I listening with interest to an very irate Customs Officer expressing his disgust that he will be losing five percent of his hard earned income to finance Carnival revelry. He stated that Carnival is a business and he could not come to terms with the Government making a case for the removal of the subsidy on sugar and then giving duty free concessions and $ 1.1 million dollars to Carnival. He posited – Why should I contribute to these Band owners plunder? There is undoubtedly a need for a pre-frontal discourse on the debt situation of St. Lucia, and the conversation has to honest and factual.
During the Small States Biennial Conference of the Commonwealth Secretariat held at Malborough House in July 2010, Ms Samantha Attridge presented a paper entitled ” Dealing with the Looming Debt Crisis of Commonwealth Small Vulnerable Economies”, It is an excellent analysis of the OECS economies, as all of our OECS states fall into this category of small vulnerable economies. The paper discusses various Thresholds of Crisis level metrics that nations should ensure they do not cross.
As far back as 2009, all OECS countries had crossed the thresholds and were already in a severe debt crisis. For St. Lucia, the hard decisions should have started way back then. It is of interest to examine these metrics:
(a) Whilst there is no generally accepted definition of debt sustainability for non
low income countries (LICS), the IMF have recently used a threshold of 65%
of total public debt to GDP as defining a high level of public debt vulnerability – ST LUCIA IN 2012 WAS AT 71%
(b) IMF analysis shows that an annual increase in the present value of public external debt or total public debt in or above the 5% – 7% range is a cause for concern. ST LUCIA IN 2012 WAS AT 11.4%
(c) In terms of international benchmarks total debt service (external and domestic) should not exceed 15% of government revenue. ST LUCIA EXCEEDED THIS IN 2012
(d) Current account deficits should not be in excess of 10% of GDP.
(e) External debt burden as a % of GNI which exceeded the threshold of 50%
(f) IMF describes the domestic debt burden as significant when the ratio of
nominal domestic debt stock to GDP ratio is above 15% – 20%. ST LUCIA IN 2012 WAS AT 38.3 %
While the public has been fed various reasons for the present debt crisis and apportioning of blame has been “ not me but he”, there is an abundant of evidence that the level of borrowing has been at high levels despite which party has been in power in the last 20 years. The following was the spread of debt in MARCH 31 2007:
DOMESTIC DEBT
– RBTT $ 17.4 MILLION
– BARBADOS MUTUAL – $ 7.5 MILLION
– NATIONAL SAVINGS AND BONDS – $ 69.9 MILLION
– FCIB – $ 104.6 MILLION
– REGIONAL SECURITIES MARKET BONDS $ 253.2 MILLION
EXTERNAL DEBT
– ROYAL MERCHANT BANK – $ 196.7 MILLION
– CITIBANK ( T& T) LTD- $ 109.2 MILLION
– NATIONAL SAVINGS & BONDS – $ 34.8 MILLION
– REGIONAL SECURITIES MARKET BONDS – $ 53.7 MILLION
BILATERAL LOANS
– AFD – $ 60.9 MILLION
– KUWAIT FUND – $ 19.6 MILLION
– CDB – $ 323.3 MILLION
– EUROPEAN INVESTMENT BANK – $ 1.9 MILLION
– IFAD – $ 2.6 MILLION
– OPEC – $ 2.0 MILLION
– WORLD BANK- $ 149.7 MILLION
– EYRE & SPOTTISWOODE LTD – $ 2.1 MILLION
TOTAL PUBLIC DEBT AS AT MARCH 2007 – $ 1,410,634,118.00 XCD
TOTAL PUBLIC DEBT AS AT MARCH 2012 – $ 2,273,200,000.00 XCD
INCREASE IN DEBT OVER 5 YR PERIOD 2012 – 2017 = $ 862,565,882.00 XCD
AVG BORROWING PER YEAR during 2012 -2017 = $ 172,513,176 XCD ( $ 172.5 million/ yr)
We have experienced a shortfall of revenue to fund our recurrent expenditure for the past few years. It therefore suggests that for several years we have been issuing bonds to pay bonds that are due. Has the debt trap forced OECS countries into legalized Ponzi schemes.? The Bilateral loans are long term and at concessionary rates in some cases. The great challenge is the loans from the Banks and the Bond market as these are with a higher interest rate and shorter repayment terms.
There is an interesting Working Paper developed by Mr. Janai Leone and Mr. Kevin Hope of the ECCB looking at the evolution of debt in the OECS. An interesting point that was made was that the debt to GDP ratio is largely a solvency measure and therefore shows the long run abilityof the country to sustain a given level of debt. The Debt to GDP ratio does not focus on thecomposition of the debt nor its maturity structure.
The Government has been placing the emphasis solely on the debt to GDP ratiohowever the central issue for St. Lucia is the bunching of repayments and interest rate composition that can give rise to a possible default at debt. The high composition of debt to Commercial Banks and engagement in the Bond market is our greatest challenge.
The OECS government will have to look at some restructuring of external debt to escape the noose, and as so eloquently put by Sir Dwight Venner- ”begin to operate low cost and highly efficient and effective administrations”.
One other approach maybe is to have the discipline to use the savings to the injection into budget from the PetroCaribe Fund to pay down on our high interest debt.