Several weeks ago I indicated that a cold economic breeze was facing the Caribbean and that St. Kitts & Nevis was destined for a direct hit. The recent IMF Report on St. Kitts & Nevis which indicates that the economy will have negative growth in 2009 and beyond merely confirms my predictions based on the economic performance of the central government in St. Kitts. The government has been elected to manage the economy which includes the implementation of policies and programs which are designed to increase national welfare, generate employment through stimulating the private sector, reduce poverty, provide health care, education, maintain national security and protect the country’s resources. The government has relentlessly pursued a policy of tax, spend and borrow to finance capital projects and budget deficits. The girector of audit reported that budget deficits amounted to EC$652 million by 2007. These activities resulted in an unsustainable national debt. The national debt is the total borrowings of the government. In 2008 it stood at EC$2,600 million. The debt service ratio was 186% of Gross Domestic Product (GDP). GDP is the total value of goods and services produced in this country in a year. Essentially the government is spending faster than the available goods and services in this economy. The IMF has stated on numerous occasions that it is “an intolerable state of affairs.”Subsequently the nation has been informed by the minister of finance that it has borrowed a further EC$565 million and a further EC$50 million from Social Security to build houses for poor people. The total debt now exceeds $3 billion. The government’s casual attitude to debt creation is summed up in the minister of finance’s statement to the nation that, “The government has exclusive power to impose charges on the people. These include the imposition of taxes and duties and the liability for loans and guarantees.”St. Kitts is the second most heavily indebted nation in the world. The economic future is very bleak and cloudy. Budgeted revenue is expected to be reduced by 20% for 2009. Moreover debt service payments is EC$200 million and climbing. Presently it consumes 47 cents out of every dollar collected. As revenue falls the percentage used to service the debt increases. Education, health and national security will be sacrificed. It is essential that the nation be given a breakdown of the national debt, the funding agency, the terms and the projects on which the sums have been spent. The engine of growth as identified by the government is ‘tourism”. This contributed 6% to GDP in 2008 and revenues from this activity fell by EC$36.53 million (ECCB). This trend is expected to continue into 2009 and beyond. Remittances from abroad amount to EC$8 million annually. This will decline as the economies of North America and Europe growth rates stagnate. The economic realities facing the nation cannot be solved by postulations and threats of revolution. Policies and programs are needed to alleviate this economic crisis facing St. Kitts & Nevis. The national debt must be curtailed and reduced. This can be done by allocating the receipts from land sales, the sale of citizenship by investment, to this activity. Concerns have been expressed about the location of funds obtained from this source and the involvement of a foreign legal firm to whom commission is paid whenever applications are approved. The government can no longer borrow to finance its activities. The nation cannot pay additional taxes. Inflation has reduced disposable income. The postulation that land and more land are suddenly available to all is very appealing. However the loan to purchase the land has to be repaid. Unemployment is rising and with it a rising crime rate. One in four persons in St. Kitts is classified by the CDB (2007) as poor i.e. they can only afford a plate of food daily. The fall in remittances will adversely affect this group. They are also at the bottom of the employment ladder. Several economic policies can be implemented to curtail the downward trend. The Government has to accept that growth can only be generated through the private sector and government working in partnership. The local business sector must be provided with investment incentives to generate projects and to invest in plant and machinery. The emphasis should be on employment generation. The policy of soliciting large multinational hotels to this country brings its own form of servitude. There is some concern as to whether the room tax collected is available to the Government. The agricultural and agro-processing sector of the economy requires serious review. Programs and policies aimed at increasing food production to grossly reduce the food import bill need to be developed. The pricing policies of local farmers leave a lot to be desired and should be a concern of Government. The above policies will generate employment and revenue to Government without additional taxation.
