Recently, I read an article penned by Dr. Ronald Ramkissoon in which he reviewed an IMF Report entitled Caribbean Small States: Challenges of High Debt and Low Growth (February 20, 2013). The IMF Report outlined the following issues facing Caribbean States:
a. An extreme version of low growth
b. High debt
c. Significant vulnerabilities
d. Limited resilience to shocks
e. Low productivity and high costs
Dr. Ramkissoon generally agreed with the diagnosis of the economic disease but expressed some concerns on the prescription for the economic disease. All five issues stated above are relevant to St. Lucia and thus we must accept that St. Lucia is in a challenging period in its history. I had a read of this IMF report to see what the prescription was provided to the Caribbean.
I would preface my comment by first saying that the economists at the IMF still do not seem to have an understanding of the uniqueness of small island states. Some of the commentary is based on research in large countries which are certainly no benchmarks to what exists in the OECS.
A simple example will be a comment in the IMF report that the cost of electricity in the OECS are among the highest in the world. While the figures may be correct the comparison may be flawed. If we look at the United States, then Hawaii may be viewed as the closest to comparable small island states. The cost of electricity on the island of Hawaii ( Source: Hawaiian Electricity Company) is about 25 % higher than St. Lucia. While I am not a shareholder of LUECLEC, the analysis must be credible. The Hawaiian Electricity Company cites the following for the high cost:
‘’Our isolated geographic location also contributes to the higher cost of electricity. That’s because we don’t have any nearby utility companies from which to draw power in the event of a problem. For system reliability we must have reserve generating capacity and multiple distribution routes. Our electricity rates help cover those costs.’’
This year’s budget has spoken about opening up the market for sustainable energy connectivity to the grid, while these sexy concepts are pondered, there is a cost to benefit analysis for any investment, and one is not sure that the numbers add up for a large investment in sustainable energy.
The IMF has proposed the following as the trail to walk through the jungle we have been placed:
• Fiscal adjustment is unavoidable but exceptionally difficult to implement
• Develop a comprehensive growth strategy which replaces public sector demand with self-financing private sector demand
• Assess the appropriateness of the exchange rate instrument as an element to jump-start growth
• States should be in the front line for support from climate –change funding given the exceptionally high cost and frequency of natural disasters
• Strengthen the supervisory and regulatory framework in the financial sector
• Pursue debt restructuring
Can the above recommendations be situated in the Budget of 2013 -2014? The Minister of Finance has spoken on fiscal adjustments, however the recurrent adjustment has been a mere 1.9 %, and the huge reduction in the budget is in the Capital Expenditure somewhere in the region of 23%. One would have hoped that more concerted efforts would have been made to reducing the recurrent expenditure and thus providing greater support to the Public Sector Investment Programme.
The statements to date on the Budget did not give any clue as to the development of a comprehensive growth strategy to the replacement of public sector demand with self financing sector demand. There is a proposed project on road infrastructure but I would not say that it arises to the level suggested. Is it possible that someone can build a police station or a health centre and rent it to the government in the same way there is interest in renting office space? St Lucia has been blessed not to have to support many quasi –government institutions and that is a legacy of Sir John that we should be always grateful.
On the issue of the devaluation of the EC currency, as a vehicle to jump-start growth, I believe that this is off the cards in the minds on all the OECS leaders, but it is a pill that we may have to consider taking as a last resort.
The OECS was shown in the report as being the most vulnerable to natural disasters. This not only calls for pursuing climate change funding, but also ensuring that structures designed are resilient. One is not convinced that the reconstruction efforts are pursued with the concept of resilience being foremost in the design criterion. There also has to be prudent use of these reconstruction funds. I have heard about the reconstruction of the Canaries Bridge. The only work that should be done at Canaries is to replace the deck, an activity that could be done over a weekend.
There is no mention of pursuing debt restructuring, but I would support such bold initiatives. The importance of accelerating the implementation of your Public Sector Investment Programme is one recommendation which I would add. The rate of implementation of projects after a disaster should be pursued with vigour in an attempt to stop the bleeding of loss of GDP and to provide the support through new money entering the economy. Hurricane Tomas Rehabilitation has been slow and now needs a kick on the gluteus maximus.