Senior Reporter
andrea.perez-sobers@guardian.co.tt
The Government’s latest US$800 million sovereign bond may have attracted overwhelming investor demand, but economists are warning that the more important story is the growing cost of borrowing and the long-term burden the debt could place on the country’s finances.
Economist Dr Jamelia Harris said the bond’s reported 400 per cent oversubscription should not distract from the fact that this country is paying significantly more to borrow than it did a decade ago.
“The demand for a bond is important, but even more important is the returns investors are asking for, that is, the price of the bond,” Harris said.
She noted that the Government issued a US$1 billion ten-year bond in 2016 at a coupon rate of 4.5 per cent and another US$500 million ten-year bond in 2020 at the same rate. By comparison, a US$750 million bond issued in 2024 carried a 6.40 per cent coupon, while a US$1 billion issue in January this year was priced at 6.5 per cent. The latest US$800 million 12-year bond carries a 6.20 per cent coupon.
“An immediate observation is that the cost of debt has been increasing over time. This is particularly important for the amount of interest that will be paid on these loans. It means that debt that cost us 4.5 per cent in interest in 2016 is now costing 6.5 per cent and 6.2 per cent to refinance.”
She said higher borrowing costs mean taxpayers will ultimately pay much more in interest than they did on similar debt issued ten years ago.
She also questioned the Government’s use of the borrowed funds. While the Ministry of Finance said the proceeds will refinance debt maturing in August and support general budgetary purposes, Harris said borrowing should primarily fund investments that generate economic growth.
“From an economic perspective, government borrowing should be used to finance activities that stimulate the economy and allow growth and increased government revenues to repay the debt. Borrowing to fund current expenditure, such as salaries, is generally discouraged.”
Harris also called for a long-term debt management strategy, warning that rising debt service costs could eventually reduce funding available for healthcare, education and other public services, while increasing demands on the country’s foreign exchange resources.
Economist Dr Ronald Ramkissoon also urged caution, stressing that external borrowing must ultimately be repaid in foreign currency.
“We are increasing our external debt. We have to remind ourselves that this has to be repaid in foreign exchange. We have to ensure that we are doing the kinds of things to earn foreign exchange that we will be able to service these loans.”
He warned that today’s borrowing decisions would affect future generations.
“It would be our children and grandchildren who would have to service these loans, so we have to think carefully whether or not these loans are going to help us generate additional foreign exchange through exports.”
A former permanent secretary, who requested anonymity, questioned the speed and scale of the country’s recent borrowing.
“There’s nothing to boast about when you borrow at 6.2 per cent to repay debt that was costing 4.5 per cent,” the former public servant said, adding that the Government had now raised US$1.8 billion on the international market within six months.
The former PS also warned it will require repayment in US dollars, placing additional pressure on foreign exchange resources.
