.
“We have been making big inroads into business process outsourcing across that vertical at different stages of the value-added chain. We are also seeking to see if we can get a strong foot-hold in logistics given Jamaica’s proximity to the trade coming through the Panama Canal between China and the eastern seaboard of the United States,” the Finance Minister said.
He noted that his country was also seeking to ensure it has a strong base of financial services.
