The government of St Vincent and the Grenadines is now authorized to seek funding for its 2021 Public Sector Investment Programme.
This, after Minister of Finance Camillo Gonsalves presented to parliament the Bill for an Act to authorize the government to raise funds to assist in financing the Public Sector Investment Programme.
The Bill was passed without support from the opposition New Democratic Party (NDP).
In his presentation, the finance minister stated: “This bill that we advance is one that is familiar to most members of this honourable House. It is the bill that we bring at least once a year to secure financing the capital expenditure on the funding for the Public Sector Investment Programme (PSIP). And the form of financing we seek to raise this year is in the amount of $125 million by the way of bonds; and that is what this bill is about.”
Gonsalves referred to Clause 3 of the bill which states: “The funds authorized under this Act shall be raised in or out of St Vincent and the Grenadines on the best and most favourable terms that can be obtained.”
Gonsalves noted that in January 2019 the government brought a bill for $100 million and followed up later that year with a second PSIP bill in October for an additional $50 million. He further said that in January 2020 another bill was brought for $100 million and the one on Monday’s sitting of parliament was for $125 million.
“We are going about a month earlier than usual with this bill essentially so that we can get a jump on the financing for the 2021 budget season.
“We have to schedule our offerings, Madame Speaker, on the regional securities market with other countries in the Eastern Caribbean Currency Union that also seek financing on the regional market and it’s better to get this legislation done early so as to optimize the timing not only for going to market and the commencement of what will be a very critically important public infrastructure programme in 2021,”Gonsalves said.
The finance minister added: “In recent history, when we go to Parliament with the bill in February or so, we do not actually borrow money until the beginning of the second quarter.
“And that shortens the timeline in the year for the number of important budgetary priorities that are funded by those borrowing.”
The finance minister told members of parliament that if they look in their estimates they would see a number of items funded by local loans. He said a great deal of the financing of the local loans is from the monies raised as a consequence of theparticular piece of legislation which his government was seeking to have passed.
“So bringing it early now, lets us schedule and time and structure our forays in the regional securities market in a more optimal manner and buys us a critical month or two in starting our capital works programme early in the year. And, in a year where tourism revenues are certain to be reduced, a robust construction sector will be critical to regaining and sustaining economic momentum in 2021.
“Additionally, due to regional conditions, it’s likely to be fortuitous for us early in the year for getting low-interest, long-term financing for our capital programme,” he said.
He said that Prime Minister Dr Ralph Gonsalves had mentioned that in their last foray in the regional market a couple months ago the government went to the market for $28 million but it was oversubscribed to the tune of $53 million and, as a result, the government was able to get an interest rate as low as 1.5 percent Gonsalves said that given current conditions, he believed it was fair to say that the market has more faith in this country’s debt instruments than those of some neighbouring countries at the moment who are signaling that their particular circumstances and their Covid-related challenges may require refinancing on their part of their existing debt, or even a haircut for creditors,
“So, in that context, given the faith that the market has in our debt instruments at these moments, it is also useful for SVG to have the ability to go to the market early to optimize the terms by which we will be borrowing money,” Gonsalves said.
The finance minister said that when borrowing money, the issue of debt to GDP comes up.
Providing some facts and context, Gonsalves said the debt to GDP ratio was on a slight downward trajectory prior to the Covid-19 pandemic and prior to some borrowings government had already scheduled for this year. He said that, according to the Eastern Caribbean Central Bank, in 2016 this country’s debt to GDP ratio was 82.12 percent and by 2019 it had fallen to 70.48 percent – a decline of 11.5/12 percentage points over the four-year period.
Gonsalves said it wat part of a general downward trend within the Eastern Caribbean Central Bank with a few exceptions. He said St Lucia ratio was more or less flat over that period while Dominica’s went up as a consequence of some natural disasters that they faced over that period.
Gonsalves said that Grenada and St Kitts and Nevis fell as a result of the result of some IMF programmes that they had been involved in.
Gonsalves said it was important to note that St Vincent and the Grenadines includes its PetroCaribe debt in its public debt figures while some neighbouring countries have opted to leave that particular debt out of the calculus.
He said all member countries of the Eastern Caribbean Currency Union (ECCU) had targeted a debt to GDP ratio of 60 percent by the year 2030 and most of them were heading in that general direction. He noted that last year the government of St Vincent and the Grenadines published and gazetted a Fiscal Responsibility Framework which outlined the mechanisms and the parameters through which it intended to achieve the 60 percent target by 2030. He said that however this year the debt to GDP ratios are tracking upwards.
“Some of that was incurred by previously-scheduled concessionary borrowings from bilateral loans for example; to begin the Marriot Hotel and some of it by concessionary financing received from the World Bank as a consequence of the development programme and also emergency loan-funding received as a consequence of combatting the effects of the Covid-19 pandemic,” he said.
Gonsalves said the Eastern Caribbean Central Bank (ECCB) is projecting large increases in debt to GDP ratio across the ECCU as a result of Covid-19. He said that in July this year, during a presentation to finance ministers, the governor of the ECCB predicted that the cumulative debt to GDP ratio of the ECCU, which stood at 65% in 2019, could rise as high to as 101 percent in 2021.
He said the ECCB governor stated that the implications for the trajectory were “dire” as he estimated that some countries’ debt to GDP ratios could more than double, reaching up to as far as 130 percent and four of the member states could have in excess of their GDP, meaning in excess of 100 percent.
Gonsalves noted, however, that the projections were worse-case scenarios and it is hoped that they do not reach those levels. He also noted that they were made before certain positive developments in the battle against the Covid-19 pandemic such as the discovery of an effective vaccine which it is hoped will help to accelerate the tourism sector in the ECCU and accelerate the return to normalcy so that the ECCB’s worse-case scenarios do not come to fruition.
“Nonetheless, Madame Speaker, undoubtedly, while we have to watch long-term borrowings and our debt trajectory, we also have to do what is necessary to keep the economy afloat during the pandemic.That includes borrowing on favourable terms to facilitate the necessary counter-cyclical financing that is needed to keep the economy ticking over, to keep the economy afloat. In 2020 the data shows that revenues held up.
“In fact, our revenues increased slightly over our 2019 numbers. And our economic decline in St Vincent and the Grenadines thankfully, and thanks to the leadership of the honourablePrime Minister our economic decline was minimized.
“Nonetheless, there are considerable uncertainties and considerable and myriad variables clouding our 2021 forecast, largely as a product of the pandemic. And because of the uncertainties still wrought by the pandemic, by the possibility of further and continued lockdowns in major economies, by the possibilities of third and fourth waves and new variants of the virus by what that will mean for tourism and global trade, we have to focus on the things we can control,” he said, adding that the Serenity Prayer asks that people understand the things that they can control and to accept the things they can’t change.
“And one of the things we can control, to some large extent is how much construction we do and how active our public sector investment programme is and how targeted it is on generating employment, generating meaningful economic activity in the coming year. And we plan to do that and to do that early in the year, starting that as quickly as possible, starting that on the best possible economic terms, we bring this piece of legislation now so that we can get a jump on that financing and get a jump on putting people to work in St. Vincent and the Grenadines, particularly although not exclusively in the construction sector.”
“This bill signals that we are not looking to radically increase our borrowings in 2021. It is within the parameters with what we have come to this honourable house with in recent years but it is giving ourselves the necessary space in the event that the exigencies of the pandemic require additional borrowings,” Gonsalves told parliament.
Leader of the Opposition Dr Godwin Friday, in his contribution to the debate on the bill, said that the explanation by the finance minister that the authorization for the government to seek financing for the capital works a month ahead of the 2021 budget presentation in a bid to get a jumpstart on the budgetary process for 2021 begs the question, “What are we financing in 2021?”
“This bill is the second such bill brought to the house for 2020 which, you can put them together, would be over $200 million borrowed under the public sector investment loan programme in 2020.
The finance minister at that point rose for clarification and told the parliament that, quite apart from what the Leader of the Opposition said, “the passage of the legislation today does not constitute borrowing today.”
“So, to say that because the legislation was brought today we have borrowed $225 million this year is erroneous,” the finance minister added.
The finance minister explained that borrowing that early prevents a situation where the government would have to wait until months after the budget exercise, which is held in January, to begin borrowing.
“So, I don’t want the honourable member to mislead the honourable house inadvertently by suggesting that passage of the bill today constitutes the borrowing $225 million today,” Gonsalves said.
Resuming his contributing to the debate, Dr Friday said: “Madame Speaker, that is a rather condescending response. Of Course I know that you’re not borrowing the money today. When you pass the bill in the Parliament, it is to borrow the money. That is what we are doing here. I don’t know when you are going to go out and which bank you are going to talk to and borrow it.
The Leader of the Opposition further stated: “The point is you are asking the Parliament to approve borrowings of $125 million today when we approved over $100 million in January or February. So it is approval from the House you are seeking now for over $200 million under this programme.”
“You’ve explained it that you’re going to do it for sometime in the future. But we always have to plan for the future. And in any budget, whether it comes at the end of the month or the beginning of January, we pass the bill, we borrow the money, but more importantly, Madame Speaker, for transparency, you have in the estimates a programme.
“What is this $125 million going to finance? You say it’s going to finance the budgetary process. What is the budget? I don’t know what is in the estimates, so you are basically asking me to give you not quite a blank cheque but a big cheque and I still don’t know yet what we are going to spend it on.
“Now if you say that doesn’t matter because we are going to do the Estimates, then that is an even more serious breach, in my view, of what are the accountability procedures in this honourable house. Because when we approve the public sector investment loan, when it is brought to the house, it is in my understanding of the process, from many years in the house, that it would finance the public sector programmes going forward, the investment programmes, usually capital programmes.”
Dr Friday said that as a matter of principle, and so as not to use the parliament as a rubber stamp, the opposition ought to be involved in discussion before they are asked to support and approve the bill for the loan.
“And it is not sufficient to say that this is just a matter of timing and my convenience. What about my duty as a member of this opposition?”Dr Friday asked.