(This article was written by Sandra Ferguson in 2003. It is being reproduced in light of the current debate on restructuring the national debt now spiraling at EC$2.3 billion, and resulting in the cash-strapped island defaulting on payments to a host of creditors.
I write to express my dismay at the cavalier, dismissive and contemptuous manner in which the Minister of Finance (Anthony Boatswain) and other ministers of the current administration are treating the concerns of many citizens about the astounding level of the national debt incurred by the NNP administration since it assumed office in 1995.
While the Minister of Finance and his colleagues repeatedly assure the nation that the critical issue is Grenada’s ability to repay the national debt, none of them has offered any explanation or outlined plans as to how Grenada will generate the required revenues necessary to service the debt.
Indeed the strategy demonstrated over the last year seems to be BORROWING HERE TO PAY THERE”!
The nation understands that the critical issue is the ability to repay and therein lies the concern. For it is we the citizens who will be called upon to make sacrifices and bear the burden of debt repayments. The adage that one should live within one’s means is equally applicable to individuals and nations.
Maybe, it is an opportune moment to remind the Minister of Finance that Grenada’s ability to borrow from international institutions was restored by the voluntary Structural Adjustment Programme and the fiscal discipline imposed by the previous administration of Sir Nicholas Brathwaite.
This action was taken to prevent Grenada having to go the International Monetary Fund (IMF). The sacrifices and burdens that had to be borne by the Grenadian people during this period cost the NDC the 1995 elections.
But the Minister of Finance should be well aware of this. After all, he was the Macro-economic Planner in the Ministry of Finance at the time and, no doubt, would have been instrumental both in shaping and implementing the voluntary adjustment programme.
Though not “one of the pack”, I have heeded the advice meted out to “political jokers” and checked out the reports of the ECCB, and other institutions.
Permit me to suggest that improved TRANSPARENCY on the part of the Ministry of Finance would facilitate a greater appreciation of developments within the economy. It is regrettable that the Ministry has seen it fit to stop issuing the quarterly economic reports which kept interested citizens abreast of developments within the economy.
(Last time I checked, the reports had not been approved by Cabinet and could not be circulated.) Also, a more comprehensive Budget Speech, replete with facts and figures would help informed analysis.
CDB Annual Report:
I have looked at the 2002 Annual Report of the Caribbean Development
Bank. This is what the report had to say on Grenada and the National Debt:
“With a sharp deterioration in the fiscal position and mounting payment arrears, the government issued a (US)$100mn international bond on the capital market yielding 9.5 percent to consolidate its debt, retire more expensive debt and pay down on outstanding arrears.
With the funds raised government restructured its recurrent obligations by opting out of onerous commercial lease purchase contracts for the National Stadium and the Ministerial Complex.
Government also cleared its outstanding claims to small contractors and paid down on arrears to the National Insurance Scheme.”
The report also made the following observations:
(1). Government’s U.S. $100mn bond issue significantly increased external indebtedness. New borrowing in 2002 is estimated to push external debt from (US) $214mn (38.4) percent of Gross Domestic Product) to (US) $244mn (or 60 percent of Gross Domestic Product).
(2). Central Government debt position rose markedly to 78 percent of Gross Domestic Product when domestic liabilities are included.
(3). When contingent liabilities from guaranteed debts are included the total debt is just over 100 percent of Gross Domestic Product.
(4). Securing external loan funds during 2002 was necessary to maintain central government expenditure operations which remained expansionary.
(5). The government capital spending in Grenada remained high in comparison to other countries within the region.
(6). Recurrent expenditure reflected an increase in obligations.
(7). Debt remains a critical management of the economy and efforts will need to be directed at debt reduction and, in turn further, fiscal consolidation.
THE INFORMATION CONTAINED IN THIS REPORT SEEMS TO JUSTIFY THE NATION’S CONCERNS.
It is interesting to note that at the last Council of Ministers meeting of the
Eastern Caribbean Central Bank (held on October 17th, 2003 in St. Vincent),
Hon. Pierre Charles of Dominica admonished OECS ministers to pay heed to the Dominican crisis and put in place the necessary remedial measures to prevent themselves from falling into the jaws of the IMF.
OUR ECONOMIES ARE SMALL, OPEN, VULNERABLE AND DEPENDENT – SUBJECT TO THE VAGARIES AND UNCERTAINTY OF EXTERNAL SHOCKS. ANY UNEXPECTED EVENT CAN ADVERSELY IMPACT OUR ECONOMY- NATURAL DISASTERS, FALL IN COMMODITY PRICES, POLITICAL EVENTS IN OTHER COUNTRIES ETC. We have to be prudent!
Economic Performance 1995-2000
The unprecedented growth of 1995-2000 of which the NNP administration boasts was driven by unsound, unsustainable strategies.
According to the IMF Report of 2000, growth during the period was fuelled by:
*The expansion of the offshore financial sector
Offshore Financial Sector:
The offshore financial sector was built around First International Bank of Grenada and its numerous correspondent banks. As it turned out, FIBG and its correspondent banks were fraudulent institutions, which swindled the life
savings of thousands of innocent persons.
This international scandal resulted in Grenada’s blacklisting by the Financial Action Task Force, destroying any chances of Grenada becoming a reputable centre.
Even before the ink was dry on Grenada’s Medium Term Economic Strategy Paper 2000-2003, which identified the offshore sector as an “engine of growth of the economy”, the sector experienced dramatic collapse.
This fiasco for Grenada appears to have been the result of:
*Incompetence and lack of due diligence on the part of the officials charged with review and licensing of offshore banks.
*The crookedness of certain key actors in the sector
According to the IMF Report 2000, the construction boom of the period was driven by debt-financed public sector projects, particularly the National Stadium and the Ministerial Complex, non-revenue generating investments.
These investments are the “onerous commercial lease purchase contracts” which part of the government borrowing of $100mn was used to clear. We, the citizens, are also concerned about the SHODDY WORKMANSHIP that the nation had to pay for, particularly in respect of the National Stadium.
And it is well understood that unless Grenada undertakes more million-dollar remedial work to take care of all those massive cracks and other defects in our “new, modern facility”, we can kiss goodbye to any chance of being considered the hosts of World Cup matches in 2007.
IS THIS PRUDENT AND COMPETENT MANAGEMENT OF THE NATION’S BORROWED RESOURCES? We also note that in spite of the magnitude of these projects, they contributed very little to increasing Grenada’s pool of skilled labour in this sector.
Economic Citizenship Programme:
This was another activity credited with contributing to our phenomenal economic growth during the period – selling of Grenada’s passports.
The result of this scheme is that a number of non-nationals of dubious character and reputation, some of them downright international crooks and fugitives, are now holders of Grenada’s passports.
To add insult to injury, some of these persons were even declared ambassadors -at large.
What do Grenadians have to show for this programme? The administration blithely disregarded the concerns of the Canadian government about this programme and poor bona fide Grenadians are now required to have visas to enter Canada.
While all the country’s economic woes are now being blamed on the events of September 11th, 2001, the ROT in the Grenadian economy set in long before and was only exacerbated by this unprecedented event.
Medium Term Economic Strategy Paper 2003-2005:
Still heeding the advice of the Minister of Finance, I have also reviewed the Medium Economic Strategy Paper 2003-2005for enlightenment as to how
Grenada will generate the required revenues to pay debt and facilitate
The MTESP acknowledges the intensifying of risks and uncertainty in the
aftermath of September 11th and notes that, “Today the world economy
remains subdued and the outlook for better growth is still uncertain. This is in spite of the stimulative macroeconomic policies implemented by a number of countries.”
TO MY MIND, THIS OBSERVATION SHOULD SUGGEST THE NEED FOR PRUDENCE IN THE MANAGEMENT OF THE ECONOMY.
The MTESP identifies the following sectors as engines of growth of the economy: agriculture, manufacturing, tourism, construction, government services, telecommunications and information technology.
While the MTESP presents very broad strategies for the sectors, it is very scant on specifics. No growth trends have been identified, no growth niches have been identified/targeted. It is significant that no strategies have been identified for the two bright spots in agriculture – nutmegs and fishing.
The construction sector is again driven by public sector debt-financed investment, the Cruise Ship Terminal Project.
The performance of tourism has been bleak. This what the MTESP has to say on tourism:
“In recent years efforts concentrated on increasing the number of hotel rooms and additional flights to the country and improvement in tourism sites throughout the island. There was also a concentrated effort to increase the number of cruise ship passenger arrivals and to develop the concept of sport tourism with the construction of the National Stadium.
“These efforts never achieved desired results as major airlines scaled down their services in Grenada, and cruise ships deleted Grenada from their itinerary and resources to market Grenada as tourism destination remains limited. These problems were exacerbated by September 11th events in the U.S.A.”
In spite of this dismal performance and the cruise trends, Grenada in 2002 borrowed $70mn to invest in a cruise ship terminal. Airlift is a critical factor in respect of stay-over visitors and the regional airline industry is in crisis.
The MTESP is mum on both issues.
Telecommunications and Information Technology:
Telecommunications has been identified as a major engine of growth. Information technology is considered “primordial” in the context of “new international economic conditions” and necessary to develop a “knowledge – based economy”.
Growth in the telecommunications sector is to be driven by the OECS Telecommunications Project, intended to liberalise telecommunication service and lower its costs, encouraging greater use.
I would comment that, to date, developments within the sector have not been encouraging. Between 2000 and 2002, the sector experienced decline with the shutting down of data-processing centres and call centres, and staff cut-backs by the country’s major telecoms provider.
Current developments appears to be one of wasteful competition – encouraging ordinary persons to spend money they do not have on cellular services they do not need and which will, no doubt, generate net outflows for the national accounts.
It also seems to matter not that the government and people of Grenada are 30 percent shareholders of our major telecoms provider.
WHAT IS THE STRATEGY TO ENSURE THAT THE SECTOR CREATES NET INFLOWS WHICH WOULD ENABLE US TO PAY OUR DEBTS?
A significant omission from the MTESP is the pet subject of Science and Technology, also a prerequisite for facilitating the development of a knowledge-based economy and enhancing Grenada’s trade competitiveness in this era of globalisation.
Debt Management Strategy:
Re Debt Management Strategy, the MTESP identifies the following:
*Training of officers in the Debt Unit of the Economic Affairs Division
*Government policy to be very cautious on the contracting of new debt, the basis of which will be guidelines provided by the Debt Unit, thereby giving the latter a greater input in the country’s management.
*Reduce the amount and number of debt guarantees for the private sector and statutory bodies, in keeping with the guidelines.
*Lower debt-servicing burden by raising cheap, financial resources on the international financial market to refinance debts.
ECCB Economic and Financial Review Vol.23 No. 1, March 2003:
Wanting to be thorough, I also consulted any available ECCB reports. The above-referenced was the most recent that was available, reviewing the economic performance of ECCB Member States for the first quarter of 2003.
According to the ECCB Review on Grenada:
(1). Economic activity increased relative to that period in 2002. It was driven by:
(a). the growth in agricultural production, nutmeg and mace
(b). Construction – the new cruise terminal, new general hospital, road rehabilitation and bridge maintenance.
(Note that all these construction projects are public sector investments through debt financing. Also note that it is the consensus of John Public that the standard of health care delivery has declined even further since the commissioning of the new hospital.
This lack of confidence is expressed in uncharitable names such as Departure Lounge and Baghdad. (This is regrettable.)
(2). Stay-over visitors fell by 10.5 percent and cruise arrivals also declined.
(3). Trade deficit increased as a result of increases in import payments and decline in value of exports (which fell by 23.4 percent).
(4). Current expenditure declined by 12.3 percent as a result of the termination of lease payments on the Ministerial Complex and the national stadium, following the purchase of the assets by government in 2002.
(However, note that the purchase was facilitated by a US$10mn international bond on the capital market yielding 9.5 percent – significantly increasing Grenada’s external indebtedness. (CDB Annual Report 2002)
(5). Current revenues declined by 7.3 percent. There was an overall fiscal deficit of EC$2.8mn
The communiqué of the 49th meeting of the ECCB Council of Ministers held in St. Vincent in October 2003 made reference to the Governor’s Report in respect of the currency union.
The report noted the following:
(a). The need for programmes which were growth-inducing complement to adjustment programmes now being carried out in member countries.
(b). The need for accurate and updated reporting on the economies at the national and currency union levels in light of current economic circumstances.
Having reviewed all these reports, one thing is clear. Debt Management is a critical issue for Grenada and there is no clear strategy as to how revenue is to be generated to pay off the debt.
I readily admit my naivete in matters of economic planning so I may very well have missed the finer points of the Medium Term Economic Strategy Paper. But this also holds true for the majority of people of the country. That is why we require explanations from the Minister of Finance and his colleagues.
After all, IS WE, THE PEOPLE WHO WILL HAVE TO PAY BACK THE DEBT AND KETCH HELL.