Another Call For The Mottley Administration To Reduce Its Appetite For Borrowing!

For the past four years, economist Professor Michael Howard and I have written consistently about the implications of the Mottley administration’s excessive borrowing policy to support its runaway expenditure. 

In a previous article in which I predicted that the administration would enter a second programme with the International Monetary Fund (IMF), I noted the administration was engaging in a type of Ponzi scheme in the management of the country’s debt. Simply put, the administration was borrowing to help with the country’s debt repayment obligations. 

Despite the danger signs in the excessive borrowing policy and the publicly given advice to moderate the appetite for borrowing, the administration continued its ‘escalating expenditure and heavy borrowing’ policy during the second IMF supported Barbados Economic Recovery and Transformation (BERT) programme.

The proverbial chickens have come home to roost as the country exits the formal relationship with the IMF at the end of June and returns to the international capital market in search of urgently needed funds.

Recall that arising from the 2025-2026 Estimates, the public deficit was conservatively set at $1.15 billion. This figure increases when the net expenditure from this year’s Budget is considered and other policy and project specific loans are added. Also, following record debt servicing of $2.2 billion for the financial year 2024-2025, the projected debt service for the current financial year is $1.78 billion. Further, the projected stream of debt repayments for the financial years 2025-2026 through to 2029-2030 is $8.45 billion, an annual average of $1.69 billion.

These figures indicate that the country remains on a dangerous debt trajectory. Managing the debt situation is complicated by the following factors. First, the country’s credit rating status remains speculative or junk. Second, the country is still categorized as highly indebted, with a debt to (nominal) gross domestic product ratio in excess of 100 per cent which is the highest in the Caribbean. Third, the unwillingness of the administration to rein in expenditure and, hence, reduce the need for such excessive borrowing.

The first two factors will result in unavoidable borrowing by the administration attracting reasonably high interest rates as creditors in the international capital market move to protect themselves against the riskiness of lending to Barbados.

It is, therefore, an idle boast by the Prime Minister that the country garnered bids five times over what was being asked when three times the requested amount was considered successful. The real issue is not the amount financiers are willing to lend but, more importantly, the cost of the funds in the current precarious debt situation of the country.

The admission by the administration finally of the use of what amounts to a Ponzi scheme in its debt management strategy is not surprising to economists and others following issues related to the public debt.

There was a steep increase in borrowing during the BERT programmes. Borrowing increased from $427.96 million in the financial year 2018/2019 to $1.64 billion in 2024/2025. The figure is expected to increase further during the current financial year. It is informative to note that the increase in borrowing continued unabated during the post-pandemic period when gross domestic product and taxation revenue reached record levels.

The massive increase in borrowing was matched by similar increases in debt service obligations. Debt repayments between the financial years 2018-2019 and 2024-2025 increased from $484 million to a staggering $2.2 billion.

The harsh reality is that the administration has boxed the country in a corner through its economic management policies during the BERT programmes. It is atypical for a small developing economy to escalate expenditure and engage in excessive borrowing during IMF economic adjustment programmes which normally have a stabilization focus.

The policies of the administration have left the country heavily reliant on borrowing despite its continued speculative or junk credit rating and highly indebted status.

The recent issue of the US$500 million (BDS$1 billion) bond in the international market along with the initiative to raise $300 million on the local market ($200 million through Barbados Optional Saving Scheme (BOSS) bonds and $100 million through a US dollar denominated bond targeted at Barbadians with foreign currency bank accounts) are the front-loaded borrowing amounts during the current financial year. Given the size of the hole in the public finances and the need to secure funds for specific projects, there will be more borrowing during the financial year.

An interesting feature of the bonds for the local and foreign capital markets is the marked difference in their cost. While the debt issued in the international market is at 8 per cent, the locally issued bonds are at 4.5 per cent and 3 per cent, respectively. The simple question that emerges is why are the foreign investors demanding more than the local investors.

Alternatively, why does the administration have less negotiating strength when dealing with investors in the international market? The rational answer is the urgency in attracting the funds, and the speculative or junk credit rating and highly indebted status of the country render the negotiating position of the administration in the international market fairly weak.

Other reasons for the differential interest rates with the local and foreign bonds are the limited investment opportunities within the economy for domestic savings and the negligible interest rate paid on funds held in the local financial system.

The admission that the 8 per cent US$500 million bond issue will be used to retire lesser cost debt and make a $142 million debt payment to the IMF should be of grave concern to Barbadians. Such an approach to debt management in the name of liability management and smoothing debt payments is unsustainable and keeps the country immersed in a debt trap. Such a policy is indicative of a failed debt management strategy and should be discontinued as soon as practicable.

Written by Anthony P. Wood, Economist, and former Lecturer in Economics, Banking and Finance at the Cave Hill Campus of the University of the West Indies. He was also a Cabinet Minister in a previous Barbados Labour Party Administration.