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DROWNING IN DEBT
At the CARICOM Heads of State Conference which is underway, several leaders of the region are extremely concerned about the fact that the countries of the Caribbean, including Guyana, are suffering from the vulnerability of climate change.
They are also facing difficulties in developing their economies, creating jobs and improving the well-being of the masses. Not to mention that their high public debt, which on average totals about 70 percent of the region’s Gross Domestic Product (GDP) is severely hampering sustainable development in the area.
The CARICOM countries which are considered to be small developing nations have recorded public debt on average at over 80 percent of their GDP in the last decade. Globally, debt to GDP ratio of small states is averaging 64.3 percent. However, those in the Pacific have recorded much lower public debt ratios of 33 percent of GDP, and most other developing nations around the world also have a lower debt ratio than those in the Caribbean. This means that Guyana and the rest of the CARICOM states are drowning in debt, and this has been a major problem for their development.
A number of leaders have seen the need to reduce the debt in their respective countries and have called on donor countries to pardon part of the region’s debt in exchange for the creation of a special fund to finance climate change adaptation efforts. This issue should be given priority at the conference.
The huge debt is limiting the region’s fiscal space. This is compounded by the fact that their Gross Domestic Product has declined while spending and the cost to service the debt have increased significantly. These factors make access to overseas development assistance near impossible.
The 15 CARICOM member-states have a total public debt of over US$50 billion dollars. This is between 76 percent and 130 percent of their GDP which is unsustainable because it is far above the limits for sustainable development in these countries.
The debt level of a country is considered unsustainable if debt-to GDP ratio levels are above 60 percent. This underscores the fact that the high debt burdens reflect the economic vulnerabilities of these countries which have become a hindrance to their socio-economic development.
Natural disasters such as hurricanes, earthquakes, floods and droughts have damaged the infrastructure of many countries in the region. For example, it is estimated that between 2000 and 2014 natural disasters have caused damage in the amount of at least US$27 billion dollars in the Caribbean. In addition to the high cost of servicing their loans, many CARICOM governments are forced to create more debt by borrowing to rebuild their infrastructure damaged by natural disasters.
There are several countries in the Caribbean in which the total debt service as a percentage of total government revenue is over 40 percent. The last two decades have been marked by an escalation of borrowing in most CARICOM countries. This has increased their debt substantially as well as the cost to service it. The increase in debt has made it much harder for these countries to attract foreign investors or to borrow for development.
The leaders of the region should propose a framework to reduce their external debt through the creation of a regional fund to finance climate change adaptation and mitigation measures to protect the environment. This can be achieved with the help of the multilateral financial institutions and the lender countries swapping the region’s debt for the climate change adaptation measures.
The goal is for the beneficiary CARICOM countries to commit to allotting the resources that they may save on the debt swap to the climate change fund.
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