ST LUCIA WILL FALL INTO IMF CLUTCHES IF PUBLIC SERVANTS DEMANDS ARE MET - PM

BY ERNIE SEON

CASTRIES, St Lucia, Monday January 7, 2013 – The St. Lucia government says while it is anxious to bring closure to the wage and salary negotiations involving public servants it is not going to endorse salaries that would further affect the economic situation in the country and force the island into the clutches of the International Monetary Fund (IMF).

In a nationwide radio and television broadcast on Sunday night, Prime Minister Dr. Kenny Anthony, who is also the Finance Minister, said the crux of the issue that faces the government is the ability to meet the demands of its 9,500 workers for increases in their wages by 15 per cent, spread over three years.

Public sector trade unions have rejected an offer of zero per cent increase and a onetime payment of EC$1,000 (One EC dollar= US$0.37 cents) and have called on the intervention of the Prime Minister to reach an amicable solution.

Prime Minister Anthony said the current proposal by the trade unions would increase the government wage bill by an estimated EC$55 million annually while the back pay associated with this proposal would cost about EC$40 million, “leading to a worsening of the current deficit of close to EC$100 million for this financial year.

“It also means that for every ensuing year, Government would have to borrow an extra EC$55 million just to meet the increase. This is clearly a path that a responsible government should not take.

“Even with the offers on the table from the Government Negotiating Team of a lump sum payment, which is equivalent to a one-off three percent increase, Government would still have to borrow an extra EC$10 million just to pay wages.

“We still have the chance to avoid going to the IMF but this will involve some very tough decisions. It will involve rebalancing our expenditure and taking steps to ensure that we borrow only for high-return capital projects. “

Prime Minister Anthony told the nation that St. Lucia cannot be oblivious to the fate that has befallen “once mighty democracies” in Europe, North America as well as countries right here in the region.

“Save for our pleas to our Maker and Creator, we have nowhere to turn for help to deal with our problems especially when they are of our own making. We cannot turn to the rest of the world for help. They have all abandoned us, consumed with their own challenges and what they believe to be their strategic interests.

“We are now seen by the rest of the world as a middle income state. This means that they want to disqualify us for grants and concessionary financing. The message is that we must stand on our own, despite our vulnerability to natural disasters and climate change, despite our smallness of means or might. They will invest in us only if they have an interest to protect,” Anthony said.

He said that it is clear that St. Lucia is at “a critical crossroad and face serious financial challenges.

Prime Minister Anthony said the mounting fiscal pressures are a consequence of low growth and attempts by successive governments to actively spur employment and protect the vulnerable.

“These actions are costly, as government has had to borrow heavily to support these activities. Fortunately, the financial markets continue to view the debt issued by our Government to be relatively sound.

“However, we must be extremely careful moving forward. Given our previous and current borrowing needs, we have arrived at the point where caution must be exercised in choosing the programmes and projects to be financed with debt.  Our rate of debt accumulation must be reduced and this must be done without delay.”

He said while there has been much talk about the Value Added Tax (VAT) and its impact on revenue to the point that some people even say the government has had a VAT windfall and so can pay the demands of the public servants, based on the early trends, VAT collections appear to be in line with what was expected.

“It does not appear that it will be much higher than the EC$120 million that was budgeted for this fiscal year, adjusted for the one month delay. Because this amount had already been budgeted for in the 2012 Estimates, VAT will not provide us with any additional or new resources this year and therefore cannot be factored as money which is available to pay public officers this year.

“In other words, our projected revenue shortfall this year takes into account our VAT collections. This confirms what we have always stated; VAT’s main effect is to simplify the collection of taxes by replacing a range of taxes like Consumption Tax, Environmental Levy, Cell Phone Tax and Hotel Accommodation Tax, among others.”

Prime Minister Anthony told the nation that expenditure has grown, driven mainly by a 17.2 per cent increase in interest payments for loans, a 17.1 per cent rise in payments for goods and services, and an 18.5 per cent increase in transfers to government corporations, statutory boards and companies to enable them to meet their costs.

“The effect of this increase in expenditure is that the overall gap between expenditure and revenue will be roughly EC$398 million and rises to EC$492 million when principal repayment on debt is included, or more disturbingly, over 10 percent of Gross Domestic Product. “

He said most of the borrowing is used to fund capital expenditure, and has been the case in recent past, a significant share of EC$45 million is being used to cover current spending, meaning salaries, wages, and the procurement of goods and services.

He said an EC$18 million increase in interest payments on previous debt, payments for goods and services like rentals, telecommunications and utilities of EC$25 million, transfers of EC$19 million, and an increase in wages and salaries of about nine million dollars are being paid in large amount by borrowed money.

Prime Minister Anthony said that of the EC$492 million in borrowed funds for this fiscal year, about EC$350 million will be used for capital expenditure.

“In other words, only 12 per cent of the money we have borrowed this year has been used to finance programmes started by our government since assuming office in 2011. This clearly indicates that the momentum for our current borrowing was established prior to the 2012/2013 Budget.”

He said the situation has become more precarious by the “disastrous investments made by the former government” including an “unavoidable payment of approximatelyEC$27 million  to the Government of Jamaica for the acquisition of the Cannelles Lands and another EC$30 million for the re-acquisition of the Black Bay Lands for the failed Ritz Carlton Project.

“Every one of these payments will come from borrowed funds. This level of borrowing cannot be sustained any longer, nor can our country increase the level of debt financing, particularly to fund activities such as expenditure on goods and services or salaries.”

In his broadcast, Prime Minister Anthony said St. Lucia is not the only Caribbean country facing financial problems noting that Antigua and Barbuda as well as St. Kitts and Nevis are facing the consequences of high debt and are undergoing adjustment programmes implemented by the International Monetary Fund (IMF).

“In those islands, expenditures have been severely curtailed and tough measures undertaken to reduce their debt burden. Grenada’s government is having problems paying for the services that it provides, including the salaries of public officers. On more than one occasion, Grenada has had to resort to borrowing money from its National Insurance Scheme to pay salaries of public officers.”

He said Barbados has had to increase its VAT rate and even the Caribbean Development Bank, “has also had to suffer the indignity of two sovereign downgrades this past year”.

He said reversing the current financial situation here would require that sacrifices be made.

“Our attempts at helping the average citizen weather the economic crisis are far-reaching. In 2012, over EC$17 million in revenue was forgone through the lowering of the Excise Tax on gasoline, in an effort to cushion fuel prices at the pump.

“Government continues to subsidize 20-pound cooking gas to the tune of $18 per cylinder, which resulted in a total subsidy of $10 million in 2012. Subsidies on basic commodities such as rice, flour and sugar cost Government approximately $16 million annually,” he said making reference to other socio-economic policies of his administration.

“While all these initiatives have been necessary, they have also been very costly. But they highlight the challenges facing our government in setting its priorities,” he said, noting “we can only reach out and help others if we can contain expenditure in the public service.

“When public officers contain their wage demands we are better able to help the distressed, the poor, the marginalized and the unemployed youth. However, we cannot be blind to our worsening fiscal position and we must, therefore, take a long hard look at our expenditure. “

Anthony said that wages in St. Lucia “have been growing at a rapid pace while productivity has been declining.

“To put it more plainly, some persons are being paid more for producing less. GDP (Gross Domestic Product)  output has grown by an average of less than one percent over the last three years, and it is projected to remain subdued in the short term.

“If we base wage increases only on inflation and not productivity or our ability to pay, we are actually making our country poorer and making the goods and services we produce less attractive to the outside world. I know that this is an “inconvenient truth” but we must summon courage to face our reality,” he added.

In his address Anthony said workers here receive better salaries than their counterparts in the other Windward Islands –St. Vincent and the Grenadines, Dominica and Grenada- adding “ I know it will be tempting for some to argue that St. Lucia is better off than its neighbours and should not be compared with them.

“However, this is not the case anymore. St. Lucia’s borrowing requirement as a percentage of GDP is the highest in the Eastern Caribbean Currency Union. This was the case in 2010, 2011 and in 2012. If this trend is not reversed very soon, we will be firmly on the path to an IMF programme,” he told the nation. (CMC)

SOURCE:  http://www.caribbean360.com/