Pacific's high debt levels not a worry – A.D.B. chief economist
Debt and borrowing is essential for small economies to develop, which is why high debt levels should not necessarily be a cause for concern, says Asian Development Bank’s chief economist Yasuyuki Sawada.
Reflecting on the recently published Asian Development Outlook 2019 at the 52nd A.D.B. Annual Meeting now underway in Fiji, Mr Sawada said while the Pacific does see high debt to gross domestic product ratios (GDP), they are still sustainable.
Debt to G.D.P. ratios measure how much debt a nation has compared to how big its economy is. According to economists, when the ratio of debt is over 50 per cent of the economy, that debt could quickly become unsustainable, especially if subject to an external shock like a natural disaster or economic crisis.
Mr Sawada said while the A.D.B. carefully monitors debt to G.D.P. ratio in the Asia and Pacific regions, the bank is finding the level of debt is currently enabling growth.
“Basically, what we are seeing is that for a country to develop, having debt itself is not really a problem because in order to materialise potentially profitable high return investment, you need to borrow money,” he said.
“Having debt itself is rather welcome to expand business and improve people’s livelihoods and overall, growth rate can be improved if borrowed money and loans can be appropriately utilised.”
According to the International Monetary Fund (I.M.F.) Samoa’s debt to G.D.P. ratio as of April 2018 is dangerously close to that 50 per cent threshold.
In their Debt Sustainability Analysis, the I.M.F. encouraged Samoa to “continue with efforts to boost revenue collection and consolidate public finances, to be better prepared to respond to a future economic shock or natural disaster.”
But Mr Sawada said there is not yet cause for concern.
“But as far as we watch and make assessment, these debts are still sustainable, and especially public debts are well under control in many of the Asia Pacific region’s countries,” he said.
“So that means if some external shocks affect the sustainability of public debt, governments still have sufficient room to tackle this potential debt instability issue.
“Overall right now it seems to be sustainable and also one foundation for how growth can be continued.”