The NEW TODAY is not sure whether our people are paying particular attention to the entire contents of the 2013 budget that was presented on Tuesday by Prime Minister, Dr. Keith Mitchell in his capacity as Minister of Finance.
The Budget speech drove home the point quite clearly that the country is in dire financial straits and drowning in huge debts for our size and compounded by the lack of resources to pay back the borrowed money and the accompanying interest payments on a timely basis.
The people should not now be ignorant of the perilous situation facing the country as the Prime Minister was at pains to identify the root cause of the problem as massive borrowing by the State over the years.
He repeated what the former Finance Minister, Nazim Burke has been telling us over the years that the fiscal situation is unsustainable as expenditure has “outpaced and now exceed current revenues”.
In the words of Dr. Mitchell: “As a Country, we have spent more than we can afford on current operations. Moreover, we have tried to cushion the effects of major external shocks such as loss of trade preferences and hurricanes by borrowing. Above all, the size of government has grown beyond our capacity to sustain”.
THE NEW TODAY is in total agreement with the Prime Minister because
if the fiscal situation is not handled in an effective and efficient manner then Grenada could end up on a precipice that is similar in scope to Jamaica.
However, this paper will go much further than Dr. Mitchell and make the bold statement that a significant contributing factor to the debt situation is the high interest rates to be paid on some of the loans contracted by the last NNP government.
Apart from the NNP, all other governments in the history of the country borrowed money at very concessional interest rates of 2 to 5 percent.
As the exception, the NNP choosed very unwisely to borrow money between 2000 and 2004 at high interest rates somewhere in the vicinity of 9% or thereabouts.
Jamaica did the same under a former People’s National Party (PNP) government of Prime Minister P.J Patterson in order to extricate itself from the clutches of the Washington-based International Monetary Fund (IMF) and the bitter medicine that was being administered to help fix an ailing economy.
This high interest rates at which loans were secured by Jamaica came back to haunt the country when the time came for serving the interest payments on the debts as the anticipated growth in the economy did not take place.
The constant default on loans resulted in loss of confidence in the Jamaican economy. The country is almost on the verge of being declared “a failed state”.
Like Jamaica, Grenada has found itself in a similar situation in that when the time came to pay back loans that were borrowed at high interest rates, the country could not do that for a combination of reasons including the devastation to the economy by Hurricanes Ivan and Emily.
Grenada simple did not adhere to a few cardinal rules, firstly when you borrow you must pay back, and secondly, do not borrow if you cannot pay back.
What is badly needed in this country is a comprehensive and detailed analysis of the island’s debt situation to take into consideration all the loans and guarantees obtained since Independence from Great Britain in 1974 when the island became responsible for its own affairs.
As part of this analysis, information must be given on the terms and conditions under which all our loans in particular were secured by the various governments over the past 39 years from the creditors in order to truly determine whether the situation was prudently handled.
This is important in order to get a better understanding and appreciation of the interest payments that would have accrued over the years on the respective loans, and by how much they would have resulted in significant increases in the debt stock of Grenada, Carriacou & Petite Martinique.
Perhaps, the Permanent Secretary in the Ministry of Finance, Timothy Antoine, Accountant-General, Ambrose Obike, and the Debt Management Unit in the Ministry of Finance might be able to provide the nation with statistical data on the debt situation and their accumulation over the years.
Grenada has now found itself in the unenviable position of being forced to go back for a second time to the same set of creditors for a restructuring of its unsustainable debts.
The situation could be problematic as Dr. Mitchell himself acknowledged that some of the creditors might only be inclined to defer payments once again and hope to cash in on all their monies including arrears on interest payments at a later stage.
So in effect the country might get some kind of relief for the next five years or thereabouts but Grenada will once again find itself back in the same hole and most likely facing an even worst debt situation around 2018 or 2020.
The creditors are right now in the driving seat in so far as upcoming debt restructuring talks are concerned and Dr. Mitchell should have been more guarded in his speech when he declared that if the creditors insist on deferring repayments to a later stage then that will not be in the best interest of Grenada’s current circumstances.
It is widely accepted that none of the creditors can sell Grenada for debts owed to them. The problem is that Grenada needs to be careful in its dealings because it might run the risk of scaring away the very people with money that it would like to attract to invest in the government’s own pet project, the building of the much talked about “New Economy”.
What are the sacrifices that this generation will be prepared to do in order to help bring the problem under control? Are we saying “nothing” and to just leave it up to our children and grand-children to be further burdened by a problem due mainly to the ill-conceived policies of this current generation of leaders?
THE NEW TODAY is convinced that what Grenada needs at this stage is not a “hair cut” but a complete shave from creditors of some of the worrisome debts given the unhealthy fiscal situation.
This might only be wishful thinking since the critical debts would not qualify for debt forgiveness from governments since they were contracted with private sector financial institutions that are primarily in the business of making and not losing money on their investments.
Dr. Mitchell should be fully aware of the implications for the country if Grenada fails to get it right this time around with its debt restructuring by making sure that the appropriate measures are adopted in light of the grave fiscal situation facing the country.