The economic minefield which now surrounds the Federation of St. Kitts and Nevisis not to be taken lightly as is being touted by the Prime Minister and Minister of Finance. The situation was created and orchestrated by the pursuant of policies and programs which created a high national debt. The harsh economic realities facing this Nation, include, inter alia, a high and unsustainable national debt of EC$3 billion. The debt service ratio was an astounding 200% of the country’s Gross Domestic Product. Repayment of the debt accounted for 54% of recurrent Revenue. An overstaffed public service, with wages and salaries accounted for 41 % of Recurrent Revenue. The economy is in recession, unemployment has risen and aggregate demand has fallen. This is reflected in the drastic decline in Government’s revenue.The Government was forcedto call ion the IMF which resulted in the introduction of its structural adjustment programs. This accelerated the recession process.
The Government continues to profess that all is well and economic growth is just around the corner. The Government has sought to reduce the National Debt by seeking debt forgiveness and by reducing the long term investment of private individuals and institutions. Recent revelations that City Drug Store is closing a section of its operations have sent a chilling feeling throughout this Nation. That business has been synonymous with success in the Federation.
The resulting unemployment will have a multiplier effect on the economy. Firms which were keeping employees on short term working week will follow that lead.
Meanwhile the Government is hailing its success at obtaining minimal debt relief from the British Government as evidence of “sound economic management and good governance”.
One of the major contributors to this economic malaise is the much vaulted housing program in which the Government borrowed money from commercial institutions and Social Security and built 2500 houses for poor people. This segment of the population is unable to meet their financial obligations out of a small and declining income. Thus the arrears at the National Housing Corporation has reached untenable proportions and the Corporation is unable to service the loans and the debt service has to be borne by Government. This action created additional hardship for the poor and under-privileged classes in our community.The IMF which is applying traditional macroeconomic theory to this country wants the Government to reduce its debt service ration by 2014 to 120% of GDP. This not possible in the prevailing economic and political climate. Achieving this target will require an economic miracle which will have to be fuelled by an active and productive private sector. Unfortunately the private sector in the Federation is comprised mainly of inventory speculators.
They are therefore unable to contribute meaningfully to any attempt to reverse the slide into economic obliviation.
The Federation requires a new approach to macroeconomic management. The current approach of tax and spend in this declining economy will not suffice. The Federation has no critical mass and a productive private sector is nonexistent.
Given these shortcomings it is concomitant on the Government to develop fiscal and monetary policies to meet the unique economic situation as exists in this country. The tourism sector has been described as “the bedrock of the economy”.
However this sector has continued to decline as foreign direct investment has fallen and the economies of North America and Western Europe have struggled for economic survival. Even more ominous is the advent of China as a major player in the cruise ship market. According to the Caribbean Tourism Organisation, in 2011, passenger arrivals in the Caribbean region grew only marginally by 0.3 per cent to reach 20.6 million, in contrast to an increase of around 6.5 per cent worldwide. Sailing schedules for the Caribbean suggest that 2012 is not going to be much brighter. On shore cruise visitor expenditure is expected to remain weak. The net effect, over the past two years, has been for destinations in the Southern and Eastern Caribbean to be severely affected as vessels that sail the Caribbean in the winter months are being redeployed to China and other Mediterranean destinations.The China Daily, a news agency which is recognized internationally, as being the mouth piece of the Government, quoting experts, makes it clear that China is at the primary stage of its cruise economy. This will negatively impact the economy of St. Kitts and Nevis.
Poverty levels have increased unabated in St. Kitts and Nevis since the CDB’s Poverty Assessment report in 2007 which identified 23.4 percent of the population as poor or indigent. This has been exacerbated by the significant decline in foreign remittances from North America and Europe. Poverty results in increased criminal activity especially among young people who have become increasingly alienated and see no hope in a country which offers them little or no chance of earning a living or developing a career. The current policy of repression will create an economic and socially explosive environment. This Nationis staring into an abyss and should learn from the mistakes that others have made.
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