NewsDebt Restructuring is a must for the new Saint Lucia Labour Party Government

St. Lucia News OnlineOctober 18, 2021126878 min

Saint Lucia’s national election of July 26th, 2021 ushered in a New Saint Lucia Labour Party Administration with a resounding three-quarter majority mandate, augmented by the two independent parliamentarians, who have been assimilated into the Cabinet. The new government has found itself in an enabling position that sets the stage for a purposeful and decisive developmental agenda, which is badly needed if Saint Lucia is to be salvaged from its current economic quagmire.

Cognizant of the imminent danger of an economy stifled by the mounting debt contracted over the past five years, with a debt-to-GDP ratio at 86.4 percent and an onerous debt servicing ratio, the government-in-waiting included in its manifesto its intention to renegotiate and consolidate existing loans to ease the burden of repayments. Immediately, upon assuming office it signaled its intention to undertake, as a matter of urgency, a process of debt restructuring. In the governor general’s throne speech of the Twelfth Parliament on Tuesday, August 17, 2021 he reaffirmed his government’s position: “In trying to secure some fiscal space, my government will commence the process of debt restructuring.”

So, what is Saint Lucia’s debt profile? The latest publicly available debt profile presents a gloomy and worrying picture. According to the June 2020 Statistical Debt Bulletin of the Debt and Investment Unit of the Ministry of Finance, Economic Growth, Job Creation, External Affairs and Public Service, Saint Lucia’s debt profile was as follows:

  • Total Public Debt (XCD million) – 3,553.16
  • Total Central Government Debt (XCD million) – 3,362.95
  • Central Government External Debt (XCD million) – 1,759.17
  • Central Government Domestic Debt (XCD million) – 1,603.78
  • External Debt (%) – 52.3
  • Domestic Debt (%) – 47.7
  • Total debt Servicing (XCD million) – 572.48
  • Central Government Debt Servicing (XCD million) – 286.20
  • Weighted Average Cost of Debt (%) – 5.03

Whilst the Debt-to-GDP ratio at June 2020 was not available from the Bulletin, it is to be noted, that in the Caribbean Development Bank’s (CDB) information portal of February 25, 2021, Saint Lucia’s Debt-to-GDP ratio at market prices was reported at 86.40 percent, 44% above prudential limits.

By engaging in a debt restructuring programme, the government will be able to achieve three objectives:

  • Allow access to incremental financing with greater ease.
  • Lengthen the average maturity time of its debt portfolio.
  • Enable debt payoffs while facilitating economic recovery.

The fundamental approach must be to reduce the interest rate and to reduce liquidity outflows tied up in debt servicing with the aim of settling current expenditure when they become due and reduce government payables to firms and householders. In addition, greater liquidity will allow for the financing of growth-bearing developmental investments.

 It cannot be over-emphasized that debt restructuring must be concomitant with growth initiatives, which allow for greater capacity for debt repayment and securing a Debt-to-GDP ratio that is nearer prudential limits.

Saint Lucia’s growth prospects reside in the gainful and decent employment of its 35 percent unemployed youth population through its well conceptualized policy concept of the Youth Economy.

In pursuing a debt restructuring strategy, government should provide for the retirement of domestic debt as a priority, allowing for a fueling of cash flows within the domestic economy and ultimately in the hands of households. The ensuing higher velocity of circulation of money in the hands of households will bolster economic growth.

In fulfilling its debt restructuring programme, the Saint Lucia government must now start the search for credible global financing entities like the Emirates Global Investment Fund. The objectives of this search must be as follows:

  • The retirement of debts maturing within a five-year period to a medium-term period.
  • Securing an interest rate that is well below the current 5.03 weighted average interest rate of debt, preferably within the range of 2.5 to 3.0 percent range.
  • A debt repayment period of between 10 to 15 years.
  • A preferred lending currency of the US dollar to reduce currency exchange risk exposure.
  • Early disbursement of funds following the signing of any loan agreement. 

The stabilization of the Saint Lucian economy is now the most urgent and compelling agenda for this new administration. The stranglehold of the current inherited debt level, which is above prudential limits will seriously undermine the government’s capacity to adequately provide for public goods and services. Therefore, a well -designed- home-made debt restructuring strategy is a pre-requisite to attending to the socio-economic development of our human capital, which is in-keeping with the standards of the UN Sustainable Development Goals (SDGs) for 2030.

St. Lucia News Online

One comment

  • Tedburt Theobalds

    September 25, 2021 at 1:46 pm

    One of the best if not the best financial articles I have read in a long time on the state of affairs of the St Lucia economy . Please give kudos to the author. Thanks.

    Reply

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