This is the second in a series of three articles where I look at the debt stock of Grenada, (i) How it began, (ii) Why we became unable to service the debt; and (iii) What are some possible solutions.
There is an anonymous quote that states “Age does not bring reason, it brings inability”. Inability in its ordinary meaning is defined as “powerlessness” and sometimes “hopelessness”. It is therefore very difficult to be unable and have hope at the same time. Grenada’s inability to service its debt as and when they fall due has rendered the island both powerless and hopeless.
In this the second article in this series I look at the basis of Grenada’s inability to service its debts.
The late George Brizan, who introduced most of us to economic theory, always began by looking at the scenario faced by the average individual and household in laying the basis for the understanding of the broader economy.
Therefore in our effort to understand Grenada’s predicament I will start by looking at the individual and the household and then transpose the scenario to the broader more sophisticated economy.
As a household, assuming that you were at one point servicing your debt adequately, your inability to service your debts can only arise due to two circumstances. (I) Your debt stock grew over a period to an overwhelming size or (II) your income fell below the required debt servicing level during the repayment period.
The first problem is the simpler of the two to address. Let us assume that you had contracted a ten year loan and had been repaying religiously for five years you can simply go back to your principals and say to them “look I have been paying my debts up to this point but things are a little tight now can you add back two more years to the loan, lower my interest rate and lower my monthly payments” most institutions will happily welcome this solution. The problem will be over and you can get on with your life.
The second scenario is a little more difficult depending on the circumstances of the case. Let us suppose that you were a construction worker and the sector took a nosedive, not only did you lose your job but the prospects of another job arising soon seem bleak. You may have to institute drastic measures and make severe adjustments to your lifestyle including but not restricted to the sale of your house and moving into smaller quarters or even rented property.
In the case of Grenada, the country began suffering from problem one somewhere around 2003. Indeed it was that financial squeeze that people were feeling in the country that caused the then NNP to move from an unassailable 15–0 seats in 1999 elections to 8-7 seats in the elections of 2003. Thus the government sought the required solution. They assembled all their principals and embarked on a debt restructuring campaign.
It is usual for NNP politicians to blame the hurricanes (Ivan 2004 and Emily 2005) for the island’s struggle with debt repayment and the need for restructuring of the debt obligations. However, the facts show a different picture, as King Obstinate put it in song “Long before Louis blow the terminal building was ready to go”.
The facts show that the hurricanes gave Grenada a sharp, extraordinary boost in total revenues, total expenditure, capital expenditure and economic growth well into 2007. However, by 2008, the spurt of growth would die away and the NNP would fall from office just as the structural weaknesses in the economy began to resurface.
After assuming power in the elections of 2008, the new government would commit the ultimate sin of introducing the value added tax (VAT). The history of VAT in Grenada since 1985 has been one of doom and gloom for the economy and its impact this time around is no different.
Between 2008 and 2012, total recurrent revenue collapsed from EC$465 million to EC $433 million. Simple regression analysis and expected growth extrapolation indicates that, at 2008 levels, the expected total revenue should have been over EC$600 million by year end 2012.
Meanwhile, the total recurrent expenditure rose to EC$441 million by the end of 2012, bypassing the total recurrent revenue and creating a financing gap. At the same time capital expenditure fell from EC$208 million to EC$104 million, choking the living daylights out of the economy and interring any prospects economic growth.
By 2013, the Grenadian people were presented with very little electoral choice.
They asked the gentlemen of the NDC to go home, leaving the country where it is today, with both problem number one and problem number two.
With every passing day, the acute nature of problem number two in particular increases its stranglehold on the nation. Insufficient income to meet its obligations as and when they fall due, no jobs, no friends and the condescending outstretched hand of the IMF, begging the nation to grasp at it.
Garvey Louison FCCA
Chartered Certified Accountant
CEO Louison Consulting