Public Debt falls to pre-pandemic levels in Caribbean, says IDB Report

A recent report released by the Inter-American Development Bank has highlighted the fact that the public debt load of the Caribbean region has seen a sharp fall, nearing pre-pandemic levels. This is being seen as a very positive development, which is why the bank has asked governments in the Caribbean to continue on their current path, which focuses on debt management, while mitigating the effect of risks brought on by fluctuations in global markets.

The progress that Caribbean nations have made is evident from the rise noticed in the average debt/GDP ratio, from 75 per cent in 2019 to 99 per cent in 2020, which has now been covered by a drop of 77 per cent at the end of 2023.

In fact, Jamaica and Guyana have progressed more than any other nation has in the region. Guyana noticed its most prolific period in recent times between 2020 and 2022, while Jamaica showed significant progress in the sector between 2010 and 2019.

The Caribbean economic quarterly report is geared towards the matter of managing debt in the region, considering the effects of the pandemic and various crisis that are developing in different parts of the world, which have a profound effect on international financial markets.

The overarching aim for the Caribbean is to move towards policies which ensure that the levels of public debt in the region are with in acceptable limits, thus spurring a sustainable form of economic recovery in the region.

The report makes use of data in relation to the trajectory that public debt is taking in the region, coupled with the effect of policies which are relevant to the debt market. The primary focus being the management of public debt in nations such as Guyana, Jamaica, Suriname, The Bahamas, Barbados and Trinidad and Tobago. The report has also made some important findings, which have given experts and governments in the region clarity regarding their standing in terms of public debt:

1. The report has suggested that there are multiple factors which have the ability to affect the trajectory taken by public debt levels in the region, including economic growth, primary balances, interest rates, inflation, exchange rates, and stock-flow adjustments. By gauging these factors, experts are able to get a handle on the public debt- to-GDP ratios in the Caribbean over the span of the previous decade with reasonable accuracy.

2. Sustained primary fiscal surpluses in the case of Jamaica and the recent explosive economic growth in the case of Guyana, as well as major institutional reforms, have shown the ability to cause significant reductions in the public debt-to-GDP ratio of a nation. Multiple nations in the Caribbean have also made use of debt reconstruction as a viable option to initiated debt reduction.

3. The policies that are put into place by the governments of these nations also have a profound effect on the levels of public debt. Since the government of a nation exercises direct control over primary balances and borrowing, they have the ability to raise revenues and decrease expenditures when public debt levels rise to counter it.

4. It is important for nations to engage in the task of bolstering institutions and offices which engage in debt management, thus giving them the ability to reduce the chances of debt distress in any particular sector of the market.

5. A strong medium-term fiscal framework, supported by responsible fiscal polices is a must to achieve safe levels of public debt.

The General Manager for IDB’s Caribbean Country Department, Anton Edmunds, stated the following, “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 the prospects for future investment and economic growth.”