The world is watching the political and economic turmoil facing Sri Lanka, with many economist raising the spectre that other countries may be facing the same economic turbulence, compounded by inflation and debt burden woes.
To look at the magnitude of St. Vincent and the Grenadines (SVG) debt burden, we can make a comparison with Sri Lanka, which is in the throes of its worst economic period since independence in 1948.
Sri Lanka has an area of 25,330 square miles and a population of 22 million people. It has a nominal GDP of US$84.5 billion and a GDP per capita of US$3,830.
Tourism is the third leading revenue earner, after remittances and the apparel industry. According to Reuters, in 2018, tourism provided US$ 4.4 billion in earnings to the Sri Lankan economy and contributed 5.6% to the nation’s GDP, but this estimate came down to a paltry 0.8% in 2020, the year when the COVID-19 pandemic began to wreak havoc across the world. However, the cultivation of tea is also one of the country’s largest tangible export, generating US$1.2 billion before the pandemic.
Sri Lanka has debts of around US$51 billion but, recently, it has been unable to service such debts. Furthermore, a shortage of foreign exchange means the country cannot import oil, medicines and other essential commodities.
The predicament facing Sri Lanka stems from the decline in tourism arrivals and revenue as a result of the COVID-19 pandemic. Furthermore, the 2019 Easter Sunday Bombings marked the beginning of the collapse of this industry. In addition, the government’s policy to switch to organic farming has left farmers without fertiliser, resulting in a decline in agricultural output and exports, exacerbating its ability to generate much needed foreign exchange.
The foreign exchange shortage has forced the government to seek a financial bailout from the International Monetary Fund, despite the generous financial assistance that India its closest and most powerful neighbour — has provided. India has provided over US$3 billion in credit facilities.
On the other hand, SVG has a population of just over 100,000, according to the 2021 population census. The GDP is estimated to be US$864 million, with a GDP per capita of US$7,862. The country’s economy is highly dependent on tourism, with a sprinkling of agricultural exports.
The national debt of SVG stood at over EC$2,083,671,265 or around US$672 million in 2021,with interest payment amounting to some EC$143 million annually.
The total domestic debt amounted to EC$525.4 million, as at the end of September 2021.The external debt for the same period stood at EC$1.56 billion.
The national debt of the island would further increase with monies borrowed to construct the new port in Kingstown, to the tune of EC$600 million, despite Britain contributing around US$57 million.
The question then: Is SVG debt sustainable? Recently, an article published by the International Monetary Fund labelled SVG as one of several countries whose debt may be facing distress level.
St. Vincent and the Grenadines debt to GDP ratio stands at around 98%, according to some estimates, which means that for each dollar of goods and service generated, a significant portion goes towards servicing the national debt. If you were to take Sri Lanka’s national debt and divide it by the population, each person would owe US$2,272. In the case of SVG, it would be around US$6,109.
SVG may not be facing a foreign exchange problem like Sri Lanka because we are part of a currency union with other nations in the Organisation of Eastern Caribbean States.
According to the World Bank and the International Monetary Fund (IMF), SVG is classified as a middle income nation, which makes it difficult for the nation to get a debt write off from the Paris Club of Nations. So what is the way forward?
The high debt burden of SVG can only translate into higher taxes and a freeze on public sector salaries.
Given the high debt to GDP ratio, the cost of borrowing may get more expensive. Moreover, SVG cannot afford to default on its debt repayment because it will make it much more difficult to borrow from lending institutions.
Where would this high debt burden lead us? Only time will tell!
The opinions presented in this content belong to the author and may not necessarily reflect the perspectives or editorial stance of iWitness News. Opinion pieces can be submitted to [email protected].