The recent loan of US$66 million from the Saudi Fund for Development, while significant, ought not to have a significant impact on the country’s debt to GDP (Gross Domestic Product) ratio, Prime Minister Dr. Ralph Gonsalves said.
Even if your debt increases as a proportion of the GDP, it will remain reasonable and manageable by all international benchmarks,” Gonsalves said.
“But very importantly the debt servicing, given the relatively low interest rate, would not be onerous taking into account the requisites of what we are spending on,” he continued.
According to Gonsalves, the terms of the loan negotiated is 20 years at two percent.
The repayment of the US$66 million loan, which is expected to be spent on several projects including the construction of schools and health facilities, is not expected to impact the external debt significantly according to the Prime Minister and former Finance Minister, because of the ability to substitute one type of debt for another.
So, for example, he said, the government must spend local funding for repairs to schools, housing, health, etc. however, invariably that funding is sought by way of government bonds which are located on the local and regional markets, but they are categorized as local loans.
The time for each bond is 7 years and the interest rates fluctuate between 6 and 7.5 percent.
“You don’t have to be any investment genius to know if you getting money at 2 percent interest and the period of amortization is 20 years, it makes life much easier for you if you are replacing some types of borrowing with a much cheaper form of borrowing,” he suggested.
“So, I think that is a very important point to note up front as a policy,” Gonsalves said.
The other factor is that once your debt is manageable, there is nothing wrong with borrowing.
He said that the Saudi’s agreed to lend US$66 million, but he could have negotiated for more.
“But I have to be prudent and enterprising,” he said.
While in Saudi Arabia, the Prime Minister also met with the Saudi Investment Minister Khalid-Al-Falih with whom he discussed investment opportunities in the construction of a new cruise ship port, hotel development and in a new city at Arnos Vale.
In addition, Dr. Gonsalves was involved in the Caricom-Saudi Arabia Summit.