NAME: TIFFANNIE ANTONETTE EUGENIA SKERRITT
AGE: SIXTEEN (16) YEARS
COUNTRY: MONTSERRAT
SCHOOL: MONTSERRAT SECONDARY SCHOOL
TOPIC: What viable steps should OECS countries take to stimulate their economies and significantly reduce their national debt?
Disclaimer
The views expressed in this essay are those of the student named above and do not represent the views of the Eastern Caribbean Central Bank
In 2011, members of the Eastern Caribbean Currency Union (ECCU) witnessed a significant erosion of grants and inflows; and a debt to Gross Domestic Product (GDP) ratio of 83.4%, which is 23% above that recommended by the Eastern Caribbean Central Bank (ECCB). Hence, it is absolutely crucial that member states of the Organization of the Eastern Caribbean States (OECS) take practical measures, to revitalise their economies and considerably lower the money owed by the state. Within this essay I seek to provide several suggestions to achieve this; these include the establishment of strategic financial goals, the reduction in the size of public sector and containment of government payroll, the addition of new tax systems, the diversification of economies and enhancement of agricultural sectors.
OECS member states’ governments must set and achieve clear financial targets in order to reduce their national debt. This was demonstrated in the Barbados Stabilisation Programme of 1991-1993, the strategy resulted in the reduction of debt from 8 per cent of GDP in 1991 to 0.1 per cent of GDP in 1993 while foreign reserve rose by 700 per cent to $280 million. At the same time the value of the island currency was maintained. It is evident therefore that such strategies will be key to debt reduction in our sub-region.
An additional means of reducing national debt is to cut public sector wage bill, both the numbers and remuneration of public officers. At least fifty per cent of national debt is incurred because of government’s commitment to personal emoluments. This was the case in Montserrat, where in 2011; the government contained the number of employees, did not fill some positions, froze annual increments and deferred salary increases indefinitely. As a result monies that were allocated in the budget for such payments can be used for payment of debt.
However, in order to ensure that this option is feasible, it must be coupled with a privatisation strategy and transfers to statutory agencies. For example, in 1992, the Grenadian government divested 90 per cent of its shares in the National Commercial Bank of Grenada. This sale resulted in an increase in government revenue, reduction of its liabilities and the expansion of the private sector.
Alternatively, OECS governments can proactively respond to debt management by increasing revenue as opposed to cutting expenditure. This can be achieved for example by simplifying and modernizing the tax system through implementation of Value Added Tax (VAT). According to Central Government fiscal accounts reports, in 2006 VAT contributed $69m to the Dominican economy but by 2010 made a contribution of over $123m to revenue. VAT ensures that the entire resident and visiting population contribute to revenue.
However while debt reduction is essential, our OECS states must remember that heavy austerity measures may not be the root of the solution. As in the case of Greece such a decision proved detrimental to the Greek society as it resulted in mass civil unrest and violence. According to the Washington Post, “as riots raged outside the Parliament... lawmakers fought inside chambers as well.” Does our region really want to risk such political and social chaos at a time like this when we are struggling to make ends meet? Such battles would be costly to resolve and should therefore be avoided.
What then is the next step? Having reduced the amount of debt, it is now necessary to identify ways to stimulate the economy through development of new industries.
It must be noted that although tourism is very important to our islands it should not be the mainstay of our economies. Grenada earns over 50% of its GDP from this sector and this is significant. However, in 2004, Grenada’s economy was severely devastated when Hurricane Ivan struck and left her with a debt ratio exceeding 200 % of its GDP. This vulnerability demands that the OECS diversify to non-traditional industries. One such example is the renewable energy sector. The geographic location of the OECS provides the opportunity to harness natural resources for the generation of affordable energy. Dominica’s government implemented the Geothermal Project just
last year, after reviewing the cost of fossil fuel imports (e.g. $27.7m in 2009) and deeming it unsustainable.
As a consequence, this initiative will produce affordable and sustainable energy for the foreseeable future, minimise reliance on imported fossil fuel, provide the opportunity to supply surplus energy for export, reduce the cost of production for local businesses, create new jobs, cut unemployment, lessen greenhouse gas emissions, and create by-products that are exportable and can earn foreign exchange.
Similarly, OECS countries can stimulate economies through advancement of agricultural industries. This development must come in the form of expansion of the industry to provide for the 643 000 people in our region, training of farmers to improve farming methods, the use of technology to improve efficiency of production and quality of products, emphasize manufacturing raw produce into processed items, the shipment of processed produce to developed countries and the export of produce among OECS islands to reduce importation. This however, must be achieved along a sound intra OECS transport policy similar to what is practised between the French islands of Martinique and Guadeloupe.
The results would be a reduction in the cost of living, an improved standard of living, increased job opportunities, industrial development like bottling and canning plants as well as the supply of food for businesses in the tourism industry like hotels and restaurants.
It is undisputable that our member states are in grave debt and that our economies need to be stimulated. However, what is even clearer is the need for our leaders to take viable steps to transform the OECS into a debt free and productive region. We cannot and should not stand by and do nothing about it. In the words of President Obama, Yes we Can!
Bibliography
Central Government Fiscal Accounts _Dominica, Dominica Energy Week, Ministry of Public Works, Energy and Ports, November 2011.
Thompson David.” Managing Government Finances” Monya Anyadike- Danes, Business, Government And Society_ Caribbean Writings on Caribbean Issues, Centre for Management development, 1995 2nd edition; pgs. 1-10
Venner, Dwight K. “Eastern Caribbean Currency Union Economic Review” www.eccb-centralbank.org, 20 January 2011, Eastern Caribbean Central Bank, March 1 2012, http://www.eccb-centralbank.org/PDF/2010EconomicReview.pdf
Venner, Dwight K. “Eastern Caribbean Currency Union Economic Review” www.eccb-centralbank.org, 23 February 2012, Eastern Caribbean Central Bank, March 16 2012, http://www.eccb-centralbank.org/PDF/2011_ECCU_Economic_Review.pdf
Websites visited:
http://www.antiguaobserver.com/?p=56075
https://www.cia.gov/library/publications/the-world-factbook/geos/gj.html
http://www.eclac.org/publicaciones/xml/5/9885/carg0671.pdf
http://www.washingtonpost.com/world/europe/greeces-parliament-approves-spending-cuts/2012/02/12/gIQALCKJ9Q_story.html
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