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Caribbean Development Trends

A New Year’s Fiscal Resolution:  Deal with Debt in the Caribbean 

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Caribbean economies have recovered from the pandemic-induced recession, but one legacy that lingers is public debt accumulation.  This was an inevitable consequence of the sharp economic decline and social needs created by the pandemic, and with the recovery, progress has been made in lowering the burden of public debt.  Yet, average debt levels remain elevated, and changing economic circumstances pose challenges and opportunities for managing sovereign debt.  The latest edition of the IDB’s Caribbean Economics Quarterly (December 2023) highlights these themes for the region.  

In this blogpost, we highlight the key findings of the report. 

Understanding the context

During the COVID-19 pandemic, governments around the world borrowed more. The pandemic generated costs to public health systems to treat those infected with COVID-19 and provide vaccinations to combat its spread. Restrictions on mobility led to economic recessions that contributed to declines in government revenues. Economic recessions caused a rise in unemployment and had other social impacts that required a response in the form of increased government expenditures. Higher spending combined with lower revenues implied that government deficits increased, and governments borrowed to finance those deficits.

Economists often measure the burden of public debt, in relative terms, as the ratio of public debt to gross domestic product (GDP).  Economic resources, as measured by GDP, need to be taxed to raise revenues for paying debt service alongside general government expenditures.

Several channels can influence the trajectory of the public debt to GDP ratio: interest rates, inflation, exchange rates, economic growth and primary balances, among others. All these have played a role in the Caribbean over the last decade, but to varying degrees depending on the specific country context.

For this report, the economics of the Caribbean Department of the IDB analyzed how these factors have contributed to government debt in recent decades.  Figure 1 below shows the results of this historical analysis.

Key findings

Key findings from the analysis of both this Regional Overview and the country sections of this edition of the Caribbean Economics Quarterly are as follows:

  • The economic context for reducing debt-to-GDP ratios is changing, since economic growth rates are declining to long-term averages following the robust recovery, and interest rates have risen internationally.
  • 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.
  • 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. Recent research indicates that Caribbean public debt is “weakly” sustainable.
  • Recent research also indicates that half of Caribbean countries’ public debt-to-GDP levels are above the maximum “safe” debt limits, as calculated in the IDB’s 2023 Flagship Development in the Americas Report: Dealing with Debt: Less Risk for More Growth in Latin America and the Caribbean.  Caribbean countries are addressing this challenge through fiscal, macroeconomic and institutional reforms, as noted in both reports.
  • Institutional strengthening of Debt Management Offices (DMOs) can play an important role in reducing risks of debt distress for a given level of indebtedness. The World Bank’s Debt Management Performance Assessment Methodology (DeMPA) provides guidance on the key features of strong DMOs.
  • The attainment of a prudent, or “safe,” level of public debt requires a strong medium-term fiscal framework, often supported by fiscal rules.

The Caribbean Economics Quarterly provides a regional overview chapter as well as country chapters that delve into country level details of the six countries of the IDB’s Caribbean Country Department—The Bahamas, Barbados, Guyana, Jamaica, Suriname and Trinidad and Tobago.


David Rosenblatt

David Rosenblatt is the Regional Economic Adviser for the Caribbean Country Department at the Inter-American Development Bank (IDB). Prior to this position, David worked for 27 years at the World Bank, where he divided his career between assignments in the Latin America and Caribbean region and the World Bank Chief Economist’s office. David holds a Ph.D. in Economics from the University of California, Berkeley.

Khamal Clayton

Khamal Clayton is an Economics Consultant with the Inter-American Development Bank in Washington, DC. Khamal is a part of the Caribbean Economics Team (CET), providing support in the creation of research and policy products. He previously worked as a Research Analyst at the International Monetary Fund and the World Bank, and was a Business Analyst at BlackRock, Inc. Khamal has a Bachelor’s degree in in Economics-Mathematics with a concentration in Latin American and Caribbean Studies from Columbia University, and a Master’s degree in International Economics and International Relations with a focus on International Development from the Johns Hopkins University School of Advanced International Studies (SAIS).

Henry Mooney

Henry Mooney serves as Economics Advisor with The Inter-American Development Bank (IDB). He previously worked with investment bank Morgan Stanley in London, The International Monetary Fund (IMF), The World Bank, and The Government of Canada, including on dozens of advanced and emerging market economies in Africa, Asia, Europe, Central Asia, Latin America and the Caribbean. Henry's responsibilities have included leading regional economic research and publications, serving as mission chief/team leader or team member for technical assistance focused on sovereign debt issuance, debt restructuring, market development, and public financial management, as well as producing forecasts in the context of adjustment programs and surveillance. He has also worked extensively on issues related to monetary policy, financial stability, regulation and supervision, financial access and inclusion, and his research has been published in a number of books, journals and appeared in the media (e.g., The Economist, The New York Times, Reuters, The Wall Street Journal, and many others). Henry currently serves as a member of The Atlantic Council's Financial Inclusion Task Force, Jamaica's Economic Policy Committee, as well as The IDB's Diversity and Inclusion Advisory Group and the Board of The IDB’s Afro-Descendant Alliance. He is a dual Brazilian and Canadian citizen, who completed his studies in economics and finance at Concordia University (BA), The London School of Economics (MSc), The University of London (PhD), and Harvard University (MPA).

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