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The Challenge of High Debt and Growth in the Caribbean

The Challenge of High Debt and Growth in the Caribbean. Nita Thacker Presentation for the Caribbean Growth Forum June 18, 2012 Western Hemisphere Department International Monetary Fund. Outline. What is the current picture of debt in the Caribbean?

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The Challenge of High Debt and Growth in the Caribbean

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  1. The Challenge of High Debt and Growth in the Caribbean Nita Thacker Presentation for the Caribbean Growth Forum June 18, 2012 Western Hemisphere Department International Monetary Fund

  2. Outline • What is the current picture of debt in the Caribbean? • What has led to the accumulation of debt stocks? • What has helped sustain high debt stocks over time? • What is the effect of high debt (i.e., on growth)? • What can be done?

  3. Growth in the Caribbean has been lower than in other countries

  4. Caribbean countries have lost ground since the1990s, with the exception of commodity exporters

  5. Public Sector Debt in the Caribbean is among the highest

  6. The global crisis has led to a rise in debt in most countries

  7. Over a longer period, primary deficits and interest costs are the main reason for debt accumulation In the ECCU, large fiscal deficits and interest bills have contributed to debt accumulation, magnified by off-balance sheet events. In the rest of the Caribbean, the impact of heavy interest bills dominates as a key contributor, followed by that of ad-hoc events...

  8. High debt levels have been financed by domestic sources Most often, domestic debt concentrates on securities, with some countries relying heavily on loans and overdrafts.

  9. Growth has been weaker in countries with higher debt levels..

  10. Non-linear effects of Public Debt on Growth

  11. High levels of debt have meant revenues have to be diverted to debt service payments Debt Service Ratios (percent of revenues)

  12. Past debt relief episodes have yielded mixed results Total Public Sector Debt (percent of GDP) Debt Service (percent of GDP) 1/Debt ratios for Antigua and Jamaica include projections. For comparison reasons with the old debt ratios, 2011 debt ratios for Dominica and Grenada use an estimation of the non-rebased nominal GDP. 1/ For Antigua and Jamaica debt service includes projections and t (before DS) refers to the year before debt restructuring.

  13. Reducing debt can be good for growth Real GDP growth has tended to be higher in periods of declining debt Real per Capita GDP Growth During Periods of Rising and Falling Debt, 1970–2007

  14. Reducing debt has a positive impact on growth, and the inverse is also true

  15. Looking ahead • Fiscal consolidation • Debt restructuring • Lengthen maturity and lower interest cost • Debt-equity swaps • Debt-land swaps • Private sector led growth

  16. Thank you!

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