The leader of our country, Prime Minister Barrow, dropped a comment at the recent Business Forum held at the Belize City Civic Center about a published paper he had read that doesn’t share the fear some economists have of heavy borrowing by governments. While no one of sound mind condemns borrowing, neither in the private or government context, countries that are carrying heavy debt burdens, like ours, are advised to step cautiously.
With three of Belize’s top foreign exchange earners down – sugar, citrus, and shrimp – we expect the Prime Minister to borrow heavily to prop up, cover shortfalls in the upcoming budget, which is slated to be presented to the nation in March.
Most financial experts agree that all systems are on go for a country with a debt to GDP ratio between 60% and 80% (debt to GDP ratio indicates the number of years a country would need to pay back its debt if the country’s GDP is dedicated entirely to paying it off). Such countries have no fear of borrowing. Most financial experts say that countries that are carrying a 90% to 100% debt to GDP ratio, as we are (the IMF estimated Belize’s debt to GDP ratio in 2018 at over 95%), should be stepping very lightly.
Belize was cautious about borrowing throughout its early existence, but between 1989 and 1993, under the PUP, we got a taste of what life could be like if we threw caution to the winds. We reverted to our old selves between 1993 and 1998, under a UDP government, but since a change in government in 1998, back to the PUP, we have been as fearless as a barracuda among sprat. Some might describe our lack of fear as reckless.
The PUP of 1998 to 2003, and then to 2008, argued that they inherited a dead economy, and so they had to do some major borrowing to kickstart it. The PUP manifesto for 1998-2003 called for the construction of thousands of houses, and new school buildings, and they borrowed heavily to import cement and steel to deliver on these promises. The PUP also borrowed heavily to rebuild sections of Belize after they were hit by hurricanes, and to defend our economy during a global recession brought on by the Americans going to war after they were attacked by commercial airplanes commandeered by Jihadist types from Arabia.
PUP borrowing was heavily criticized because they got a number of loans from private institutions, and they came at too high a price¯high interest rates and relatively short-term. It has been argued in some quarters that the PUP borrowed from private institutions because they wanted loans unfettered by the scrutiny, the conditions typically associated with the lower priced loans available from bilateral and multilateral lenders.
These high-interest loans with short repayment plans strained the economy. There was also the perception that corruption was rampant in certain quarters in that PUP government. These factors, a strained economy and corruption, led the people to turn them out of office, hand over the reins to a new UDP regime, in 2008.
The UDP government of 2008-2012 lamented over the heavy debt burden left by the previous government, and blamed it for every one of their failures. The bulk of these debts had been amalgamated into one loan by the PUP before they left office. The UDP government dubbed the combined debt a Super Bond, and despite their renegotiating it, mostly to spread the debt over a longer time period, thus reducing immediate demands on the economy, there has been no let up on their flogging it.
In every budget presentation since taking office, the UDP thrashes the debt the PUP governments of 1998-2003 and 2003-2008, left behind. We know what to expect in March.
The UDP, since taking over the reins of the country in 2008, have followed in the footsteps of the government that preceded them, except for what they have spent the loans on, and the terms of the loans they have taken. The UDP has borrowed heavily to purchase cement and steel, and asphalt, for building roads and roundabouts.
All the UDP loans have been on manageable terms, none more so than the PetroCaribe, a special loan program set up by the Bolivarian Republic of Venezuela, first under that country’s president, Hugo Chavez, and continuing under his successor, Nicolás Maduro.
A debt is a good thing if you get back more than you risked, and you are not overextended. Good economists say it is usually a good investment for an individual to take loans for their education, for a soundly built house in a safe neighborhood, or for a business that is showing promise.
All governments must borrow. A high debt to GDP ratio is a warning light, but it is not a constraint on government borrowing if the economy is churning along at a high clip. At the recent Business Forum the Prime Minister said the numbers are showing up. He told his audience that the picture is encouraging, with GDP growth “for 2018, more than doubling 2017’s 1.4%… and calculated by the Central Bank of Belize to be not less than 3%.”
The Prime Minister pointed to tourism as the stellar performer, and also noted that “Agricultural output also experienced growth of ten percent in 2018” over last year, earning 600 million, and the 2019 figures were showing up. He also noted that a “slew of non-traditional exports” were making “their way into various markets.” (quotes taken from Channel Five’s report of the PM’s speech at the Business Forum)
The Prime minister has obviously mastered the art of seeing a half-full glass when it is almost empty. Most people who follow the economic figures accept that the numbers are up in tourism, and climbing, but the big agro-industries are stumbling at about half steam, and the oil wells are drying up. These are far from the best of times where the macro numbers are concerned, and even when those are looking up they don’t translate to good times for people who are in the laboring class.
When your economy is not performing at its best, you usually have to pay a lot more to borrow money. But the sources the Prime Minister keeps tapping don’t pressure us with higher interest rates and fast repayment. The wonderful PetroCaribe is no longer available, but the Inter-American Development Bank (IDB), the Caribbean Development Bank (CDB), ROC Taiwan, the Kuwaiti Fund, and the European Union are still there and they all lend development capital at reasonable terms.
The Prime Minister continues to have an open field for borrowing. Belize shouldn’t complain as long as he keeps getting favorable terms. The money borrowed will be used to employ Belizeans who would otherwise be out of a job because of the low performance of our major agro-industries.
Unfortunately, these development loans are almost exclusively for the increase and improvement of national infrastructure. Belize isn’t getting any soft loans to retool the displaced youth so they can get to share in the economy, no soft loans to support our artists and our cottage industries.
We imported a lot of cement and steel to make sports stadiums, and almost all those projects are sound investments; however the athletes who are performing in these state of the art auditoriums and stadiums are performing for little remuneration. There is little investment in our youth so they can become more competitive.
The present government can’t say that the stress of the “Super Bond” has undermined our capacity to access loans for these purposes. The fact of the spending of the PetroCaribe, which amounted to over BZ$400 million, disproves that. The UDP government under Prime Minister Dean Barrow used the bulk of that to import cement and steel.
No, it isn’t likely that Belize will be getting any soft loans to help us get into light manufacturing. Thus wholesome potatoes will be rotting in the fields while we survive on noodles.