Posted on

SVG: Yesterday, Today and Tomorrow


I had reservations on SVG going it alone as an independent state. We, however, had no choice. The British no longer wanted us as colonies and the Federation had failed. We were not even able to reflect upon what constitutes viability in a nation state. On a purely pragmatic basis, one would think that, initially, a nation’s recurrent revenue ought to be able to cover its recurrent expenditure and a substantial part of its capital expenditure.{{more}} Capital expenditure is important for it makes possible investment in housing, roads, schools and other projects without which an economy cannot grow. With this sort of investible surplus, we would eventually get to the stage where, while welcoming foreign aid, we would not be too heavily dependent on it.

Around the time of Independence, the auguries were not good for SVG. Mainly because of the hike in oil prices, the Government virtually could not pay salaries in December 1974. It had to make a major push on three fronts to ensure that this did not happen again. In the recurrent budget, it introduced new taxes and raised old ones. It froze salaries in the public sector and curbed foreign travel. It set up the National Commercial Bank. The Government also redoubled its efforts to expand the manufacturing sector. These initiatives bore fruit. The economy grew by 9% per annum between 1975 and 1978. After not being able to pay salaries in 1974, it had by 1976 achieved a budget surplus. The salaries of the public sector which had been frozen for some eight years now had to be unfrozen with an increase of nearly 30%. This immediately resulted in a deficit. To make matters worse, the volcano erupted. We all realized then that SVG is not only small, it is disaster prone and very vulnerable to external shocks. We have always to keep a very tight rein on the public finances.

We limped along for some years. In 1985, however, a budget surplus was achieved, and this continued to be the case until 2008. We did particularly well in the period 2004 to 2008. Overall, the economy grew by about 25%, recurrent revenue grew even faster by almost 50%, so that by 2008 we had a record surplus of over $50 million. Then we had another external shock, not an oil price hike as in 1974, but an international financial crisis. Again we have been plunged into recurrent budgetary deficits.

Once more the Government has pulled out all stops. Firstly, recurrent expenditure is to be curbed by the measures mentioned in the 2011 budget.

Secondly, efforts to grow the economy continue apace. For several reasons, the manufacturing sector will not be able to play the developmental role it did in 1974. The Government has rightly focussed on the tourism sector. This is what the Argyle Airport, the Canouan Airport and the Hospitality Institute are all about. Direct foreign investment should lead to the emergence of the wind and solar energy sectors. The foreign exchange saved when we no longer have to import so much fuel for electricity will help the construction sector which relies heavily on imports. It has long been obvious that the banana industry will eventually cater only for the Caribbean market. What is heartening is the extent to which farmers and back yard gardeners have taken to fruit and vegetable production. In nearly every community, we now see stalls selling local produce.

Thirdly, a debt management strategy is in place. Presumably this is why the CDB took over $100 million of our debt and refinanced it at a lower cost to us. SVG is lucky to have a Director- General of the calibre of Maurice Edwards.

Fourthly, we have long sought to minimize recurrent expenditure by sharing with the rest of the OECS the cost of such services as the judiciary, civil aviation and central banking. The Treaty of Basseterre seeks to carry the process much further. But will it be enough? Should we not be plugging for a unitary state of the OECS? Nine governments and a regional co-ordinating agency like the OECS are a helluva lot of government for a region of only 600,000 people. It would certainly help Montserrat, which represents an extreme version of the dilemma all the OECS faces. In that tiny volcano-beset island, recurrent expenditure is twice recurrent revenue, and the people who have to make up the difference, the UK Government, are kicking up a fuss.

In the rest of the OECS, recurrent revenue and recurrent expenditure are more in sync, but we are not making the surplus that would make us less reliant on foreign aid. We must not wait until the aid donors tell us that the party is over. If we had fewer governments, would we have a greater surplus?

Developments in communications, such as the Internet and fast ferries, ought to facilitate the operation of a unitary state. United we ought to be able to put an end to the exploitation now prevailing in cruiseship tourism, a vital sector of our economies. The nations now on the move are the developing countries of more than 10 million people like Brazil, China, India, Nigeria, even Ethiopia. We have to grow our country starting with the OECS. One can think of many other advantages. At least the OECS/ECCB should conduct a study on the implications of a unitary state.