How did the saint lucia labour party (slp) crash the economy
HOW DID WE GET TO WHERE WE ARE AND WHAT MUST WE DO TO GET OUT OF IT
It is all well and good for the Prime Minister to be admitting that the country is in
dire straits and needs to make the necessary changes to solve it. But it will be a
whole different story when his government blames the previous administration for
what was obviously a case of his government’s mismanagement of the economy. This
is what happened to the economy according to data and narrative from the Social
and Economic Review 2012-2013.
1. The years of 2008 and 2009 were bad for every country owing to the Global
Financial Crisis. Our regional neighbors also suffered and like us, most of them
started on a slow path to recovery except a few unfortunate ones like Barbados
and Grenada. Saint Lucia suffered a huge drop in Private
Consumption/Spending over those two years by a whopping $392M. That drop in
consumption resulted in a drop in recurrent revenues of $45.44M. However,
those blows did not create a current deficit as the then administration was
prudent with its spending, keeping recurrent expenditures below recurrent
revenues at all times. Instead, the country recorded a current surplus of $72.79M
in 2009 in the midst of the Global Financial Crisis. With a current surplus you
are able to pay your recurrent expenditure with recurrent revenues with the
excess going towards assisting with the financing of your capital programs.
2. In 2010 the country’s recovery was almost immediate with an increase in Private
Consumption of $327M accompanied by an increase in recurrent revenues of
$28M. The Cost of the interventions that helped the recovery process had the
effect of a drop in the current surplus from $72.79M the year before to $45.06M
in 2010 but would continue to increase in 2011 to a figure of $59.33M.
3. 2011 saw a continuation in the increase of Private Consumption and the general
recovery of the economy, which again was accompanied by an increase in
recurrent revenue of $48.18M. The increase in household spending or Private
Consumption grew that year by a huge figure of $248M. A current surplus larger
than the previous year was achieved at a level of $59.33M. That financial year
ended with the SLP in power after having won the November 2011 general
elections. No current deficit was recorded that year, no economic down turn.
Economic growth of 1.3% was recorded with optimism from international agencies
of further growth for 2012, albeit sluggish. The year ended with a current surplus
of $59.33M and an overall deficit of 6.56% of GDP something that is not unusual.
In fact in 2005 the overall deficit was 7.10% of GDP and we did not suffer a crash
in 2006. And yes, government’s deposits at local banks stood at a healthy $236M
at the close of 2011 (the treasury was not empty as the official propaganda
4. Enters the year 2012. What was different about that year that would change the
course of this country in the downward direction for another two years with a
third being projected by the CDB? Was there a 2012 regional or international
crisis different from what the previous administration was confronted with?
Here are the known changes in 2012:
a. New SLP policies and programmes – huge expenditures in social
programmes that don’t grow the economy and create real jobs.
b. The Implementation of VAT as a Revenue Generating Tax – not all services
attracted indirect taxes before VAT.
c. The New PM started a campaign of fear in the country saying that he had
inherited a messed up economy that he has to fix. He called for sacrifices
from everyone because the UWP had messed up the country. The facts
presented above which came from the Social and Economic Review of 2012
and 2013 did not corroborate that claim by the Prime Minister.
d. Increase in recurrent expenditures by $88.81M which represented a figure
of $29M more than the recurrent revenues recorded in 2011. It means that
the PM was expecting an increase of at least $29M to avoid a current deficit.
With recent revenue growth figures of $28M and $48M over the past two
years, a $29M growth would surely be reasonable. With all things
remaining equal, a $20M current surplus could have been expected. BUT
WHY DIDN’T it happen? Why instead did we suffer a drop in recurrent
revenues of $22M? Was the external environment any worse than it was
over the three previous years? In fact the SLP boasted of record Tourist
Arrivals in 2012. Jadia Jn Pierre was all over FaceBook boasting. So, the
external environment COULD NOT be the culprit. So what went wrong?
Compatriots, the only thing that could reasonably explain the 2012 fiscal mess
is the Prime Minister’s fear-mongering. With all of his experience in the
leadership of the country; he should have known that you don’t ask
households to make sacrifices; you don’t instill fear into your local economy.
That has the selfsame effect of a recession! Households willfully cut spending
in those circumstances that is why governments must create stimulus
packages to reinvigorate economies that are so affect. But you, as a
government, must never create fear in your local economy. SLP supporters
were all over FaceBook advising each other to eat less, party less and
ultimately spend less so that the Prime Minister could ‘FIX’ the economy.
You can’t grow an economy if people are not going to spend! The people of this
country took heed to the PM’s call and started to cut on spending which
explains the $207.5M drop in Private Consumption in 2012. But that would
be exacerbated by the implementation of VAT in that same year sending several
borderline businesses into mortality along with a procession of economic woes
such as increased unemployment, reduction in government revenues of $22M,
a current deficit of $52M and 1.5% economic decline.
2013 was a bit better with a growth in recurrent revenue which WAS NOT
accompanied by a growth in Private Consumption. Private consumption
continues to fall, this time by $51.6M. That eventuality is explained by an
improvement in general tax collection which was also cited in the narrative of
the Social and Economic Review of 2013. It means that while people are
spending less, government is able to milk every drop of tax from them.
On the basis of the foregoing, it would be very unfair for the public servants to be the
ones to suffer in the correction of this problem. The claim that the public service is
bloated cannot be a good excuse for wanting to cut their pay. The fact of the matter
as represented by the Social and Economic review of the past 15 years is that
Salaries and Wages as a percentage of Total Recurrent Expenditure has hovered
around 45%. In 2012 it was 43% and in 2013 only 44%! So while we have, for the
past decades, been lamenting about the growth of the public service; its pressure on
the current fiscal platform is not unusual and does not constitute a crisis!
Here is what the government needs to do to fix the economy.
1. Review some of the new political appointments that were made in 2012 in the
missions and elsewhere. Since those people have hardly grown accustomed to
their new and improved salaries, they should be more amenable to a pay cut.
2. Suspend NICE/STEPS and the Laptop untargeted social programs. You can’t be
asking for public servants to take pay cuts are is buying laptops for students who
already have large home computer networks.
3. Government needs to concentrate more on spending in areas that could grow the
economy and so the monies going to the social programs can be directed to more
4. If there is a cash flow problem, a sunset levy on electricity (cut ozone emission)
could be implemented across the various sectors of the country so that we all
share in the sacrifice and not only the Public Servants.
5. The levy in #4 should be large enough to be able to finance a 5% increase in
Public servants pay as it is the expenditures of permanent income earners
like public servants that is need to increase Private consumption which has
been falling since 2012. You need to encourage public servants to spend and so
should include in that package incentives for public servants to invest that
increase in salary in concessionary mortgage loans through government agencies
such as the SLDB and St Lucia Mortgage Finance Co.
6. Government should reinstate the Airport tax for the HIA and place it into a
sinking fund to help meet governments its short term monetary obligations so
that we can continue to sell bonds and treasury bills. The government has
indicated that it has substantially dug into the existing sinking funds that it
inherited in 2011.
7. The construction industry can get a shot in the arm if the government implements
the Stephenson King’s idea of building homes for citizens on a lease to own basis.
The NIC can find this venture to be a very profitable one to fund. There are too
many folks who can meet their rent and would never be able to satisfy the banks’
mortgage terms. Those people can be accommodated in the lease to own
programme which will in turn boost the construction sector which has been
contracting over the past two years.