“I therefore humbly suggest that in order for small vulnerable countries to avoid the difficulties that we have had in the wake of exogenous shocks that shock facilities must not only be available but should be easily accessible in times of need. In light of the sovereign debt crises that are plaguing the Euro-Zone, it is fair to say that there is still a great amount of uncertainty about the outlook for the global economy and therefore we cannot reliably anticipate what the future holds,” Dr. Douglas told a Plenary Meeting of Commonwealth Ministers of Finance in Tokyo, Japan.
He told Ministers of Finance from the 52-member Commonwealth that the poverty level of small developing countries should not be allowed to increase as a result of external shocks to their economies.
“Factors such as a country’s size, indebtedness, poverty levels and vulnerability to shocks should be considered. I reiterate that easily accessible shock facilities should be made available to enable small developing countries to continue on a positive growth path with minimal disruptions,” said Dr. Douglas.
He added that access to these facilities can provide the targeted countries with an opportunity to have some fiscal space to adequately prepare for the possibility of future crises, to protect the vulnerable in society and provide some stability in the growth and development of our countries.
Acknowledging the support that the international financial institutions have provided to Commonwealth countries thus far, the St. Kitts and Nevis leader applauded institutions like the IMF, “who have taken the initiative to review their lending facilities.”
“I also call on these institutions to examine their criteria for eligibility to their various facilities as well as to review their processes for accessing available resources so as to eliminate any hindrances. As we endeavour to actively manage the risks that are associated with external shocks, let us unite so that we can have a formidable voice in our call for reforming the current procedures,” Prime Minister Douglas said.
In addressing the issue of exogenous shocks, specific to St. Kitts and Nevis, Prime Minister Douglas pointed out that the twin-island Federation is a small upper-middle income country that has in recent times transitioned away from agriculture, where the focus was on the production of sugar, to a service-based economy.
“The economy of St. Kitts and Nevis, like many small vulnerable countries, exists under a cloud of uncertainty in that as a result of our geographical location we are prone to natural disasters such as hurricanes, tropical storms, floods and earthquakes. Our reliance on tourism, manufacturing and real estate activities also means that external events such as the aftermath of 9/11 and the global economic and financial crisis could have, and in fact they did have, a devastating impact on our economy. These are exogenous shocks over which we have no control but which have adversely affected our fiscal and debt situation, economic growth, employment, and a host of other economic indicators which in turn ultimately affected the citizens of our country, especially the poor and vulnerable,” said Dr. Douglas.
The Prime Minister and Minister of Finance noted that as it relates to natural disasters, it would appear that their intensity and the resultant damage have worsened as a result of climate change.
“In St. Kitts and Nevis, between 1995 and 2008, our coastline, housing stock and infrastructure were repeatedly severely damaged by natural disasters. Given our fiscal and debt situation, access to concessional funds was crucial to our ability to construct coastal defense walls and to restore our transportation and communications network – critical aspects to our economic development as well as the livelihood and welfare of our citizens. However, as St. Kitts and Nevis is classified as an upper-middle income country we were unable to access financing at concessional rates from international financial institutions and therefore we had no choice but to raise funds at commercial rates. The related debt servicing of these commercial loans proved to be quite onerous and in fact contributed to a worsening of our fiscal and debt situation,” he said.
He told fellow Ministers of Finance: “As if the onslaught of natural disasters was not enough, we, like most if not all other small vulnerable economies, also had to deal with the fallout from the global financial crisis that reached our shores in 2009. As a result of the crisis, our revenue in 2010 declined by 6% over that collected in 2008 and economic activity declined from an average growth rate of 5% over the period 2004 to 2008 to negative growth of 4% in 2009. In order to cope with these shocks, we applied for financial assistance from our international partners. Specifically, in 2009 we applied for and received a loan from the International Monetary Fund under its Emergency Natural Disaster Assistance (ENDA) facility to assist with our recovery from Tropical Storm Omar. In our experience, the process for accessing funds under this facility was simple and the disbursement was quick.”
“Unfortunately, the same cannot be said when we attempted to access the European Union’s Vulnerability Flex (V-Flex) facility in 2010. In this situation, we applied for financing to assist with closing the country’s residual financing gap for the 2010 fiscal year so that we could maintain essential public services particularly those related to social programmes,” he noted.
Dr. Douglas said that in applying for the funds, “we had to demonstrate that there was high economic, social and political vulnerability, and we had to outline the existence of residual fiscal financing gaps as well as forecasted financial gaps.”
“We also had to show that we had the capacity to absorb the funds. However, despite our provision of the requested information, our application was denied as, in the opinion of the EU, without the assurances that could be derived from a monitoring programme such as an IMF programme, one could not vouch for our macro-economic stability. The IMF’s ENDA facility and the EU’s V-Flex facility were the only shock facilities to which we applied; one successfully, the other not.”