National debt situation unsustainable – economist

Antigua and Barbuda has found itself in an unsustainable debt situation with the recently presented national budget showing no way out of the cycle, according to one regional economist.
Prime Minister Gaston Browne outlined a $1.2 billion package that included a $448 million funding shortfall which he proposed to make up partially through borrowing more money.
Dr. Thomson Fontaine, an economist formerly with the IMF, was a guest on OBSERVER media’s Big Issues, during the weekend, where he acknowledged that the government was trying to deal with Barbuda’s reconstruction and stabilise the economy under a “tremendous debt overhang.”
“One thing is clear, that is there must be a way to increase the level of government finances. This budget is being heavily debt-financed.
“When I look at the numbers for example, some 30 percent of recurring spending is going to go into principal debt repayment and at the same time the government is proposing to cover the financing gap through further financing,” Dr. Fontaine said.
Prime Minister Gaston Browne had said during his presentation that the government will need to raise more than $448 million – in addition to the $877 million in projected revenue – to pay the principal on outstanding loans and meet its expenditures for 2018.
The bulk of that, some $363 million, is principal loan payments.
“This funding gap for 2018 is approximately 57 percent greater than the $285.3 million projected in 2017 and is driven by the additional expenditure required to rebuild Barbuda and to improve infrastructure on both islands,” the PM said.
In order to make up the shortfall, Browne said that they will raise some $207 million from securities issued on the Regional Government Securities Exchange and the issuance of a Diaspora Bond.
Another $241 million is to be raised through loans and advances.
“That could be problematic, and one of the reasons is because there is simply not enough room on the finance side which is where the government probably should be looking at,” Dr. Fontaine said.
According to him, the government should be looking at ways to increase efficiency in tax collection and widening the tax base because the current level of debt financing is unsustainable.
“One of the things I also noticed is where you have growth, an economy that has been growing on average of 4.5 percent over the past three years, but it has not been matched by an increase in tax revenues and that should be of some worry to the government,” Dr. Fontaine stated.
(More in today’s Daily Observer)