The recent IMF press release on the economy of the Federation of St. Kitts and Nevis confirms an ongoing downward spiraling economic trajectory which has manifested itself since 2000. It should be noted that the role of the Government is, inter alia, to manage the economy, by providing investment opportunities for its citizens, the creation of employment, control of inflation, poverty alleviation, stimulate aggregate demand through tax reduction and of paramount importance the management of the National Debt.
The IMF proclamation that “the hesitant recovery in domestic economic activity, despite modest growth in tourist arrivals is “worrisome”. It should be noted that the IMF was invited to rescue the Federation due to the adverse macroeconomic conditions which prevailed. The Nation had accumulated an unsustainable national debt of EC$3 billion with a debt service ratio of 200% of its Gross Domestic Product. Unemployment was on the increase, foreign direct investment had abated, the tourism sector continued to decline and made an infinitesimal contribution to GDP, and remittances from abroad flat-lined.
Aggregate demand subsequently diminished and the Nation needed an injection of resources to jump start the economy. The advent of the IMF produced the opposite to a stimulus package, because of its concomitant austerity package The Government was forced to introduced the Value Added Tax at rate which consequently has increased Government revenue but also increased the cost of living.
The IMF introduced structural adjustment policies based on the principle “though shall achieve a budget surplus every year for a successive three (3) year period subject to the financial and economic management, rules and regulations of the IMF”. Hence, the Government was forced to reduce public expenditure in essential areas such as education, health and social services and reduce its wage bill. As a result, the negative economic and social effects have continued to vibrate throughout the Nation causing untold hardship.
Unemployment has continued to increase as firms are forced close or reduce their labour force. Poverty levels have reached an unprecedented level with the resultant anti-social and other deviant behaviour among the youths. The level of hopelessness among our young people is escalating to the point where we can hear their plaintive cry “how long, lord, must we be tormented by austerity”.
It must be understood that the IMF role is mainly to ensure that the economic and financial policies which were pursued by Nations such as St. Kitts and Nevis do not impact negatively on the global financial market. Therefore, no blame should and can be attached to the IMF as it seeks to collect the funds invested in this Federation. The negotiated Standby Facility from the IMF is intended to assist the Government in returning to fiscal balance, by implementing measures, however onerous. The high national debt was created by the Government. It is our debt, and it is time the citizens of this Federation need to be reminded that there are no free lunches.
It is one thing for the IMF to laud the Government’s debt restructuring effort. But mention ought to be made of the deleterious impact it is having on the money market not only in St. Kitts and the OECS but also in the wider CARICOM region. I am not sure this is something the Government would want to thump its chest about. As a consequent, the Government will find it almost impossible to raise long term finance as investors lose confidence in the sustainability of their investments.
Treasury bills are for the moment exempted but vigilance must be maintained. There are lessons to be learnt from this adventure with the IMF. The Government must re-examine its economic and fiscal policies and become cognizant that the only way forward is to foster joint efforts with the private sector. The proffered notion that the recession is as a direct result of external factors is absolutely unacceptable since it is near possible to create a nexus between our high national debt and the global financial crisis.
Let us face the fact. We are where we are because of fiscal imprudence. The Government must also take a second look at tourism industry. Whilst the number of tourist arrival to the Federation may be increasing due to the growth of cruise-ship tourism, this has not kept pace with nominal GDP. The funds allocated to this sector can be utilized more productively by encouraging and developing the small industrial and agricultural sectors of the economy with the long term aim of creating an entrepreneurial class of local business owners who will employ nationals.
The questions facing this Nation are many. Essentially, can the country produce and implement the policies and programs which are necessary to go forward. The country does not have the financial resources to inject into the economy in order to stimulate growth. The high level of taxation imposed on the Nation has reduced aggregate demand and have resulted in negative growth. This has been evident since 2008 and will continue into the foreseeable future. These severe economic conditions were illustrated by this Economist for several years. Urgent action is required if this Nation is not to sink further into the abyss.
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