As of the end of 2020 every Barbadian owed USD $23,170 dollars or $46,340 Barbados dollars to both internal (local) and external creditors. That is what the term “national debt of Barbados” practically means to each and every citizen in this country.
The technical name for the figure we have quoted is per capita national debt. Per capita means per person. In other words, your mother and father, brother, sister, uncle and neighbour each owes $46,340 Barbados dollars to local and foreign entities!
Per capita national debt is a figure obtained by dividing the total national debt owed by the country in any given year by the number of inhabitants of the country.
It follows that the total debt can be found by multiplying the per capita figure by the estimated population. The IMF has estimated the population of Barbados at 289,000. Doing the math we get a total debt of ($23,170 x 289,000) which is $ 6,696,130,000 or approximately 6.7 billion dollars.
That is US dollars; in Barbados dollars that is approximately $13.4 billion dollars.
This is the size of a billion dollars: $1,000,000,000. Therefore, it would take 10 million “Sir Grantleys” (Barbados $100 bills) to make one billion dollars.
On the other hand, a trillion dollars, which is a million million, is written as 1,000,000,000,000 that is, 1 and 12 zeros. You do the math to work out how many $100 would equal a trillion!
Point of Departure
Articles on the national debt in the so-called mainstream media in this country tend to simply regurgitate the explanations of economists. These explanations are usually couched in pure economic terms and are, therefore, well above the head of the average person or man-in-the-street.
This article beaks with that approach in that it attempts to explain our national debt and related economic matters in terms that the average person can easily understand.
Of necessity some things have to be simplified. It is expected, however, that the gain in understanding and clarity will more than compensate for the simplification employed.
It is also anticipated that readers will have a clearer understanding of some of the terms encountered in the economic news reports of the country.
Finally, as a result of this series of articles, we hope that the average person will have a better understanding of the extent to which he or she is “responsible” for that debt and what he or she can possibly do to reduce it and its impact.
Perspectives on National Debt
It important to distinguish between foreign debt and sovereign debt. Sovereign debt or national debt or public debt, as it is also called, is a government’s total debt liabilities to both domestic creditors and foreign creditors.
Foreign debt as the name suggests, is that amount owed to foreign creditors. For example, suppose a country has a sovereign or national debt of 500 million dollars. If 80 million is local debt then the remainder, 420 million is foreign debt.
However, different organizations e.g. Standard and Poor, IMF might use different components of debt in their analyses.
Every country in the world has a national debt. Obviously, some have more than others. Figure 1 shows the size of the debt of the ten largest debtors in the world.
These countries are some of the most developed countries in the world so some might be inclined to argue that debt and the associated borrowing are not really an issue.
It begins to matter when we relate the national debt to the citizens in the country. We do this by computing the debt per person or per capita national debt as we did for Barbados. Fig.2 shows the ten countries with the highest per capita debt.
Debt Service
All of what we have said so far may still seem remote and far removed. That is, until you ask the critical question: But how is this debt paid or serviced?
Since this debt is public debt, it means that the government of Barbados must pay it. The pertinent question therefore, is: from where does the government obtain the funds to pay the interest and principal on this debt?
Chances you already know part of the answer. It comes out of our taxes – for example, income tax, corporation tax, land tax, excise tax – and the fees for services such as registering as a professional engineer or paying for a driver’s licence etc.
Taxes and to a lesser extent, service fees, depend primarily on the level of employment and business activity. These activities generate personal and corporate income or revenue which is what government taxes to obtain the funds to pay public debt.
The total of all the “income” earned by the activities in a country is known as the Gross National Income (GNI) or Gross Domestic Product (GDP). These two terms do not mean exactly the same thing but both are aimed at determining the same point: how much a country earns.
In fact, there are several other related terms that are discussed in this context. The reader interested in technical details can do a search such as “GDP vs. GNI” or “national income terms”.
The salient point, however, is that logically, if GDP/GNI decreases the taxes collected by government will decrease and vice versa.
As you might expect, the covid-19 pandemic reduced GDP considerably thus reducing the amount of taxes and fees government could collect. Therefore, the Barbados government had to resort to borrowing to pay its debt thus worsening the vicious cycle of borrowing.
Ability to Pay: Debt to GDP
Since GDP is so critically connected to national debt, economists and other analysts often compare the national debt to GDP. As a parallel, you can think of GDP as your salary and national debt as the amount of debt you have.
Common sense suggests that if the salary you are working for is less than the debt you owe you are in trouble. The same principle applies to a country.
Therefore, one of the measures or ratios associated with national debt is the debt to GDP ratio. If the GDP is equal to the national debt, all other things being equal, you can meet your debt obligations and, therefore, you are “safe”.
The opposite – your GDP being less than your debt – means that technically you cannot pay your debts so you are definitely not so “safe”!
What economists and other analysts do is to divide the country’s debt by its GDP and express that as a percentage. This is called the debt to GDP ratio. In other words, it is a measure of the country’s ability to pay or service its debt.
For example, if the country’s debt is 500 million and its GDP is 400 million the Debt to GDP ratio is 125% (500/400 x 100). This means that the debt is 1.25 times the GDP. In other words, the country cannot meet it full debt obligation. Put another way, for every $100 of GDP the country has to pay out $125!
If, on the other hand, the country’s debt is 500 million and its GDP 800 million, the Debt to GDP ratio is 62.5% (500/800 x 100). This means that the debt is only 62.5% of GDP.
In other words, of every $100 of GDP or national Income, the country spends only $62.50 on debt leaving technically $37.50 for other purposes.
But not all the taxes and other revenue collected by government can be used to pay debt. In part 2 we will take up this matter and the implication for managing national debt.
In the meantime, we leave you with a summary of the key national debt indicators for Barbados for the period 2010 – 2020.
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Dr. Aldon Tull, the author, is a retired educator who holds a Master of Science in International Marketing and the Doctor of Education.
He can be reached at editor@barbadosuncensored.com at 246-228-3720 or on Whatsapp at 246-846-3191
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Why should the people be included in situations where money that has been used and not accounted for and whereby the people didnt sign any contracts to be included in whatever deals were being made.
Before the people are EXPECTED to pay back the National Debt, there are numerous off-shore accounts of public servants that need to be “ceased” as some of the corrupt practices that have gone unaccounted for in numerous years as this is unconscionable to put this debt on the people who are ALWAYS kept in the dark. Anything could have happened to $13.4 billion, the people didnt see ANY accounts of anything and therefore this is due to the BLP/DLP split the debt between the two parties – take away pensions and any other privileges to re-coup the debt.