The IMF is here; Debt Service Levy also?
This morning at about 9.30 am, a team from the International Monetary Fund (IMF) began ‘serious talks’ with the Keith Mitchell led administration at the Financial Complex. Inside sources state that the team arrived with a mandate to assess the government ability or lack of it to address the serious debt facing the country.
The Honorable Prime Minister has said publicly that the country cannot pay its current debts based on present arrangements. The crux of the problem is the high price debts contracted when the same NNP team comprising of Mitchell, Nimrod, Bowen, Modeste-Curwen and Bhola during their last term in government.
The NNP administration in an effort to hide the details of the country’s debt situation saw it fit not to publish the interest rate on these items in the 2013 budget Appendix F page 488.
The items are as follows
· International Bonds USD $ 193.54 --EC$522,565,020 --- Hotel
· International Bonds EC $ 183,957,200—Restructured Bonds including
This means that the ‘Problem Debts’ amounts to just over $700m. But what is this “Hotel” debt of over $500m? Note that the term of this debt is 2005 -2025. Will the Prime Minister and Minister of Finance provide the details of this debt to the Grenadian people?
The IMF team will no doubt be carrying out an assessment of the following key issues
· Macro-economic Situation
· Financing Gap in the Budget and governments plan to close that gap
· Optimal Debt Structure that the country can manage.
Recent press reports indicate that the country’s creditors have formed a grouping which will engage the process of renegotiating the country’s debt. The NNP led administration finds itself ‘renegotiating unsustainable debt under a payment standstill’. The government has not paid several creditors over the last few months. This is a dangerous development which has negative implications. This is not a viable option; Grenada is not Argentina. Argentina decided to reduce their debts by taking a decision to pay creditors only 33% of the total debt.
The IMF role is to develop a program with the government which is expected to address the issues mentioned above and to give a ‘clean bill of economic health’ before the creditors will sit down to look at our debt problems.
Grenadians can expect a raft of measures to be implemented by the government which will include but not limited to
· Reduction in Government Expenditure
· Elimination of Subsidies
· Selling of Government assets
· Retrenchment in the Public Service
· Reducing the Income Tax threshold from $ 60,000 per year to maybe $30,000
· Increased and expanded User Fees for Health Services and Education
· Reintroduction of the Debt Service Levy
· Revising VAT by reducing the amount of items that are zero rated or Vat exempt.
· Reducing social safety net programs like free school books, senior citizens assistance program (Poor Relief) among others.
This will mean higher food prices, increased unemployment, reduced disposable income, increased taxes and maybe the sale of the last remaining shares in Grenlec, Cable and Wireless and the banks.
All of this is being discussed behind closed doors and the public, who will face the brunt of these measures, are left in the dark. The government has a huge credibility problem as it was the same Mitchell led NNP were the ones who negotiated the Debt Rescheduling Program in 2005/2006. They said that the country will be able to achieve and sustain growth rates in excess of 5% year on year from 2005 onward. They growth rates experienced after the passage of Hurricane Ivan were based on monies used to reconstruct the country especially the housing stock. This is or was unsustainable.
That same leadership neglected the productive sector during their administration 1995-2008 and when reconstruction process petered out so too the economy went into a nose dive. During the period 2007 to 2013, the contribution of the Construction sector to Gross Domestic Product reduced by 51 %. The crows had come home to roost.
The regime ought not to spring painful surprises on the population and whatever is being considered for implementation must be submitted to public scrutiny. Open dialogue and participation by social sectors are key elements in this process.
The Prime Minister has hinted that he cannot guarantee that the process will be ‘painless’.
The Prime Minister and the NNP must accept responsibility for actions taken by them years ago that has come to haunt us all. The recklessness displayed when they contracted the US$100 million dollar bond must now be rebuked.
The time has come.
The coming IMF program must be discussed not only in the Parliament but in the communities so the people’s voices can be heard. The passage of the Electronics Crimes Bill shows clearly that the administration will do whatever it wishes even in the face of widespread public concerns.
The NNP monopoly in the parliament will certainly put our democratic system to the test.