The thrust of this commentary is that the lack of continuity in our governance which is undermining our quest for sustainable development. I use debt management to support this assertion and recommend how we might change course.
Sustainable development – defined by the Brundtland Commission, as “development that meets the needs of present generations, without compromising the ability of future generations to meet their own needs” implies inter-generational continuity and equity in decision-making. It requires today’s decision makers to think about their successors, in terms of the resources that are available for their use, and the latitude they will have to make decisions of their own. We can best grasp this in the context of our country’s debt management.
The default disposition of fiscally prudent Governments is to avoid borrowing to finance development as much as possible, mainly because borrowing is costly, both in terms of time and money. The longer it takes for a loan to be approved, the costlier a project becomes, as increases can occur in interest rates, the cost of inputs, and the Government’s co-financing contribution to a project. Another downside to borrowing is that international financial institutions (IFIs) like the World Bank, may attach preconditions to their approval of loans, which typically require governments to adopt specific policies and laws before the money is released. This is almost always the case when governments seek balance of payments support from the International Monetary Fund (IMF).
Theory and Practice
The lower the debt burden, the more “fiscal space” current and future administrations will have to finance and manage development. If they can keep the ratio of debt-to-GDP—that is, the total value of the goods and services produced by the country – ratio to 60%, the more likely they will be able to provide the public goods and services needed to maintain economic stability. At least, that is the theory of it. In practice, it’s not that easy. Despite regular fights over its debt ceiling, the U.S. national debt-to-GDP was 121.67% at the end of 2023. Japan has been caught in a debt trap for more than 30 years. Its debt-to-GDP ratio of 263% is the highest in the world. Its efforts at pulling itself out of debt have been derailed by a series of natural and man-made disasters. However, it should be noted that the market size of these two countries, the widespread acceptance of their respective currencies as intervention currencies, and the levels of foreign investment in their economies renders the debt to GDP ratio less of an issue than in a small, open, resource-poor, economy.
Furthermore, as the pandemic revealed, there will be times when despite its best efforts, a country is unable to cope with a shock to its social, economic, and financial system, and must borrow to meet a shortfall between the money it receives from taxes, duties, and grants, and what it must spend to recover from a shock. In such situations, the economic recovery process must be managed so that new debt is minimized and is repaid as soon as conditions improve. Some countries who print their own currency see accumulating debt as “no big deal,” if inflation is contained.
Jamaica is a powerful exemplar to other Caribbean countries of the type of governance that’s needed to emerge from a debt trap. A spate of shocks dating back to the 1990s-including a banking crisis, the collapse of several parastatal companies, fiscal policy missteps, and the 2008 global financial crisis -thrust the country into a debt spiral so deep, that in March 2009, its debt stood at 124 per cent of GDP. Half of its tax revenue went towards interest payments. However, through a combination of admirable fiscal discipline by successive administrations, citizen ownership of fiscal reforms, informed private sector oversight and advocacy, and close civil society scrutiny of its financial commitments, Jamaica has been able to turn things around. Over the past six consecutive years, it has been enjoying regular primary surpluses of more than 7 percent of GDP; and for the first time in over two decades, its public debt is below 100 percent of GDP.
The Electoral Cycle
The five-year electoral cycle poses serious challenges to debt management and sustainable development. It is understandable that an administration would be eager to boost its chances of reelection by implementing short term projects. However, with so much of the government’s revenue going towards recurrent expenditure (wages, salaries, utilities etc.) invariably, a Government must borrow to finance these projects. The problem is that it can take at least 3 to 5 years to move a project from identification to commencement. Depending on the project’s size and complexity, completion can take at least another 3 years.
The Imperative of Continuity
These facts and realities provide a strong case for adequate measures to be put in place to ensure continuity in the management of projects and associated debt, whenever changes in administration occur. Sadly, as the following examples show, this has not happened.
For at least two decades now, both administrations have been attempting to introduce universal healthcare, but for various reasons, neither has been able to complete this task. Then there’s the Sir Julian R. Hunte Highway (SJRHH) widening project. Signage at the start point of the project site confirms it’s a government project. However, the former/current Minister of Infrastructure has publicly disavowed his Ministry’s involvement in any stage of this project.
Predictably, and understandably, this project has been halted by the Pierre administration, pending review. In my view, it would have been imprudent to have done otherwise. I was among many who voiced strong concerns about the project’s design and management. Naturally, if/when it restarts, material and labour costs will have risen, leaving taxpayers with a costlier project than was originally envisaged. The redevelopment of St. Jude Hospital (SJH) merits mention, for it ranks as the “mother of all calamities” not only because of the level of unproductive spending on its steadily expanding superstructure, but also because the rationale for a second full-function hospital, to serve 200,000 people was faulty. This project will continue to assault the sensibilities of conscientious Saint Lucians long after it is completed. As things now stand, at least twice as much money has been spent on it than on the OKEU Hospital, which is unacceptable to me.
It’s hard to not see these projects as clear examples of unsound governance. They indicate that various oversight mechanisms like Parliament and the Audit Department are not working as they should.
The Role of Parliament
Parliament’s role in managing public debt is clearly mandated by Clause 83 (1) of the Constitution. However, fulfilling this mandate has presented challenges. It is to be expected that debt policy will require tweaking by a new administration. However, because all administrations incur and inherit debt, it is critical that there is a bipartisan embrace of at least, key debt management principles, objectives, and targets. For the moment, there appears to be bipartisan acceptance of the regional debt-to-GDP target of 60% by 2035. However, in its 2023, Article IV Assessment Report, on Saint Lucia, the IMF observed that while public debt is declining, at 75% of GDP, it’s much higher than before the pandemic. The IMF projects that based on current policies, public debt should stabilize around this metric over the medium term, (3-5 years). However, it is calling for fiscal tightening, (reduced spending) by about 2% of GDP to reduce the budget deficit and the accumulation of debt.
This is a stiff challenge but, as Jamaica showed, it can be overcome, but only if there is an honest, fact-based, dispassionate discussion in Parliament on a national debt management policy and strategy. The current Cabinet has approved a Medium Term Debt Management Strategy (MTDS) 2023-26 that outlines how government will achieve its debt management objectives, and deal with risks associated with external, domestic, short-term, and long-term debt, and foreign currency denominated debt. Also, a Public Debt Management Bill is to receive its second reading. These documents provide a solid foundation for the Cabinet and Parliament to successfully manage our country’s debt.
The annual Social and Economic Review, which is often cited by the Minister of Finance and other Parliamentarians during the Budget Debate, usually reviews the public debt. The 2022 document devotes five of its 165 pages to various debt-related themes. However, I found this part of the document to be more descriptive than analytical. Importantly, few, if any performance targets were provided to gauge where debt stands, in relation to where it ought to be.
Whither the PSIP?
Linked to the debt issue is the management of the public sector investment programme (PSIP). I do not have the impression that the PSIP features as prominently in the debt management process and in the preparation of the budget, as it did up to the mid-1990s. During the leadership of Sir Dwight Venner and Ausbert d’Auvergne, at the Ministries of Finance and Planning respectively, the PSIP was akin to a sacred document. Its project profiles were so detailed that an incoming administration and/or its international development partners felt confident enough to use it to plan short and long term development. Instructively, no project was included in the Budget that was not included in the PSIP. This helped to guide decisions about what type of funding was best suited to a project. I would strongly recommend that the PSIP be reinstated to its full status and purpose.
The Long and Short of It
Granted, managing debt isn’t easy. Sometimes, it’s difficult for lay people like me, who rely on local media, to grasp the rationale for certain financial decisions. I am often flummoxed when money is borrowed for initiatives that appear better suited for funding from local revenue; and/or when local revenue that could be used to fund development is given away in tax cuts, in Keynesian expectation, this would increase consumer spending and spur economic growth. Meanwhile, the beneficiaries of these tax cuts continue to clamour for roads to be fixed, and for health services to be improved, etc. To me, local revenue used to fully convert the SJRHH to 4-lanes will yield a higher multiplier effect than tax cuts. Indeed, there is a compelling economic and even moral imperative to ensure that ALL public roads are always in top shape given the substantial tax yield from the purchase and operation of a motor vehicle. I am equally puzzled when precious local revenue is used to fund projects like horse racing tracks, that do not benefit as many citizens as would the refurbishment of a school, or the addition of a diabetes wing at the OKEU hospital.
A Way Forward
How can inter-governmental continuity and inter-generational equity in debt management be assured?
First, given that the budget cycle is the primary avenue available to Parliament to exercise oversight of government spending and public debt. I think it is crucial that Parliament put its house in order.
Second, systems and procedures should be established to foster genuine public participation in the budget process and to promote public accountability regarding government spending. The Budget Debate offers a priceless opportunity for the Government to share information on its development policies, programmes and projects and to build the public’s appreciation of the specific purposes of expenditure. For this latter objective to be achieved, more must be done to improve the public’s understanding of the way our economy is expected to behave under varying conditions and stimuli. Here, our government might copy Rwanda’s approach and publish a citizen’s guide to the preparation, implementation, and monitoring of the budget in English and Kweyol. GIS/NTN might run a programme called “The Budget and You.” Instructively, in Rwanda, the budget process starts at the community level.
Third, it is critical that the assumptions underlying the budget are clearly outlined, as the IMF’s assessment reports do. In addition to helping to temper the expectations of our people, it will force project/financial planners to consider pertinent “WHAT IF” scenarios. With climate change in the mix, the likely impact of extreme weather on project execution and financial performance must ALWAYS be assessed. This has implications for the infrastructure projects to be undertaken in the 2024/25 financial year.
Fourth, the transfer of power from one administration to another must be dramatically improved. I would prefer that this process be legislated for. Here, Permanent Secretaries carry the brunt of responsibility to prepare detailed briefs for incoming Ministers.
Fifth, Opposition parties should do more to promote continuity in governance. For starters, they should avail themselves of every opportunity to participate in public consultations on policy. During my lead role in the design of national policies—water, health reform, vector control and crime and security, between 1998 and 2006, I made every effort to encourage the participation of the then Parliamentary opposition in national consultations on these policies. Not once did a representative turn up. The use of “shadow ministers” could help to improve the transition process. If this role is taken seriously, it could help shadow ministers to understand the work of the department they ‘shadow’ so that they can hit the ground running, if elected to office.
Sixth, a cadre of public officers trained in project cycle management and familiar with the nuances of the major donors, should be established. This measure alone will greatly improve the quality of projects that are submitted to donors and shorten the time it takes to move these projects from concept to implementation.
Also, it is critical that the execution of projects funded through local revenue be properly monitored to ensure efficiency and effectiveness.
Finally, consideration should be given to changing the financial year from April-March to January to December. I firmly believe such a change will be more in keeping with the natural rhythm of the country. Currently, implementation of the budget effectively starts in June, which is also the start of the rainy season. This has serious implications for infrastructural projects.
We can and must do a better job of assuring continuity in governance, otherwise sustainable development will be a dream to be pursued but never attained.