Facing reality

The Budget has brought on to the front burner four major issues: 1. the nature of our budgeting, 2. the need for rigorous control of recurrent expenditure, 3. the economics relevant to SVG, 4. our lack of financial savvy.{{more}}

In countries bigger and more developed then SVG, the Capital Budget is financed by surpluses from the Recurrent Budget. SVG, like most OECS countries, has never really had significant surpluses on the Recurrent Budget. This is hardly surprising. These very tiny islands operate as fully fledged nations. To meet the recurrent cost of being a nation and still have a big surplus would require astronomical levels of taxation. The Capital Budget has, therefore, been mainly funded by grants and other receipts from abroad. This means that the Government in fact has comparatively little control over the funds. Currently we have a very good example of this. In 2010, our Capital Budget was $303 million, but by 2011, it had been scaled back by almost half to $176 million. Funds expected from abroad to finance several major projects never materialized and are unlikely to do so. This is why some have always felt that we should concentrate on dealing rigorously with the recurrent budget and simply watch and pray as far as the Capital Budget is concerned. The Prime Minister unwittingly lent support to this view when, in laying the Estimates, he said there were some projects to be funded by grants, but rather than inflating the Capital Budget, he would deal with them when the grants turned up.

What needs to be done as far as rigor in control of recurrent expenditure is concerned is blindingly obvious, but politically unpalatable. The world over the financial crisis has left many governments strapped for cash. They have had to face up to issues such as pensions and salary increases for civil servants. SVG is no exception, perhaps they may even have been clearer here than elsewhere. St Vincent was never going to be able to afford to pay civil servants a contributory pension as well as a non contributory pension. All pensions should have been made contributory. Moreover, given that people are living much longer, then the pension age has to be raised. In addition, the current low levels of NIS contributions have to be increased. The economy has not grown for two years and the recurrent budget is in serious deficit. Salary increases should, therefore, be suspended until growth resumes. If we do not, then taxes will have to be raised or other expenditure cut to pay the increases in salaries. We should be grateful to the CDB for helping to reduce the cost of servicing the Public Debt. Economies will have to be effected in the use of cars and electricity. We should join no new international organisations, perhaps even withdraw from a few. The foregoing measures may not be enough. We have to wait and see.

Economic growth in the short and medium term will have to come from agriculture, construction, tourism and energy. We, therefore, have to invest in these sectors with such projects as the international airport, the hospitality institute, roads, solar electricity and wind generators. Even though we are not able to budget for these capital expenditures with certainty, we have to hope that funds for them will come from the EU, Taiwan, Venezuela and the CDB. Some have described this emphasis on the four growth sectors as ‘old’ economics. I prefer to call it fundamental economics.

The ‘new’ economics seems to be tied up with poverty alleviation and human resource development. To achieve these objectives, the Government makes available micro finance, loans to university entrants, assistance to secondary school students with transport, examination fees and books as well as rewards when they pass exams. These are all laudable initiatives. However, it must be pointed out that the returns on these investments are long term and in some cases nonexistent. If you give people a university education and then all they do is demand jobs from government and not use their heads to help make the economy grow, then the expenditure on education will not have been very productive. This issue is so critical that that most successful of small countries, Singapore, has devoted considerable resources to trying to figure out how to

produce graduates who are creative. In SVG, we have to strike the right balance between the ‘old ‘economics and the ‘new’ economics. If we do not get it right then the finances of the public sector will become unmanageable.

The financial meltdown unmasked several foreigners based in the OECS operating ‘Pyramid’ or ‘Ponzi’ schemes. Most of the persons defrauded were also foreigners, but some even threatened to sue our Central Bank. With the problems of Clico and British American, it is our own people who, in some cases, may lose their life savings. It all points to the need for our people to become more financially aware. Our media would do well to devote more coverage to financial matters. In a way, the election campaign highlighted this same deficiency. Parties must issue manifestos clearly indicating how they intend to deal with our economic problems and the public be sufficiently sophisticated to decide if the proposals are realistic.