The Inter-American Development Bank (IDB) is urging regional governments to continue on the path of prudent debt management given uncertain global risks.

The IDB, in a newly released report, finds that the public debt load in the Caribbean has fallen sharply to near pre-pandemic levels.

The Washington DC-based multilateral revealed that the average debt-to-GDP ratio rose from 75 per cent in 2019 to 99 per cent in 2020 and is estimated to have fallen to 77 per cent at the end of 2023.

The sharpest public debt declines were observed in Guyana between 2020 and 2022, and in Jamaica between 2010 and 2019. 

Titled ‘Dealing with Debt in the Caribbean‘, the report forms part of the Caribbean Economics Quarterly series and explores the economic realities caused by the most recent pandemic and the pathways towards “safe” levels of public debt for a sustained economic recovery.

The publication analyses public debt trajectories and policy perspectives, among others. It looks at debt management in The Bahamas, Barbados, Guyana, Jamaica, Suriname, and Trinidad and Tobago.

Main findings include:

1. Several channels can influence public debt trajectories—interest rates, inflation, exchange rates, economic growth, primary balances and stock-flow adjustments. All these elements have played a role in the evolution of public debt- to-GDP ratios in Caribbean countries over the last decade, but to varying degrees depending on the specific country circumstances.
2. There are examples of large reductions in public debt-to-GDP ratios via a combination of institutional reforms and sustained primary fiscal surpluses (Jamaica) or more recent explosive economic growth (Guyana). Debt restructuring has also played an important role in reducing debt ratios in several countries.
3. Caribbean public debt is “weakly” sustainable. Governments have a direct influence over primary balances and borrowing, so public debt is referred to in the literature as “weakly” sustainable when primary balances move in tandem with public debt. In other words, governments engage in a fiscal response by raising revenues and/or decreasing expenditures whenever public debt increases, thus reversing the trend. 
4. Institutional strengthening of debt management offices can play an important role in reducing risks of debt distress for a given level of indebtedness. 
5. The attainment of a prudent, or “safe,” level of public debt requires a strong medium-term fiscal framework, often supported by fiscal rules.

“Governments across the Caribbean are lowering their debt-to-GDP ratios and strengthening their fiscal and debt management institutions to sustain these efforts,” said Anton Edmunds, general manager for the IDB’s Caribbean country department.

“Lowering the risk from excessive levels of public debt is a key condition for improving the prospects for future investment and economic growth,” he added.