SVG national debt well managed

29.Jan.10

Editor: The well crafted, bold, focused, yet sensitive and caring $913 Million (2010) Budget may have surprised many as it did not have new taxes or job cuts, but rather it addressed urgent national needs and placed its sights firmly on the post recovery period.{{more}}

The Leader of the Opposition Hon. Arnhim Eustace on the other hand tried to make a dramatic display of what were his own views of debt repayment and what it might mean to this nation. In his debate on the estimate he stated that the Nation has to repay EC$12 million dollars per week or $77,000 every hour. Further, in his budget response, he used almost two hours just on a critical description of the National Debt. So how truthful was Eustace with the people of St. Vincent & the Grenadines in his debate and why did it lack solutions, alternatives or any prescription?

Clearly, this was all geared at instilling fear, doubt and excessive restraint into Vincentians, some of whom have always been risk and debt adverse. Many of them actually believed that SVG repays these large amounts weekly in the fashion that Eustace described.

Eustace’s first error was that his statement was clearly irresponsible and outrageous in that at $12 million per week for 52 weeks would result in $624 million being repaid in just one year alone and somewhere in the middle of the second year, every single cent of our national debt would have been totally paid off. No doubt this would have pleased Arnhim Eustace, as the nation would be debt free, however, there would have been virtually no economic activity, massive lay-off of workers and public servants and an economy that had grinded to a halt.

But why! Why should this nation attempt to pay off all of its debts and soft loans in just one and a half years at the expense of the economy just to please debt adverse Arnhim Eustace. Does anyone know anybody who has ever taken a loan from a bank or a credit union to purchase a car, land or to build a house, or obtain a business loan and they were forced to pay off the loan in just a year and a half as opposed to the more manageable 10 years, 15 years or 20 years which is normal.

Secondly, what is the true size of our National Debt in relation to other OECS neighbours? St. Vincent & Grenadines actually has the lowest National Debt of only 1.19 Billion; Grenada 1.85 Billion; St. Lucia 1.91 Billion; St. Kitts 2.48 Billion and Antigua & Barbuda 3.01 Billion. Another economic index that Eustace often used in the past – the Debt to GDP ratio for SVG is only 60% and this is also the lowest in the OECS as some countries have a ratio far greater than 100%.

Thirdly, more highly indebted countries like St. Kitts had to repair their vital Cruise Ship Terminal three times after serial Hurricane damage, but the benefits are being reaped from Cruise Tourism today. In St. Vincent & the Grenadines, over the last few years, there has been a slow rise of a manageable national debt, primarily from countercyclical stimuli required for several adverse international and national events (911, etc) and for fuelling some of the major planks of production. 1. Critical infrastructure including roads and vital airport developments, 2. Agriculture production and subsidy, 3. Tourism Product Development and 4. The capacity building, training and productivity impact of the Education Revolution. All these factors were crucial to the development strategy. For example in the case of Tourism, the various sites have been significantly improved to international standards. The Argyle International Airport when completed in 2012 will significantly improve the ease, access and cost of visiting St. Vincent. With the completion of the Buccament Bay Resort, the number of hotel rooms on mainland St. Vincent would have doubled from 1000 to 2000. This doubling will have a dramatic increase in our tourism figures, jobs and revenue, so easily justifying the investments in these areas.

The Fourth factor is that the current debt is quite manageable. If the trend continues for another six or seven years, it could reach the size of some other Caribbean nations and pose some difficulties however, in 2010, it is being well contained and managed. The interest rates for new loans are very low. Ever since the 90’s, Caribbean nations have had to use commercial loans to help fuel development as credit was drying up. This government has obtained substantial amounts of grants from the EU, World Bank, etc. In the 2010 budget and at a time of a severe credit crunch, the government has been able to secure a series of soft loans to help fund the budget. Venezuela (US $50 million) EC $126 million at 2% (of which 54 million is for the International Airport). Other external loans already negotiated for 2010 are from: Taiwan EC$ 21.4 million; CDB EC $37.7 million and World Bank EC $9.2 million which totals EC $194.3 million and there is an additional EC $33.7 million from the SDR-IMF fund available to St. Vincent and the Grenadines. 100% of the 303 million Capital component of the budget may not be spent for a long list of reasons (70% more likely) but most of these projects will start and many completed. If some projects do get held up for what ever reason, then the use of these loans will simply be minimized.

Vincentians should be concerned about debt, however, our debt to GDP ratio is only 60% and debt is being managed well. In 2010 the loans required have already been secured and will be used for significant, critical and targeted activities either geared at the productive sector or necessary for the war on poverty.

Dr. Jerrol Thompson