Prime Minister Dr. Keith Mitchell is anticipating a tough period of negotiations ahead in the coming weeks with creditors as the financially-plagued island seeks to restructure its massive national debt of EC$2.3 billion.
In presenting the 2013 budget to Parliament on Tuesday, Prime Minister Mitchell who is the country’s Minister of Finance hinted that some creditors might not be that accommodating.
Grenada has been forced to default for the second time in eight years on some of its debt payments in the face of an almost empty Treasury.
Dr. Mitchell raised the prospects of some creditors not willing to accept a “hair cut” in the restructuring effort and wanting to defer full payments to a later stage which will not be in the best interest of the island.
He told Parliament: “We anticipate that some creditors may want Grenada to ‘kick the can’ down the road by deferring payments once again. However, such an approach would not be appropriate in Grenada’s current circumstances.
“On this occasion, we must all acknowledge that there are no easy solutions. The Government and its creditors must take the time required to ensure that a decisive and credible solution is put in place”, he said.
THE NEW TODAY reproduces in full the disclosures made by Prime Minister Mitchell on the current precarious fiscal situation facing the country and its severe debt situation:
In 2012, the Government faced a worsening fiscal situation with revenues falling short of target even as recurrent expenditure continued to rise.
Current expenditures exceeded current revenues by $7.9 million. With the high monthly payroll including pensions, TAMCC and Board of Tourism of $28.5 million and mounting debt service obligations, the Government found it increasingly difficult to meet its current obligations on a timely basis.
On the back of a shrinking economy, revenues performed below expectations, falling short of target by some $26.5 million.
Total revenue collections amounted to $432.8 million. Collections from Inland Revenue amounted to $210.1 million, while the Customs & Excise Department collected $203 million.
At the time of the 2012 Budget Presentation, a financing gap of $156.5 million existed. This gap was never closed, as the sources of financing identified did not materialize.
Consequently, Government resorted to raising $95.5 million from the National Insurance Board and PetroCaribe Grenada through the sale of Government’s assets and issuance of treasury bills.
Reflecting the combined impact of lower revenues, grants and financing, the implementation of the 2012 Budget was severely hampered.
Current expenditure amounted to $440.8 million with personnel expenditure accounting for almost 52% of this figure.
The implementation of the capital budget was badly affected by the limited financing available. Capital expenditure amounted to only $103.8 million, less than half of the $235.2 million approved. Not surprisingly, the economy returned to recession.
This is in stark contrast to the bold pronouncement of the then Minister of Finance who arrogantly proclaimed and I quote “the recession has ended”. What a joke!
As it stands, Mr. Speaker, the Government fiscal situation is unsustainable. Current expenditures have outpaced and now exceed current revenues.
As a result, capital expenditures are being crowded out making it difficult to grow the economy and stimulate job creation – a vicious cycle.
The 2013 Budget must begin to address this structural problem. Mr. Speaker, our Government is prepared to take the bold and difficult decisions to put our Nation’s fiscal house in order.
However, Government cannot do this alone. All social partners and creditors must come together to help Grenada turn this situation around.
PUBLIC DEBT AND DEBT
On December 31, 2012, the total Public Sector debt was $2.33 billion or 108 % of GDP. This sum is broken down as follows:
Central Government debt – EC$1.92 billion
Government Guarantees – EC$409.74 million
Total Public Sector Debt – EC$2.33 billion
Mr. Speaker, Grenada can no longer service its debts on current terms. Furthermore, the sheer scale of our debt overhang against the backdrop of a shrinking economy has become a binding constraint on growth.
This reality is expressed in the recent IMF publication styled Caribbean Small States: High Debt and Low Growth and I quote:
“Many Caribbean economies face high and rising debt to GDP ratios that jeopardize prospects for medium-term debt sustainability and growth”.
Having recognized this fact, our Government took immediate steps upon assuming office, to embark on a comprehensive and collaborative restructuring of the Public Debt.
The terms of this restructuring will be revealed following discussions with Grenada’s creditors. Suffice to say, these terms must be appropriate for the circumstances Grenada faces. This will require addressing the quantum of debt itself.
We anticipate that some creditors may want Grenada to ‘kick the can’ down the road by deferring payments once again. However, such an approach would not be appropriate in Grenada’s current circumstances.
On this occasion, we must all acknowledge that there are no easy solutions. The Government and its creditors must take the time required to ensure that a decisive and credible solution is put in place.
Mr. Speaker, before I move on, it is important to note the following:
(1). When the National Democratic Congress left office in 1995, the public debt was at least $500 million (when guarantees are included) and not $373 million as they often claim;
(2). When the New National Party Administration left office in 2008, the debt which stood at $1.75 billion (when guarantees are included) was being serviced;
(3). There are many investments to show for this debt during the period 1995-2008 in respect of roads, schools and other infrastructure;
(4). Government was paying salaries of public servants on time;
(5). Government was not borrowing from the National Insurance Scheme;
(6). Government was not selling assets to the National Insurance to pay salaries; and
(7). Grenada was the fastest growing economy in the OECS.
All this changed when the National Democratic Congress arrived in office boasting, “no one could do it better”. I believe the Grenadian people have judged for themselves who can do it better.
Indeed, that is why, they have returned the New National Party to office with such an overwhelming mandate.