SMALL open economies such as Saint Lucia need to begin to be creative in developing our own matrixs to monitor our economic health. We have used Debt to GDP ratio as a matrix, and you hear many using the term with little understanding of its relevance. The fact is that the peculiarities of small economies cause the Debt to GDP ratio to be of little value in reflecting the economic health of our nation. The Government does not have access to all the national income, but only the share it collects in taxes. It is thus of greater importance to look at cash flow for countries such as Saint Lucia.
I did an analysis of the statistics found in the Review of the Economy -2015 as published by the government of Saint Lucia, using Appendix 35 – Summary of Fiscal Operations, as the core data. The Current Revenue was considered and the expenditure on Wages and Salaries, Goods and Services and Current Transfers were deducted from the Current Revenue. This amount would then be the amount of revenue the government has to apply to Interest payment on loans. This amount which I will call the Revenue Allocation Available to Loan Payment, was then compared with the Interest payment for the fiscal year. If there was a surplus then we are living within our means, if we are negative it means we are borrowing money to pay loans. This is reflected as the Current Balance in Appendix 35.
Saint Lucia’s economy has been in decline since 2009/10 and fell to the bottom in 2012/13. So bad was the situation that in essence we had to borrow $ 52.78 million in 2012/13 to pay our loans.!! It was the introduction of VAT that stabilized the government coffers resulting in a current balance of $ 36.23 million in 2014/15 and $ 73.84 Million in 2015/2016.
Dr.Ubaldus Raymond in presenting the justification in the Parliament for refinancing existing loans which matured in April 2016, advised that there was a cash flow problem and government had no choice but to roll over the debt as there was no money allocated for debt payments in this year’s budget.
It is for this reason that I would strongly urge the new administration to tread cautiously with the reduction in VAT and instead allow the economy to be further strengthened by accelerating the implementation of projects. Any VAT reduction should be deferred by 12 months. Within that 12 month period the review of expenditure can also be pursued. This is the raw data, this is the reality, the economy is too fragile at this point to sustain any loss of revenue, and responsible and pragmatic leadership is required on this matter.
I would also suggest that a new matrix be created to monitor our spending and borrowing habits going forward and that should be the Interest Payment to Revenue Available for Interest Payment Ratio. I am proposing that it be fixed at 40 % as our threshold, and thus both expenditure and loans are to fall within that threshold.
The most important factor now is the implementation of projects. It is unimaginable that we have spent over $ 100 million on the St Jude’s Hospital. You hear stories of massive wastage of public funds, expensive equipment purchased that now have to be dumped due to the length of time they have been left in storage. The St Jude’s project is a national tragedy. The sad thing is that we are not learning as a nation, we had the fiasco of the Vieux Fort to Soufriere Highway, with the horrendous cost over-runs due to poor design and project management, and certainly there should have been some lessons learned from that experience. So there has to be a tightening up of how we manage projects.
The second aspect that needs to be addressed is the length of time it takes for projects to be implemented in Saint Lucia. I am fully aware of the Procurement Guidelines of the EU, the Caribbean Development Bank, the Kuwait fund ( KFAED), the World Bank etc, and while some wish to blame the funding agencies for the delays in implementation, this is the furthest from the truth.
The country has hundreds of millions of dollars locked up due to paucity of project management within the public service and these funds must be unlocked to create the economic activity which is much needed at this stage. One hopes that the new government can bring that change.