Port Project and Debt Sustainability

by Luke Browne

The government is also investing in a new Kingstown Port in the amount of $670 million. This project is responsible for a substantial increase in government capital expenditure and has implications for fiscal deficit, public debt, the debt service ratio and debt sustainability. We cannot ignore the elevated level of public expenditure associated with this project. However, I believe that there is strong economic justification for it.

I am reinforced in this view by recent comments of Professor Justin Robinson. On Sunday 26th January 2025, Professor Robinson said on radio that he “accepts that these investments [in the airport and port for example] are critical for driving the development of SVG” and that “they require this increase in absolute level of debt and debt-to-GDP.” The professor endorsed the government’s approach with a caution that the investment must be accompanied by the laying out of a clear, credible and convincing long term fiscal plan or strategy for deficit reduction (deficit reduction plan) that balances new revenue with spending cuts that will result in a reducing trajectory of debt-to-GDP. He said that this is necessary for long term financial health. He suggested that a debt sustainability strategy that allows us to achieve the goal of reducing debt-to-GDP to a 60/70% benchmark by a particular date might be in order. He also emphasised the need for good and efficient project execution and management.

The port project was absolutely necessary. We have two cargo ports – the current Kingstown Port and the Campden Park Port.

The Campden Park Port deals with containers. The current Kingstown Port has exceeded its useful operational life, is in poor and deteriorating condition with portions of it unusable and is liable to structural failure at any time.

This would have disastrous consequences from an economic standpoint due to delays in export and import of goods. As it turns out, we had a foretaste of this scenario courtesy Hurricane Beryl. The maintenance costs of this current port are high.

Given the condition of the port, the cargo throughput at this point will not be able to exceed a certain level without posing an unacceptable risk to ships and operational personnel. Additionally, we can only currently accommodate relatively small cargo vessels with a capacity of only up to the volume of 1,200 twenty-foot containers. This is a serious point because of a trend in the maritime sector towards larger ship sizes.

As a result of the port project, we will consolidate our cargo operation at one site.

We will have better and more modern port facilities with lower maintenance costs.

We will be able to accommodate larger vessels (increase in maximum vessel capacity from 1,200 twenty-foot-containers to 2,400 twenty-foot-containers). This will reduce shipping costs.

We would also have a higher capacity in terms of cargo throughput and a reduction in the time required for cargo vessels to berth and discharge their cargo because of the use of more efficient port equipment and improved cargo handling and storage procedures.

We will have the additional benefits of lower trucking costs since the container port will be in Kingstown and closer to the main importers and not in Campden Park, as well as the release of a very valuable 8.4 acres of land in Kingstown and 3.5 acres of land in Campden Park for productive use upon completion of this project. I believe that the value of this land is over $100 million.

According to the CDB, the economic rate of return (ERR) for the project based on a conservative analysis is 13 percent. The CDB also said that the project will improve the ease of doing business (one of the World Bank’s Doing Business indicators). Currently, SVG is ranked 130 out of 190 countries with respect to ease of doing business.

The Port project is expected to enhance the prospects for private sector-led growth in the economy over the longer term, generating government revenue that will assist with debt sustainability and expand our fiscal space.