The interview sought to provide a glimpse into the impact on personal finances when it comes to the implementation of the IMF program for St. Kitts & Nevis.
Val Henry: Would the IMF loan and high St. Kitts & Nevis Government debt affect the money of individual citizens?
Chris Martin: When a country gets a loan from the IMF, there is reasonable expectation that all residents would bear some of the costs of paying it back. The IMF imposes certain conditions to ensure there is a payback. Typically, the money to pay back comes from:
- higher taxes, and
- re-allocation of Government money from benefits and services.
Let’s look at some recent examples (sources: World Bank, IMF)
- Dominica – 2002, borrowed US$4.3 million from IMF; debt/GDP ratio was 112%. It was mandated that Government wage bill be cut 5%.
- Dominica – 2008, borrowed US$3.3 million from the IMF; Debt/GDP ratio was at 95%. Government’s wage bill was again cut, this time twice as much, by 10%.
- Greece – 2011, now borrowing Euro 8.0 billion; Debt/GDP ratio is expected to reach 189% next year. Their Government cut the wage bill by 40%, taxes increased, subsidies eliminated, Government services reduced, benefits slashed, minimum wage reduced, and pensioners’ income reduced, Social Security benefits slashed 30%, Social Security contributions increased.
Now looking at our situation in St. Kitts and Nevis – 2011; borrowing US$84.0 million from the IMF; Debt/GDP ratio at 200%. To help pay it back, already
- Kittitians are now paying the new VAT,
- Kittitians are paying higher electricity rates,
- Government put a freeze on salaries
Val Henry: Why should citizens have to pay if they are not part of the Government structure?
Chris Martin: Two things come to mind:
- Everyone uses some service of Government, where some are heavily subsidized. So yes, individual citizens like yourself and the private sector would also pay. Your subsidized costs have been included into the National Debt.
- The burden of the payback is usually shared by all residents, even though some may not have shared in the benefits.
Val Henry: We have heard this term being used frequently. What is austerity measure?
Chris Martin: The Financial Times definition – an official action taken by a government in order to reduce the amount of money that it spends or the amount that people spend.
This topic is of more interest to me – how far would the IMF go, to imposing their conditions. You see, they have already indicated that this nation is living above its income. Here are a few indicators the IMF presented (www.imf.org):
- Based on their calculation, the EC exchange rate is overvalued by 14.4 percent – this implies a rate of about EC$3.10 to US$1.00.
- They have indicated our productivity is low and we are not competitive, both in the private and public sectors – this implies our salaries and wages are higher than what we really work for
- the high government debt
- Social Security, more going out than what is coming in
Researching in-depth, their past policies to analyze possible local measures, past IMF policy seem to try to force behavioural change in how people handle their money. In our case, they may now force us to learn to live within our means; and that goes for both Government and residents.
For Government, in order to get their books in order, they may have to raise more taxes and reduce more costs. And Val, you and every citizen of St. Kitts & Nevis may have to pay the real global cost of goods and services, as well as work longer and harder.