Most of the fifteen (15) countries making up CARICOM land somewhere between highly indebted and critically indebted states on the IMF Index, except one. The islands cover a total landmass…
THE CARIBBEAN DEBT CRISIS
Most of the fifteen (15) countries making up CARICOM land somewhere between highly indebted and critically indebted states on the IMF Index, except one. The islands cover a total landmass of 462,904km2 and have a population of approximately 18,599,442 citizens. Some of the main exports of Caribbean SIDS are commodities, financial services and tourism (IMF, 2018). The islands have innumerable traits, and challenges, in common. Examples are culture, climate … debt.
Over the last three (3) decades, the Caribbean region had been plagued with rising sovereign debts due to compound borrowing caused by economic downturns such as the loss of the UK market for our bananas, and being struck by natural disasters. Although the debt situation in the Caribbean is improving, in most countries, there is still a lot that has to be done to achieve debt sustainability.
Debt is considered sustainable or unsustainable depending on the ratio of internal to external debt, as well as the percentage of GDP that the debt is total. Both the IMF and Eastern Caribbean Central Bank agree that debt is considered “sustainable” once it remains below the 60:1 debt-to-GDP ratio. So far, (as of 2018) the only country, which has managed to achieve this feat of 60% or less, is St. Kitts and Nevis. Grenada is close to that target and will achieve this milestone, once current polices and procedures are maintained and the country is not hit by any natural disasters. In 2016, Grenada underwent a massive debt restructuring, following an IMF-approved homegrown program, which yielded great results. Three years later, the results are evident, debt to GDP decreased from 108% to now 62.7%.
Barbados, on the other hand is in the middle of financial restructuring after a period of exorbitant sovereign debt, reaching a high of 157.1% debt to GDP ratio in 2018 (Caribbean Development Bank, 2018). After undertaking an intense restructuring, the new debt-to-GDP ratio is in the 120% region.
The Caribbean is an area that has been afflicted with high debt and environmental risks for decades. As Jorge Moreira da Silva stated in his 2017 article, the effects of Hurricanes Irma and Maria showed exactly how unfavorable the climate is to Caribbean islands. After Maria, Dominica sustained damages of up to 266% of its GDP, while Barbuda was totally destroyed by Irma and had to be evacuated. Both hurricanes left billions of dollars of damage in their wake. Despite the destruction of Barbuda, the island’s US$3M debt to the International Monetary Fund was denied a moratorium. The work of Jubilee Caribbean will ensure that countries in the region will not have to forsake our own people because bills are due.