On the spice isle of Grenada, a sea of 100,000 souls has been ringing with an ungodly phrase recently: debt restructuring. Ever since the government of Grenada defaulted on its dollar bonds in March, the clergy have called for a write-off of two-thirds of its debt, using the term “jubilee” in its Christian sense, meaning a one-off forgiveness of sins. Church leaders of different denominations who sit on a debt committee with government ministers met with the International Monetary Fund (IMF) last month. Prime minister Keith Mitchell recently thanked them for their support and quoted the Book of Matthew to explain the need for austerity measures.
Why has debt relief risen so high on the heavenly agenda? Like many islands in the Caribbean, Grenada’s finances are in an unholy mess, and poverty is at an all time high. Most countries in the region were hit by a collapse in tourism after the financial crisis in 2008-09. As governments tried to spend their way out of stagnation, deficits rose to unprecedented highs.
The IMF calculates that public debt in the region averaged 70% of GDP in 2012, and current-account deficits are a staggering 23%.
Meanwhile, growth has been negligible or negative of late. In Grenada, the economy shrank by 1.2% a year on average between 2008 and 2012. “A lot of the Caribbean countries are stuck in a classic debt trap,” says Carl Ross of Oppenheimer, a securities firm. “They need to cut government spending, but that further reduces already low levels of GDP growth.” Like heavily indebted countries in the euro zone, he adds, several Caribbean states have joined a currency union, and so cannot devalue to boost exports and tourism.
This has resulted in a string of sovereign defaults in the region since 2010, Antigua and Barbuda, Belize, Jamaica and St Kitts and Nevis as well as Grenada. Despite debt restructurings, Jamaica and St Kitts and Nevis still have government debt of more than 1.4 times GDP. Investors’ appetite for more Caribbean debt is uncertain: Barbados recently abandoned an attempt to raise $500m in international markets. Indeed, there is much to pray for.