WASHINGTON, CMC – Public debt load in the Caribbean has fallen sharply to near pre-COVID-19 pandemic levels, according to a new report by the Inter-American Development Bank (IDB), which urges regional governments to continue on the path of prudent debt management given uncertain global risks.
The publication reveals that the average debt to gross domestic product (GDP) ratio rose from 75 percent in 2019 to 99 percent in 2020 and is estimated to have fallen to 77 percent at the end of 2023.
It said the sharpest declines were observed in Guyana between 2020 and 2022 and Jamaica between 2010 and 2019.
“Dealing with Debt in the Caribbean,” part of the Caribbean Economics Quarterly report series, explores the economic realities caused by the most recent pandemic and the pathways towards “safe” public debt levels for a sustained economic recovery.
The publication analyzes public debt trajectories and policy perspectives, among others. It looks at debt management in The Bahamas, Barbados, Guyana, Jamaica, Suriname, and Trinidad and Tobago.
The main findings of this edition of the Caribbean Economics Quarterly include several channels that can influence public debt trajectories, interest rates, inflation, exchange rates, economic growth, primary balances, and stock-flow adjustments.
The IDB said all these elements had played a role in the evolution of public debt-to-GDP ratios in Caribbean countries over the last decade but to varying degrees depending on the specific country’s circumstances.
There are examples of significant reductions in public debt-to-GDP ratios via a combination of institutional reforms and sustained primary fiscal surpluses (Jamaica) or more recent explosive economic growth (Guyana). Debt restructuring has also played an essential role in reducing debt ratios in several countries.
The report notes that Caribbean public debt is “weakly” sustainable. Governments directly influence primary balances and borrowing, so public debt is referred to in the literature as “weakly” sustainable when primary balances move in tandem with public debt.
In other words, governments engage in a fiscal response by raising revenues and decreasing expenditures whenever public debt increases, thus reversing the trend.
Institutional strengthening of Debt Management Offices can play an essential role in reducing risks of debt distress for a given level of indebtedness.
The attainment of a prudent, or “safe,” level of public debt requires a solid medium-term fiscal framework, often supported by budgetary rules.
“Governments across the Caribbean are lowering their debt-to-GDP ratios and strengthening their fiscal and debt management institutions to sustain these efforts. Lowering the risk from excessive levels of public debt is a key condition for improving future investment and economic growth prospects,” said Anton Edmunds, the general manager for IDB’s Caribbean Country Department.
IDB’s Caribbean Economic Quarterly recognizes the importance of financial literacy as part of the development agenda and empowers individuals and organizations to be aware of current realities within the Caribbean region with viable guidelines for future decisions.
The IDB said that with a commitment to fostering development, Caribbean Economics Quarterly is a trusted resource for individuals, businesses, researchers, and policymakers.
and then 