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Barbados government owes the equivalent of 74% of GDP to private sector
Barbados pension funds, insurance companies, and other domestic investors are the primary source of funds to prop up the island’s public debt.
This was revealed by Governor of the Central Bank of Barbados Dr. DeLisle Worrell yesterday (April 26) when he issued his first quarter review of the economic performance of Barbados for 2012.
Dr Worrell noted that, in keeping with the government’s Medium Term Fiscal Adjustment Strategy, the majority of the country’s approximately BDS$500 million fiscal deficit is being funded through internal sources as Barbados has scaled back its borrowing on the international markets.
Several international credit rating agencies have downgraded Barbados government debt over the last two years and the island would be in a costly position if forced to return to international markets to raise capital, if it could find a substantial appetite for its debt offerings.
However, the governor’s report revealed that there is apparently still substantial domestic appetite for government paper. The ratio to GDP of the gross government debt owed to the private sector is 74 percent, recalculated according to international guidelines published by the International Monetary Fund (IMF) last year, stated Worrell.
He went on to state that approximately 96 percent of the funds required to finance the deficit were sourced domestically. Private non-bank entities, particularly insurance companies, provided 43 percent of the required domestic financing while the National Insurance Scheme supplied 25 percent, and commercial banks provided the remainder.
Conversely, Worrell said the external debt to GDP was 29 percent. This debt financing was primarily from foreign institutions, including the Inter-American Development Bank, which inject funds into government’s coffers in the form of a second energy policy-based loan of US$70 million from the IDB. Other project funds received according to Worrell amounted to BDS$21 million, while amortization payments totalled BDS$143 million.
The governor projected that the cost of servicing foreign debt would remain below 10 percent of foreign earnings for the remainder of this decade, while the interest cost of the government debt is projected to decline from 21 percent to 19 percent of revenue by the end of the mid-term strategy period.
Worrell asserted that the declining ratios of debt to GDP indicated that the fiscal strategy was sustainable, and there was little risk of insolvency of the Government or the country in the foreseeable future, based on the IMF’s debt sustainability analysis.