Leader of Government Business in the Lower House of Parliament, Gregory Bowen has said that the Fiscal Responsibility Bill, which is expected to take effect sometime this year, must be adhered to beyond the completion of the three-year Structural Adjustment Programme with the International Monetary Fund (IMF) in order for government to continue properly managing the country’s debt.
His comment was made while introducing a new amendment to the Bill during a recent sitting of the house held at the Grenada Trade Centre at Grand Anse, St. George.
The amendment provides a formula for the corrective measure that should be taken to address the issue of national debt where the ratio of public debt to gross domestic product reaches 50%.
The cash-strapped Keith Mitchell led New National Party (NNP) administration was forced to turn to the IMF and World Bank in 2013 for assistance as the country defaulted on debt payments due to a host of commercial creditors.
The fund helped the island to broker a deal with the commercial creditors in which the government is expected to make payments on the outstanding high-interest bearing loans commencing this year.
The Fiscal responsibility legislation, is one of many recommendations made by the IMF to Government to help bring about fiscal stability in the country.
Speaking in Parliament, Minister Bowen said the bill “has to be followed throughout the period of the structural adjustment and after, if we do not want to return to the situation of 2010, 2011…when we saw the vast deterioration in the country’s fiscal management.”
He warned that “it (would be) extremely difficult, if we do not follow and stay the course” due to the fact that, “we would fall back”.
“…So all the parties must come together to ensure that we stay the course,” he said, noting that, “the Social Partners would be a big asset in ensuring that we stay the course.
“If we don’t stay the course our children and the nation would have to go through something worse, much worse. Right now, we asked for the sacrifice to be made, people have made it… (but) we should never forget that if we don’t stay the course we will fall back”, he added.
According to Minister Bowen, who holds the Works portfolio, the bill makes specific recommendations such as if the targeted primary balance is exceeded then corrective action should be taken.
“The corrective action would be taken where the expected primary balance exceeds the targeted primary balance by 3 per cent”, he remarked.
“So from 2016, we have to start monitoring the primary balance against the targeted primary balance…we look at the ratio – debt to Gross Domestic Product (GDP) ratio – if our country expands its goods and services to the people then the GDP component would be larger and therefore we can take care of a large debt…we are trying to reach a debt to GDP ratio of 50 percent. So our debt should never be more than half of the GDP”, he said.
The senior government minister explained that the corrective measure has to do with a lot of things, such as wages and salaries, and increases in expenditure.
“It limits all of those, so it has great effect on the fiscal operations of the country,” he added.
Economic Development Minister Oliver Joseph voiced support for the bill, noting that “only two other CARICOM member states have it and a lot of member states are refusing to introduce it because it introduces strict discipline.”
Minister Joseph pointed out that “it (the bill) says what your debt to GDP ratio should be, what your primary balance should be, if you have to give any increase in the wage bill, what percentage of the GDP should be used, all these things are set out in law”.
“It’s there to ensure that we are guided and have fiscal prudence and that everything we do is done in a transparent, accountable manner and that we get the result that would help the country”, he said.
Grenada had raked up a massive debt of close to EC$1.7 billion between June 1995 and July 2008 under a previous Mitchell-led NNP regime as it engaged in a massive borrowing and spending spree.
Some of the loans were attracted at very high interest rates from non-traditional banking sources used by government especially in money markets in the United States and Trinidad & Tobago.