Public Sector Debt in the Caribbean: An Agenda for Reduction and Sustainability

Abstract

Since the late 1990s, with comparatively low and stable inflation, relative political stability and the deepening of local and regional financial markets, Caribbean governments have largely had easy access to financial resources. Increased access to international capital markets and deepening domestic financial markets encouraged international and domestic borrowing and led to a virtual doubling of average national public debt in the Region since the mid-1990s. This steady debt accumulation has placed Caribbean countries among the most highly indebted middle-income countries in the world. At the end of 2010,1/6th of the 10 most highly indebted countries were from the Caribbean, while four countries – St. Kitts and Nevis, Jamaica, Barbados and Grenada – ranked among the top five. All six countries had public debt levels in excess of 80 percent (%) of Gross Domestic Product (GDP).Among non-Eastern Caribbean Currency Union (ECCU) countries, Suriname and Trinidad and Tobago, both predominantly mineral exporters, were the only Caribbean countries that have maintained relatively moderate levels of public debt at or below 40% of GDP for most of the decade. Guyana and Haiti have maintained modest debt levels only since benefiting from substantial debt relief under the Highly Indebted Poor Country (HIPC) and Multilateral Debt Relief Initiatives (MDRI) in 2008-09. Jamaica has had chronically high levels of public debt for more than three decades, while Barbados has witnessed a rapid build-up in its debt since the late 1990s. These trends raise important questions for the Caribbean region. How detrimental is the debt problem in the Caribbean? What has been the nature and extent of the debt experience? What are the drivers of debt accumulation in the Region? What are the characteristics of the Caribbean that explain its propensity to indebtedness? What are the prospects for debt levels in the Region? These questions are answered in this report.