The views expressed herein are those of the writer and do not represent the opinions or editorial position of I-Witness News. Opinion pieces can be submitted to [email protected]
Once again, in his political boondoggle, Gonsalves has hit another home run, the home run of the fiscal year.
According to independent sources, the government of St Vincent and the Grenadines (SVG) owes EC$15 million to its National Insurance Services (NIS). Interestingly, some sources are suggesting that the government borrowed this money to fill a vacuum that could have been avoided if the country had progressive economic development. Coupled with this, the government either neglected to make payments or do not have the money to repay the loan obligations.
Furthermore, PM Gonsalves in his failure to meet daily economic demands has decided to borrow EC$15 million from the NIS to repay the NIS. This is an indicator of poor economic conditions and political instability. Also this move has confirmed the majority’s — including the opposition’s — claim of a retracting economy, one that cannot sustain itself. For me, this is an irresponsible and uneducated act — one that is extremely difficult to even comprehend.
Accordingly, the roles of the NIS is to assist in securing and enhance the quality of life for the insured members, providing a cushion for its members who suffer contingencies relative to loss or reduction of income and providing a social safety net for Vincentians at home and in the diaspora. Certainly, the misuse of the NIS funds could affect the future of those insured, like alcohol disrupting the chromosomes of an unfertilized egg.
More so, once a government borrows money it has to repay it with interest and any associate cost — this it the normal debt financing policy that all lending institutions mandate. The government may resort to borrowing if the revenue collected through taxes and other sources is not adequate for government spending. This in itself is a form of fiat creation of money allowing the government to obtain cash through borrowing, rather than printing. However, the government generally issues the money created in the form of treasury securities.
More so, debt financing means that the money must be repaid over a period of time, usually with interest. These loans are often secured by some or all of the assets of the company, or, in the case of the government, by securities, as lenders commonly require some form of guarantee in the case of default.
Additionally, the capacity to repay the loan must be justified in the loan package. Normally, lending institutions require two sources of repayment: cash flow and secondary source, such as collateral.
The big questions here — is the NIS a lending institution and what is the loan agreement?
Note that this money could be traded, but will seldom be spent of goods and services as the government has an obligation. In this capacity, there is an anticipated increase in inflation for the same reason that the national wealth has increased at a rate lower than if the government had printed the money and increased the money supply.
In my opinion, these scenarios fully described what economists term as “unproductive debt”. More so, internal borrowing is a significant part of the national debt and certainly it does not assist the productive capacity of the economy; instead it creates an extra debt hole for taxpayers. All Vincentians should know that in the present case the unproductive debt cannot be liquidated and certainly the interest and the principal amount incurred may have to be paid from alternative sources of revenues; hence, taxpayers are expected to pay more tax or face the possibility of being laid off or accept salary cuts. There is no doubt that this move would become a burden on the community.
Additionally, borrowing from a source to repay the source in many cases, not withholding SVG’s situation, often shows a sign of extreme weakness in the economy, or this could mean that the country has a bad credit history and high debt. Furthermore, endless efforts were made to link this Gonsalves’ financial invention to economic or even mathematics theories with no avail. However, after careful analysis of this new borrowing mechanism, only two scenarios seemed to surface.
On the one hand, the government owes EC$15 million to the NIS only if the government borrows the new EC$15 million and returns the entire EC$15 million to the NIS – it owes the NIS EC15 millions plus interest. However, if this is the case then it does not make any economic or mathematical sense to borrow and pay off the entire sum at once.
On the other hand, if the government follows the principles of debt financing, then it will owe EC$30 million dollars plus interest to the NIS. Also, this scenario does not add any worth to the accounting books of NIS.
To show that this analysis is not an empty, worthless perception of the status quo or an impulsive critic of Gonsalves, it is necessary that I share some recommendations:
Ideally, the government could adapt several techniques in repaying its loan. Considering the county’s high debt, daunting economy and the already sky-high taxes, pursuing austerity measures and external borrowing are not options. However, and although the country is already experiencing high unemployment and exacerbating poverty, the government should cut salaries across the board starting with the prime minister, CEOs, general managers and line managers, which could prevent the government from laying off workers at the bottom of the hierarchy.
Despite the PM’s decision against economic citizenship he might want to create collateral in the form of selling lands to foreign investors for developmental purposes.
After all, Gonsalves can ask for assistance from leaders he is closely associated: Iran, Cuba and Venezuela or the intergovernmental organisation, ALBA.
Although, these phenomena will be unpopular and could cost the ruling party a fourth term in government, it is Gonslaves’ best options.
For me, borrowing from the NIS to repay the NIS just does not make any economic sense!
D. Markie Spring
The views expressed herein are those of the writer and do not necessarily represent the opinions or editorial position of iWitness News. Opinion pieces can be submitted to [email protected].