Most of the 13 small states in the Caribbean region have been gripped by a silent debt crisis since 2000, experiencing stagnant growth and near-continuous unsustainable levels of public debt. Despite extensive fiscal adjustment, together with a series of debt restructurings, public debt levels remained unsustainable in 10 countries in 2015. Projections for future debt sustainability are also bleak. By 2020, debt will remain unsustainable in 11 of 13 Caribbean small states. Among small states, the prevalence of unsustainable debt is also becoming a largely Caribbean problem: in 2020, nearly three-quarters of all small states with unsustainable debt levels will be Caribbean countries. Taken together, these findings make a compelling special case for resolving unsustainable debt in Caribbean small states. In the absence of a new dynamic, there is a real prospect that, in dealing with unsustainable debt, these countries will have lost the first three decades of the twenty-first century, and foregone opportunities for poverty reduction, transformation and growth. New initiatives and momentum are needed in these countries, to reduce debt to sustainable levels and to establish more supportive international mechanisms to help maintain debt sustainability once it is achieved. Despite enormous complexity, these are achievable goals. But they require a new strategic approach, including much closer collaboration among highly indebted Caribbean small states, international development partners, including multilateral institutions, and, given the heterogeneity of debt, a menu of innovative financing and policy options. Ten options are proposed in this paper, together with some key actions, as a foundation for developing a new approach to resolving unsustainable Caribbean debt.
Pathways through the Silent Crisis: Innovations to Resolve Unsustainable Caribbean Public Debt
CIGI Paper No. 125