Dealing with debt

We also found out that the Government guarantees $19 billion of the debt from State enterprises, while there were no Government guarantees on $25 billion.

We found out that of all the State enterprises, only ten were revenue generating and eight were profitable. The facts surrounding this need to be clarified though, as NIPDEC, not considered a revenue-generating entity, has in fact earned foreign exchange based on projects executed in the Caribbean.

The most serious revelation, however, was that the Government is “targeting” debt to GDP of 65 percent. There are two issues that arise from the information provided at the Joint Select Committee meeting on Monday.

The first is the implication of the debt to GDP. The Central Bank reported in September 2016 that debt to GDP was 60.1 per cent. However, Standard and Poor’s reported in its latest rating release that the figure is 81.8 per cent. It is quite possible that this contains debt for sterilisation purposes. Whichever is used, these are very high figures.

The second is the operations of State enterprises and those that are revenue generators. What should be the operating mandate from the Government? It is worrisome that 65 percent is the “target” for debt to GDP. The IMF uses a debt to GDP ratio of 60 percent as the threshold above which negative consequences impact growth.

Greenidge et al.

Caribbean economists who worked in the IMF have argued that the figure for the Caribbean should be 56 percent. After 56 percent, any increase in debt to GDP has a negative marginal and average effect on economic growth. In fact, for this country, the cumulative loss in real GDP growth from 1980 to 2012, before the big jump in debt, was 6.26 percent. That figure has grown since then. Can we afford this drag on the economy? The second issue is how to treat with State enterprises. We need to ask what are the rules governing the operation of these entities? Should a government be allowed to take all the savings of an enterprise in the form of dividends? Are State enterprises employing too many workers? When compared with entities of similar size, are companies, eg Petrotrin or TTEC, carrying far more employees than similar firms in other countries? Once upon a time, utilities and other companies acted as employment agencies.

This certainly can no longer be the mandate. The solution must involve both price changes affecting revenue and cost changes to make the utilities more efficient.

We are trying to maintain our lifestyle while raking up debt.

This must change.

We also need to be mindful of the Greek debt crisis and a report issued by the Greek Ministry of Finance which listed the five main causes as poor GDP growth, government debt and deficits, budget compliance and lack of data credibility. Lessons learned from that experience showed that governments cannot endlessly spend more than they receive in the form of tax and other revenue. If a government goes too far it risks sovereign insolvency.

Secondly, a slow pace of reforms usually signals the limited political commitment of the government and, thirdly, democracy must involve responsibility for the decision taken, including all hardships associated with wrong choices. Let us look at the problems and try to find solutions that we all can agree to and that make economic sense.