By David Prescod
AS the Prime Minister delivered his New Year’s address this year, he asked that we have “faith and confidence” in his government’s design of the Citizenship by Investment programme.
The phrase stuck in mind, simply because the concepts which they imply are so different. Faith has a religious connotation, a belief in things not seen or proven, while confidence is generated by physical evidence of that which we are supposed to be confident in. They’re not compatible.
In the developed world, confidence is a serious matter, and governments regularly measure it as a gauge of how the business sector views the impact of government policies on their businesses. They also measure the degree of confidence that consumers have in the performance of the economy.
As you might expect, increased confidence by the business sector is generally accompanied by increased confidence from consumers, which leads to increased economic activity, which then leads to increased business confidence. Confidence is something that feeds on itself. We may not be able to command it, but it can be grown.
We make that reference to confidence as the Prime Minister has again made a commitment to construction of the Dennery to Gros-Islet highway in his 15-point pledge, and only a confident nation can embark on an enterprise of that magnitude. Little however is known of what that project entails.
With no information available, but in order to arrive at some understanding of the scale of what is likely to be proposed for this new highway, I undertook what used to be called a “back of the envelope” exercise – all the calculations fit on the back of that envelope. On top of that, with no facts available, I made up my own, something which is also becoming kind of normal in St. Lucia.
Within ten minutes I had arrived at a possible cost for this highway of $348m. which on reflection did not include the usual “cost over-runs”. For that we added in another $52m., (should be enough there for everybody!), and rounded the projected cost to $400m.
This is massive expenditure for a country our size, and if the question to be asked is whether or not we can afford it, the answer is a qualified no. If the question is “Do we need it?”, then the answer to that is a definite yes. And if the final question is “Can we pay for it?”, then the answer to that also is a decided yes, the point of that $400m estimate being not to establish an accurate figure for construction, but to show that we can dream big and work towards achieving that dream.
Here’s how. First we divert the $150m that is to be spent on the Choc to Gros Islet dualling.
Second, the Prime Minister has indicated that we are to receive £40M from the UK as grant aid and that he would allocate that grant to this new highway. That’s another EC$156M.
Only $94M to go, and we should be able to borrow that from the CDB. If not, then rather than constructing that $64M administrative complex in Vieux Fort with NIC funds, apply those funds to the new highway. Now, $32M is left to be found, and we should be able to borrow that on the bond market over the construction life of the project.
As they also say, QED – Quite Easily Done. Except that it is not quite so, as first, I still haven’t been able to find confirmation of the British grant to St. Lucia. Score: Faith 1 – Confidence 0.
On top of which, the figures given for the grant by our Prime Minister have varied from £30M in February, to £12m. in March, and then to £40m. in April of this year. While one can put those differing figures down to the Prime Minister’s staff, (he should fire them), the changes do not inspire confidence in his commitment to this project. Faith, maybe, but Confidence, no. Score: Faith 2- Confidence 0.
With confidence slightly shaken, the next concern was the $150M to be taken from the Choc to Gros Islet project, and so we did a search. What we found is that there are two loans for the funding of this project, one from the Kuwaitis in the amount of approximately US11.9m (EC$32m.), the other from OPEC in the amount of US$18m (EC$49m).
With total loan funding coming to EC$81M, where is the remaining $69m. of that $150. project cost to come from? Confidence again challenged. Score: Faith 3 – Confidence 0.
Then, as we recall, the figure for the Recurrent Deficit for 2014/2015 was highlighted in an earlier article to make the point that the Prime Minister’s assertion in his Budget Statement for 2015 regarding additional borrowing could not be correct.
Having borrowed $15M and repaid it in 2014, it is impossible for the Prime Minister to claim that he could then borrow the same sum in 2015 without incurring further debt unless that repayment came from a budget surplus.
As we are in fact running a recurrent deficit, the Prime Minister would have had to borrow to repay that initial debt, and will have to borrow again to repay the new debt. Such a cavalier approach to the management of debt is not to be expected, and our ability to borrow must be under serious threat. Score: Faith 4 – Confidence 0.
But now, rather than debating the budget estimates, we have an election instead. And to announce that election our Prime Minister delivered a “Special Address” during which he again referred to the creation of 5,220 jobs in the last quarter of last year. Fortunately, it does not take much for us to visualize what that would mean.
Construction of a hotel such as the new one planned for Choiseul may generate as many as 300 construction and permanent jobs, and generation of 5,220 jobs would therefore require economic activity in that last quarter of 2015 at a level similar to the construction of 17 new hotels. We know that this has not happened, and that the economy has not created any new jobs. On the jobs figure, we again have to rely on faith. Score: Faith 5 – Confidence 0.
And as if to emphasize what little importance the facts really are, the Prime Minister, in that “Special Address”, indicated that VAT had raised $346m in the fiscal year 2015/2016, further stating that for every 1% reduction in VAT Revenue the country would lose $7.0m. This does not pass the test of simple arithmetic as 1% of $346m is $3.5m not $7m. New Score: Faith 6 – Confidence 0.
As for the Opposition’s proposal for reduction and ultimate removal of VAT which the Prime Minister subsequently referred to as “opportunistic and bizarre”, the Governor of the Central Bank of Barbados is on record, as recently as May 7, 2014, confirming his opposition to VAT. On the other hand, respected economists in Barbados are also on record as supporting VAT while at the same time holding the view that the current level of taxation is strangling the Barbados economy.
Yet in Barbados, neither side is calling the other names, and neither position on the keeping or removal of VAT is described as being “bizarre” or “opportunistic”. The reality is that both of our countries are suffering from high levels of taxation and low levels of economic growth, and there may be a middle ground somewhere for opposing views on the level of VAT, or for that matter its replacement.
For the Prime Minister to have to rely on Sir John’s stated intention to introduce VAT in his Budget address nine years ago in order to defend his own position now is not encouraging. Sir John’s intention was a reflection of economic conditions at that time, and the Prime Minister’s current reliance on dated conditions does not inspire confidence. Confidence again stressed, the score moves to: Faith 7 – Confidence 0.
And as we saw last week, we can have no confidence in the figures produced in the Budget Estimates either. Score: Faith 8 – Confidence 0. Note that these are all “own” goals.
From the Faith/Confidence scorecard, 8-0, we seem to be running a country based on faith, not on confidence. It may be time for us all to get down on our knees and pray.