When the stakes are high, who would you rather turn to for economic advice? While you decide, consider the following.
In today’s challenging economy, listening to the silent voices of citizens and businesses that are feeling its impact is perhaps the greatest indicator of how an economy is doing.
Therefore, when a government fails to heed the cries of the people, or that of the business community, it essentially means that this government is missing an opportunity to exchange ideas, which could have enabled it to establish the right economic atmosphere for job creation, entrepreneurship and investment.
When governments are faced with economic challenges such as those currently faced in Saint Lucia, one would expect that a coordinated strategy of cutting taxes, the implementation of new incentives for business to hire, thus enabling the middleclass and working family’s to make ends meet; and a reduction of the deficit to enable a return of confidence in the economy!
However, island states and particularly Saint Lucia, where the economy continues to worsen, similar measures have hardly been instituted. In fact, with each passing year the economy underperforms.
And not only does the quality of life suffer, but the effects can be felt in the societal disintegration which is currently taking place throughout the island.
But wouldn’t it be nice, for once, if the government of Saint Lucia abstained from excessive borrowing, and instead remedied the economic deficiencies with the right social and economic policies? Ever wonder what it would be like to achieve a people-driven economy that no longer takes comfort in government insistence on creating artificial employment?
Well, if only the government of Saint Lucia is finally able to listen to the cries of desperation coming from the people, along with the pensive, but silent ramblings of disappointment from the business community, perhaps there can be hope for Saint Lucia after all.
Already, the warnings are coming from regional institutions, with absolutely no political axe to grind. The message is very clear. Unless the government of Saint Lucia changes course to seriously address its economic situation and fiscal woes, becoming a failed state is a real possibility.
At the recently held 43rd annual general meeting of the Caribbean Development Bank (CDB), president Dr Warren Smith said, “The ultimate route out of the fiscal and debt trap is robust economic growth, which will require appropriate domestic policy reforms, underpinned by front-loaded climate and economic resiliency measures.”
Dr Smith also went on to highlight the status of a typical borrowing member country of the CDB: “Economic growth is less than 3%; losses due to natural hazards have increased from 0.9 percent of GDP in the 1980s and 1990s to 1.3% of gross domestic product GDP.
Currently, more than 21% of the population lives below the poverty line; the overall fiscal deficit of almost 4% is unsustainable and the public debt, at 80% of GDP, is a serious drag on economic growth; and Citizen security is under increasing threat, with the homicide rate in many countries far exceeding the average rate of 18 per 100,000 citizens for Latin America and the Caribbean, as a whole.”
This is something that everyone should be concerned about – seriously!
The truth is island states’ governments have to borrow money on a consistent basis at high interest rates to pay their bills. Take, for example, the most recent borrowing by the government of Saint Lucia (May 2013), in the amount of US$25 million and EC$337 million.
1. EC$200 million via savings bonds to finance the 2013/2014 budget;
2. EC$70 million to rollover existing debt on the Regional Governments Securities Market (RGSM);
3. EC$67 million on a fixed note interest rate to finance capital or recurring expenditure for the 2013/2014 budget;
4. US$7 million in bonds on the Regional Governments Securities Market (RGSM);
5. US$18 million at a fixed rate note to rollover existing debt with the East Caribbean Financial Holding Company Limited (ECFH).
In effect, the government of Saint Lucia is mortgaging the future of Saint Lucians through an overall finance requirement of EC$349.4 million and annual interest charges of EC$141 million in FY2013/14.
How sustainable is such level of borrowing?
How can one expect to rejuvenate an economy with the same set of failed policies that have been employed for years? In fact, Saint Lucia is sitting on a lot of “bad debt” and the finance minister may have succeeded in over-leveraging the country’s credit.
CariCRIS, in its credit rating downgrade of the government of Saint Lucia on June 14, 2013, reads as follows:
“Caribbean Information and Credit Rating Services Limited (CariCRIS) has downgraded its ratings of the debt issues (US$38 million, US$50 million and EC$140 million) of the government of Saint Lucia (GOSL) by one notch to CariBBB (Foreign Currency and Local Currency Ratings) on its regional scale.
“As at end of April 2013 the value of outstanding securities on the Regional Governments Securities Market (RGSM) was EC$1,789.5 million; government of Saint Lucia has been the most active on the RGSM accounting for EC$902.5 million or 50.4%.
“Moreover, a growing percentage of Saint Lucia’s public debt is sourced on the RGSM. CariCRIS believes the government is unlikely to meet its budgeted deficit of 7.4% in FY2013/14 and projects deterioration in the fiscal deficit.
“In the medium term, CariCRIS expects either a contraction or sluggish growth in revenue, in the face of subdued economic activity, and the high dependence on debt funding to continue, as the authorities strive to generate real GDP growth and stem the rise in unemployment levels. The level of debt/GDP is expected to rise rapidly, pushing Saint Lucia into highly indebted category which is unsustainable in the long term.”
This grim reality is a choke-hold on economic growth that challenges any government, with a public debt at 80% of GDP.
But how does the government remedy this situation?
Moving forward, the authorities will have to demonstrate a true desire to reduce debt levels, and should consider instead making foreign direct investment (FDI) in Saint Lucia more attractive to prospective investors.
And to dialogue with Saint Lucians as it pertains to a national investment policy. If Saint Lucia can become less reliant on borrowing and instead focus more on gaining revenue from FDI sources, bi-lateral trade, a physical and economic plan, then the country could well be on the way to remedying its debt and economic woes.
Another area is financial reform that would expand the role of private enterprise ahead of government jobs and state enterprise to encourage productivity and make significant shifts in the development dynamics to transition Saint Lucian’s development.
Further, economic development agencies (Chamber of Commerce, Invest St Lucia, SLASPA, LUCELEC, WASCO, Manufactures Association, St Lucia Tourist Board, SLISBA) will have to play a greater role to facilitate direct access to EU markets of approximately 360 million consumers, North American markets of over 500 million consumers and emerging markets of South and Central American and Caribbean markets to increase output and growth rates in excess of 3.5% annually.
But, to accomplish this, areas of production and distribution, a better equipped and skilled workforce, and a well-developed infrastructure require special attention in order to influence high profile public and private sector investments and the commencement of a sustainable economic pathway.
Mutual exchanges enable one’s capacity to serve, build, create and give. Therefore, it is through the creation of appropriate policy initiatives and its implementation the future lies.
It is with such vision that the Lucian Peoples Movement (LPM) (www.lpmstlucia.com) is “Committed to building a better Saint Lucia,” where citizens can live in dignity, with respect and freedom to advance the entrepreneurship cultivation of ideas, the exchange of knowledge, innovation and equal opportunity that is economically strong.
Developing this sustainable path is a process that will ultimately drive trade and investment to reinvigorate the Saint Lucian economy, and more.
Melanius Alphonse is a management and development consultant. He is an advocate for community development, social justice, economic freedom and equality; the Lucian People’s Movement (LPM) www.lpmstlucia.com critic on youth initiative, infrastructure, economic and business development. He can be reached at [email protected]