Rising household debt threatens jobs, lending and growth

GEISHA KOW­LESSAR-ALON­ZO

Se­nior Re­porter

geisha.kow­[email protected]

Econ­o­mists have backed the Cen­tral Bank’s warn­ing about ris­ing house­hold debt, cau­tion­ing that ex­ces­sive bor­row­ing could have wider im­pli­ca­tions for fi­nan­cial sta­bil­i­ty, busi­ness ac­tiv­i­ty and eco­nom­ic growth in Trinidad and To­ba­go.

Their com­ments fol­low the Cen­tral Bank’s iden­ti­fi­ca­tion of house­hold in­debt­ed­ness as a key risk to the coun­try’s fi­nan­cial sys­tem in its Fi­nan­cial Sta­bil­i­ty Re­port 2025. The re­port raised con­cerns about bor­row­ers’ abil­i­ty to ser­vice their debt amid broad­er eco­nom­ic un­cer­tain­ty.

Econ­o­mist Dr Ronald Ramkissoon said the Cen­tral Bank should be com­mend­ed for iden­ti­fy­ing po­ten­tial risks be­fore they es­ca­late. Mon­i­tor­ing vul­ner­a­bil­i­ties in the fi­nan­cial sys­tem, he said, is a crit­i­cal part of the in­sti­tu­tion’s man­date.

While he said there was no im­me­di­ate rea­son for pan­ic, Ramkissoon warned that ris­ing debt lev­els re­quire close at­ten­tion from house­holds, fi­nan­cial in­sti­tu­tions and pol­i­cy­mak­ers.

“The fact that house­hold debt is be­ing point­ed to as ris­ing is not a rea­son to be un­du­ly con­cerned or fear­ful. What it says, how­ev­er, is that the com­mer­cial banks need to be ex­treme­ly care­ful in in­creas­ing ex­po­sures to house­holds and busi­ness­es,” he said.

Ramkissoon said house­holds must pay close at­ten­tion to their abil­i­ty to ser­vice loans, warn­ing that fi­nan­cial stress could quick­ly spread through the econ­o­my if bor­row­ers were un­able to meet their oblig­a­tions.

“If house­holds, busi­ness­es and the Gov­ern­ment are un­able to pay their debt as it be­comes due, then prob­lems are go­ing to arise all around,” he said.

He said the long-term so­lu­tion lies in stronger eco­nom­ic growth, sus­tain­able em­ploy­ment and ris­ing in­comes, which would im­prove house­holds’ and busi­ness­es’ abil­i­ty to meet debt pay­ments.

“At the base of the per­for­mance of the fi­nan­cial sys­tem and the cred­it­wor­thi­ness of house­holds is the per­for­mance of the econ­o­my,” Ramkissoon said. “Pol­i­cy­mak­ers need to en­sure there is growth, that peo­ple have em­ploy­ment in sus­tain­able jobs and that in­comes are ris­ing in a way that is sus­tain­able.”

Econ­o­mist Dr Vanus James al­so ex­pressed con­cern about house­hold in­debt­ed­ness, say­ing debt in Trinidad and To­ba­go fi­nances not on­ly con­sumer spend­ing but al­so small and in­for­mal busi­ness­es.

“In a Trinidad and To­ba­go-type econ­o­my, house­holds are re­spon­si­ble for two pri­ma­ry func­tions: con­sump­tion and busi­ness cre­ation, such as small and in­for­mal busi­ness­es,” James said.

He said a sig­nif­i­cant por­tion of house­hold bor­row­ing is linked to en­tre­pre­neur­ship and in­come gen­er­a­tion, rather than con­sump­tion alone. Ex­ces­sive debt, there­fore, can af­fect not on­ly house­hold spend­ing but al­so job cre­ation and eco­nom­ic growth.

“A large part of that debt is not con­sump­tion debt; it’s busi­ness de­vel­op­ment debt. When they get in­to trou­ble, it’s those two func­tions that are af­fect­ed, and the ef­fects spi­ral through the bank­ing sys­tem,” he said.

James warned that ris­ing loan de­faults could weak­en banks’ cap­i­tal po­si­tions and re­duce their ca­pac­i­ty to lend, cre­at­ing rip­ple ef­fects through­out the econ­o­my.

“The Cen­tral Bank is right to be con­cerned when they see a spi­ralling of house­hold in­debt­ed­ness, with the pos­si­ble con­se­quences feed­ing through the sys­tem,” he said.

He added that ex­ces­sive house­hold debt af­fects more than in­di­vid­ual bor­row­ers, threat­en­ing busi­ness cre­ation, em­ploy­ment and over­all eco­nom­ic ac­tiv­i­ty.

“In an econ­o­my like ours, when that gets in­to trou­ble, the econ­o­my gets in­to trou­ble, un­em­ploy­ment will rise, every­thing. So it’s a dan­ger­ous sit­u­a­tion when house­holds are ex­ces­sive­ly in­debt­ed,” James said.