Former Prime Minister Ralph Gonsalves has mounted a robust defense of the national debt incurred during his administration, classifying the borrowing for major infrastructure projects as essential “good debt” that has spurred national development.
Speaking out against the current New Democratic Party (NDP) administration, Gonsalves warned that aligning with an International Monetary Fund (IMF) austerity program threatens to stifle the country’s economic progress and penalize the working and middle classes.
The Case for “Good Debt” and Major Infrastructure Gonsalves pushed back against critics fixated on the nation’s 113% debt-to-GDP ratio, emphasizing that the debt is backed by substantial, revenue-generating assets.
He pointed specifically to the Argyle International Airport (AIA), which initially cost $750 million but has seen its debt reduced to roughly $170 million through various mechanisms, including Venezuelan debt relief. Without this borrowing, Gonsalves argued, St. Vincent and the Grenadines would not have secured an international airport, major hotel investments like Sandals, and the resulting boost in jobs and revenue.
Other major projects defended by Gonsalves include:
- The $700 million port project, funded by the Caribbean Development Bank (CDB) and Taiwan.
- $40 million for vital sea defenses in Sandy Bay, which he noted saved the village from being washed away.
- Major bridges constructed north of the dry river under a World Bank program.
- Nearly $40 million invested in the Arnos Vale sporting facility, which Gonsalves noted directly enabled the country to host international cricket events like the T20 World Cup and the Caribbean Premier League (CPL).
Gonsalves asserted that avoiding these debts would have meant sacrificing the nation’s development, stating plainly, “you could not not have any of those things,” and noting that this public investment “crowds in” private sector money and creates vital construction jobs.
Gonsalves highlighted the highly favorable terms of the external debt. Approximately 79% of the country’s debt is held by multilateral creditors like the World Bank and the CDB at extremely low interest rates, which he characterized as manageable and highly beneficial. For example, he noted that the bulk of the $774 million owed to the World Bank carries an interest rate of just 0.75% over 45 years, while the CDB loans average around 3% over more than two decades.
While the 2.5 billion external debt requires only 16.5% of current revenue to service, the domestic debt of roughly $993 million consumes 25.2% of revenue. Despite this reality, he criticized the NDP government for seeking to increase expensive domestic borrowing by another $200 million while allegedly abandoning cheaper, 2% international funding options from the Saudi fund.
Gonsalves heavily criticized the IMF and the current NDP administration for focusing too narrowly on the debt-to-GDP ratio a metric he argued is flawed, lacks correlation with actual balance-of-payments crises, and ignores the strength of the country’s external accounts.
He warned that the IMF’s recommended “ambitious fiscal consolidation” is an austerity trap. Implementing severe spending cuts, he argued, will ultimately shrink the economy, reduce national output, and ironically cause the debt-to-GDP ratio to increase even further.
Finally, Gonsalves cautioned the public that the current government’s fiscal mismanagement might lead them to sell off the very state assets his administration built, warning that entities like the port, the airport, VINLEC, and the state’s 63% share in the Bank of St. Vincent and the Grenadines could be privatized at knockdown prices.