Basseterre, St. Kitts – JUST as it is with hurricanes, the Caribbean region has been prone to financial shocks and even extremities of financial disasters, most of which have left the region staggering on the borders of economic instability.
But, is economic bankruptcy likely for the region?
The region has been able to bounce back from natural disasters in recent times. Cuba, Grenada, St. Kitts and Nevis have all shown that though hurricanes and floods may devastate the little islands, they are resilient and have learned to prepare better for such and similar disasters. However, an equal level of resilience has not been demonstrated in response to financial storms.
This may be due to how much the Caribbean’s most thriving sectors depend heavily on larger countries. Exogenous shocks and even locally-induced financial tremors have shaken regional economies and many have been unable to respond appropriately due to their high indebtedness.
Perhaps this was the concern Guyana’s President Bharrat Jagdeo had when he stated, “The region is heading toward bankruptcy if countries could be declared bankrupted,” attributing the inability of countries to pay their debts and meet current costs as the critical risk factor. This statement was made in a recent article carried by Kaieteur News.
While his comments may have been viewed with much dissent across the region, Jagdeo, who heads a CARICOM task force established to address the global financial crisis, explained that this is the stark reality.
“When you have two items, just paying wages and salaries and debt and that’s more than your revenue, what remains to run the country? Many countries in the region are approaching that kind of position,” the Guyana Head of State said, drawing from similar near-bankruptcy experiences in his country in 1992.
Guyana was forced to that point when a “pernicious build up” of debt and loss of productivity was compounded by a drop in revenues from tourism and financial services as a result of global financial crises. He added that if CARICOM countries are not wary of their respective debt situations, they may be incubating similar economic turmoil.
In St. Kitts and Nevis, Jagdeo’s statements reverberated during last week’s 2010 Federal Budget debate when Leader of the Opposition Hon. Mark Brantley declared that while the government preaches the local economy has “weathered the storm”, St. Kitts and Nevis is “perhaps one hurricane away from bankruptcy”.
Over the last ten years, the national debt grew from being 44.0% of GDP to being 165.0% of GDP in 2008, a total of EC$ 2.54 billion, according to the 2010 Budget. This nearly triples the 60% standard recommended by the International Monetary Fund.
“The Governor of the Central Bank of Trinidad and Tobago expressed concern about the size of the national debt in the Federation. The Caribbean Development Bank in its Annual Economic Review on St. Kitts & Nevis 2007 states “the high level of public indebtedness continues to place a significant burden on the budget in terms of debt servicing obligations. It retards the growth of the economy,” Brantley argued.
Standing alone, Brantley’s statements may have raised many brows. Juxtaposed with the local and regional economic realities, however, they appear to be in line with President Jagdeo’s prediction and even earlier warnings given by regional and international institutions.
The Nevisian parliamentarian argued that for too long hurricanes and the ravages caused thereby have been blamed for the nation’s skyrocketing public debt, and contended that they were merely a “snapshot” of the real problems. He explained that with projections of declining government revenue, the government will have “little room” to weather exogenous shocks and will leave little with which to maneuver.
In a recent interview with SKNVibes, trained economist and former Minister of Finance Hon. Dr. Timothy Harris explained that although President Jagdeo used “graphic and excitable” language, it was necessary to dramatize the region’s economic conditions so the common man could understand what the ramifications of a heavy debt burden can be.
By the end of 2008, CARICOM countries were among the top 10 most indebted countries in the world and, according to Harris, this high indebtedness creates challenges for cash flow management and is further compounded by a worsening global economic situation.
“What Jagdeo was doing was drawing the attention of the region to the seriousness of the economic situation in which many CARICOM member states find themselves. They got there largely because of reducing revenue flows in government and the critical growth drivers of the economy including tourism, financial services and agriculture were facing difficult challenges.
“President Jagdeo is putting in starker terms what the IMF has put diplomatically as an absence of fiscal space,” Harris added.
Fellow parliamentarian and representative for Constituency Five Hon. Shawn Richards said that even though the figures regarding the national debt are so alarming, there has still been a further increase in the last fiscal year. He was critical of the government’s commitments to debt reduction in last week’s Budget.
Richards argued that the government was warned about its policies surrounding the sugar industry, electricity generators, accessing loans from commercial banks, awarding of contracts and the sale of lands to overseas investors. Now, he said the nation will be left with a very high risk exposure if any further crisis hits the twin-island state.
“While the budget is indeed an estimate, the reality is often far different from the estimates and neither you nor I know what exogenous shocks we may face this year and we are acutely aware that we have no cushioning room. The possibility of such is even more troubling given our current situation. We are far too exposed to too many risks simply because this government did not take heed when the warning bells were sounded,” Richards asserted.
The public debt, in the words of Richards, has crippled the government’s ability to undertake any serious economic stimulation and poses a threat to every single sector of the economy and society.
He added that he is not confident that any of the assurances given in last week’s budget regarding debt reduction will materialize, as they have been made in previous presentations.
“We are all at risk. None has been spared by this government’s runaway debt burden. I say that the debt poses a threat to every sector of our society because that is simply the reality and in some cases this fact has already been borne out.”
Senator responsible for Tourism and International Transport Hon. Richard Skerritt dismissed both Brantley’s and Richards’ arguments as inaccurate messages of gloom and doom.
However, regional countries must in the medium to long term work aggressively to reduce their public debts to acceptable levels, as outlined in the ECCB Eight-Point Stabilization and Growth Programme, while in the short term continue hope that no more natural or financial disasters push the region over the edge.
