BASSETERRE St.Kitts, October 5th, 2011 -- A Government is elected primarily to manage the economy by providing and implementing relevant economic and social policies which will increase the social and economic welfare of the people.
The recently released IMF report on the economic and financial state of this Nation is an indictment of poor economic policies and programs which have resulted in the Nation being on the brink of economic, - social and financial disaster.
The Federation has a National Debt of EC$3,000,000 ($3 billion). The debt service ratio is 200 percent of Gross Domestic Product (GDP). GDP is the total value of goods and services produced in this country in a year.
Essentially, the Nation is required to pay out more than it earns. The IMF states that this situation is unsustainable, that is, the Nation simply cannot afford to meet its debt obligations.
The arrears on the National Debt amounted to EC$74.3 million at the end of 2010. The composition and reasons for this size of debt should be noted. The Federal Government embarked on a reckless program of borrowing and spending without any regards to how this burden would be serviced.
Roads were constructed, houses built for poor people who were given the impression that they would not have to pay for them. Several families are now facing eviction as the Banks seek to enforce payments. The Government accumulated a deficit of EC$653 million dollars (Director of Audit Report).
The economic situation which now faces this Nation is insurmountable with the present policies programs and attitudes. The IMF structural adjustment package projected a growth of 1.5 % in 2011 rising to 3.5% by 2015.
The Nation is in a recession this means that aggregate demand in this economy has declined and will continue to decline in the short-term. At the same time the introduction of VAT, the 80 percent increase in electricity rates food prices have resulted in double digit inflation.
The sectors which will contribute to growth are unclear. Foreign Direct Investment will continue to fall in the short-term as the countries of North America and Western Europe solve their own recession.
Remittances have dwindled. Tourism has declined since 2004 and is not projected to increase significantly in the near future. This Nation has a narrow productive base and relies on inventory speculation.
Unemployment has continued to increase in all sectors of this economy. Unemployment amongst the youth now stands about 25 percent. School leavers and those from the Clarence Fitzroy Bryant College have yet to have a first interview and have no immediate prospect of finding jobs.
The resulting increase in gang activity is not accidental but is a symptom of any Nation which is in recession and has not and cannot provide employment, education or welfare for its young people.
The liquidity of the banking system is of some concern to the IMF. On paper the Banks have adequate reserves. However this does not include their exposure to the National debt which accounts for 60 percent of their loans and advances.
The assets’ securing this portfolio appears to be overvalued. Banks and financial institutions should revaluate this situation and provide for this shortfall. Depositors and investors should take note and be very vigilant.
The IMF observed that “the bank’s stability is threatened by the high public sector debt”. Most indigenous banks in the OECS are facing liquidity problems. Thus any more excessive borrowing by Government in any one country can cause the whole banking system in the OECS to collapse
The move towards asking the Banks to reduce their interest rates will result in a loss of revenue and the shortfall will have to be accommodated elsewhere by a reduction in the rates paid to depositors or an increase in interest rates to borrowers. This will further aggravate an existing depressed investment market and will result in an increase in unemployment and a further reduction in aggregate demand.
It should be noted that the IMF is mainly concerned with being repaid and the long term survival of this country is the responsibility of its Citizens. Political rhetoric and references to the Paris Club will not solve this Nation’s immediate recession crisis.
This country does not qualify for debt relief from these rich countries since they have not lent this Nation any significant sums which they can then write off. Policies and programs have to be designed and implemented to put our citizens to work and the escalating food prices will have to be curtailed.
The cost of producing food locally have not increased significantly in the past five years, yet local produce have increased by 500 percent in most cases. A breadfruit sells for EC$5.00 and a pound of pumpkin for a similar amount.
Crime and in particular violent crimes will only be reduced when the citizens are employed and not hungry or angry. It is important that all citizens recognize that this Nation is on the brink of economic and social disaster and become involve in the process of rescuing this land.
The level of poverty has increased since the Caribbean Development Bank report in 2007 and now stands closer to 40% of the population. The Federal Government has no money with which to stimulate the economy and no coherent economic policies are evident bearing in mind that this country does not fit easily into any existing macro-economic model. Fresh ideas are needed.
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