BASSETERRE, St. Kitts –HEADLINE-making policy initiatives announced in Prime Minister Hon. Dr. Denzil Douglas’ Monday (Dec. 7) address to the nation have been met with both celebration and criticism as economists battle over the affordability and appropriateness of the package.
In the 40-minute address to the nation, PM Douglas announced a double salary for civil servants, a waiver on the fuel surcharge and the duty-free importation of paint for the month of December. The decision comes in the wake of one of the most uncertain economic crises in recent history, and Douglas explained that the policy initiatives were necessary to bring relief to the population.
Gary Thomas, economist in the Ministry of Finance, said an injection of several million dollars into the economy has an effect of immediately enhancing economic activity. Thomas indicated that this year’s primary surplus of some EC $162 million and the anticipated primary surplus by yearend have given the Ministry some “fiscal space” to offer such relief to the general public.
“Some make the argument that those resources could have otherwise been allocated, but I would argue strongly that the public, the individual, is better suited than the government to allocate those resources,” Thomas said.
When asked if the policy initiatives are reaching the people who are most vulnerable during the crisis, Thomas informed that the government had previously introduced a number of broad-based initiatives to bring relief to everyone.
He said the implementation of the Youth Empowerment through Skill (YES) programme, the waiver of consumption taxes on a list of items and the education on fiscal prudence have been measures that would benefit the general population.
“Those persons who were feeling the brunt of it will find comfort in some of the initiatives... Although it [the double salary] is geared toward public servants, there is still some relief that will come to all households in terms of the waiver of the fuel surcharge and also a waiver on tax and duties on the importation of paint. This significant relief is nothing to sneeze at.”
He continued, “These measures the Prime Minister announced are in addition to what to what the Ministry has already tried to do.”
To concerns of a troubling aftermath, Thomas said “there is nothing to worry about”, explaining that “our economic system is strong”.
He said according to economic indicators, the nation has passed the worst of the crisis. He attributed the economy’s strength to the “resilience and ingenuity of the Kittitian and Nevisian people”.
Former Assistant Secretary in the Ministry of Trade Jasemin Warner-Weekes, who retired from her position with the Government in 2004, said the package proposed by the Prime Minister was lacking and did not seek to address unemployment, which she called the “key and troubling issue”.
“I would have therefore preferred to hear what the government is doing in terms of offering fiscally responsible solutions, such as providing incentives to the true drivers of the economy - small businesses and entrepreneurs.
"Giving these entities incentives to invest, be more productive and create jobs is a real stimulant,” she said.
She said the decision to give double salary seemed heavily influenced by politics rather than economics, describing the policy initiatives as “crafty but not prudent”.
“Struggling families, entrepreneurs and small businesses in particular deserve much better,” she concluded.
The package proposed by the PM was also subject to much scrutiny by financial consultant Vernon Harris, who referred to the package as one from an “economic dreamland”.
He said the Prime Minister failed to put the initiatives in the full context of the economic situation, adding that the realities the Federation faces are “frightening” and the associated fallout “threatens the livelihood of this nation”.
Projections including a 2.5% contraction of real GDP (according to the Eastern Caribbean Central Bank (ECCB) Annual Economic and Financial Review 2008), tourism revenue decline and a significant decline in remittances set the background for Harris’ opinion that major parts of the economy are “barely limping along”.
“The Prime Minister kept alluding to the Primary Surplus as a great accomplishment. A ‘Primary Surplus’ is merely a cash situation which is comprised of revenue collected by Government and includes any budgetary support grants received from international organisations...Government’s expenditure is then deducted and at December 31, 2009 this, according to the Prime Minister, is projected to result in a Primary Surplus of $171 million.
“However Debt service payments amounting to $188 million has to be paid. This will result in a deficit of EC$17 million. The deficit has to be financed and it is done by borrowing, which again increases the National Debt. The projects itemised to be implemented in 2010 will all have to be financed by borrowing,” he stated.
Harris also opined that the package was a political one, and argued that efforts should be made to provide “plausible economic solutions” to counter the impending economic hardships facing the nation.
