Economic downgrade affecting loan financing
Recent economic downgrades have affected Barbados’ ability to attract concessionary loans on the international market.
In fact, speaking in parliament today Minister of Finance Chris Sinckler said that were it not for partners such as the Development Bank of Latin America (CAF), the island would be forced to borrow at premium price.
Leading off discussion on the Loans ( Latin American Development Bank) Bill, 2015, which seeks to remove all legal impediments to accessing the CAF funds, Sinckler pointed out that Government was in the final stage of accessing loans from the Development Bank of Latin America instead of tapping in to other sources, whose interest rates are said to be as high as seven per cent.
“Due to the stringent circumstances Barbados encountered post 2008/2009 global recession, the financial capital markets have not been the most accommodating to small vulnerable economies such as Barbados in relation to access of financing at reasonable cost,” Sinckler admitted.
“This has been compounded because we no longer enjoy the status of having investment grade. So when we want to go to market to tap financing for the development of the country we do so at a premium. We pay because of these circumstances,” he said.
However, he stressed that even in the midst of these difficulties Government could not “put pause” to the island’s development.
“What we have to do as a Government is to be more judicious and circumspect as to where we source our financing and at what terms. We have in pursuit of our developmental objectives to find alternative sources of finance that are reasonable in terms and conditions attached thereto. The Development of Latin American Bank (CAF) provided another option to access loans at low cost to carry on development of the country,” Sinckler explained.
He said the financing afforded by CAF would go to specific projects “that build up our infrastructure that improve our capacity.
“Even though we have not yet gone to Cabinet with the final list of projects that we would want Cabinet to support us in, we have been looking at a number of areas such as water management, physical infrastructure in relation to the road network. We would also been looking at both of our ports through which hundreds of thousands of visitors and Barbadians pass,” Sinckler said.
The Minister of Finance also assured parliament that borrowing from CAF will be at low rates.
Last December, Sinckler told the Lower House that CAF operates like a credit union giving concessional loans at just under three per cent interest.
He was at the time seeking parliamentary approval of a US$25 million loan from the FirstCitizens Bank, a part payment of the US$50 million to satisfy the requirements of membership of the Development Bank of Latin America (CAF)
He also said then that, as category C member of CAF, Barbados will be able to access up to US$200 million for local projects and US$400 million for regional projects.