Debt double whammy
Natural disasters weigh heavily on Caribbean gov’ts’ arrears – Leon
Published:Tuesday | November 1, 2022 | 12:09 AM
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Much of the debt accumulated by Caribbean governments should not be blamed on poor economic management but on external shocks like natural disasters, Caribbean Development Bank (CDB) President Dr Gene Leon has said. Leon indicated that increased...
Much of the debt accumulated by Caribbean governments should not be blamed on poor economic management but on external shocks like natural disasters, Caribbean Development Bank (CDB) President Dr Gene Leon has said.
Leon indicated that increased debt, at times, results from impacts beyond the control of governments.
The CDB head suggested that a study be commissioned to ascertain what percentage of debt held by regional governments was attributable to the impacts of natural hazards such as hurricanes.
“The mistake we make and we fall into a number of times is that countries in the region have high debt ratios because of policy laxity or inappropriate policy,” said Leon in a Gleaner interview.
However, the CDB president noted that he was not suggesting that governments in the region had not introduced bad policies which resulted in a surge in their debts.
“There is adequate room to argue that a lot of the debt that we face now is not necessarily because governments have done a poor job at managing, but because of impacts outside of the control of governments that have forced them to accumulate debt,” he insisted.
“When the hurricane comes and washes away a country’s entire infrastructure – the roads and bridges – it does not wash away the debt that was raised to build that very road and bridge that was washed away,” Leon reasoned.
He said that a country impacted by such a weather event would have to borrow more to be able to rebuild that bridge and restore the roadway damaged by the storm.
He said that when a hurricane causes major damage to a country’s infrastructure, it results in a significant loss in the gross domestic product (GDP).
“You have a double whammy coming from the need to increase debt to be able to rebuild. Therefore, my debt goes up, but my GDP is going to take time, having fallen, to get back to where it was.”
Leon said that COVID-19 was also responsible for an increase in the debt ratio of some countries across the region over a two-year period.
A seasoned economist and former senior executive at the International Monetary Fund, Leon explained that debt is not something that exists during a short period, but that it is an accumulation of various shortages where a country’s expenditure needs are greater than its revenue potential.