Here is what he had to say, in this commentary:

This latest publication has all the detailed information supporting the previous press releases that were published in the local media.

Here is a summary of notable remarks that may not have been mentioned in the previous press releases:

• Debt sustainability issues in any one country can spill over to other members of the ECCU union.
• Despite a tradition of timely servicing its debt, St. Kitts and Nevis is beginning to accumulate arrears.
• SKN Government request of US$84.0 million is equivalent to 15 percent of GDP.
• From the initial disbursement of US$35.6 million, US$17.1 mil went to the Central Bank for the establishment of the Banking Sector Reserve Fund – to provide temporary liquidity, if needed, to solvent indigenous banks that face liquidity constraints.
• Indigenous banks are highly exposed to the government and government debt.
• Based on their calculation, the EC exchange rate is overvalued by 14.4 percent.
• Supervision of non-bank financial institutions needs to be stepped up. The collapse of two important regional insurance companies (BAICO and CLICO) illustrates the weaknesses in the supervisory framework.
• Given its reliance on Foreign Direct Investment (FDI) as a financing source, it is imperative to continue to attract FDI inflows and stimulate private sector led growth over the medium term by improving the existing business climate, including by lowering the costs of registering property and getting credit and enforcing contracts, where the islands rank lower.
• St. Kitts and Nevis’ public sector is large even by standards of small states.
• The authorities are committed to freezing the wage bill and containing expenditure on goods and services for the next three years.
• Need to boost competitiveness and output by businesses and labour.
• There are indications that poverty has increased in recent years. A series of social programs has evolved over time in a piecemeal manner, which is both expensive and inefficient in targeting the needs of the most vulnerable.
• Actuarial reviews of the Social Security Scheme indicate that the system could begin to run deficits in 2029 and deplete its reserves by 2041. The benefit-to-payments ratio increased in 2010, with contributions down 3 percent relative to 2009, reflecting the impact of the economic downturn.
  • A key element of the overall restructuring strategy is to resolve the collateralized debt of St. Kitts Sugar Manufacturing Corporation (SSMC) that was assumed by the federal government in 2005, through a debt-land swap. The authorities have established a working group to consider associated legal, accounting, and regulatory issues. They are also taking steps to update the mapping and valuation of land and preparing a plan to establish a government-owned company to sell land.

My View (Chris Martin)

SKN economic/financial model is based on access to credit and maintaining adequate debt levels. SKN has a problem of too high a debt; access to credit has dried up, hence, now at the lender of last resort, the IMF. Strategies they present:

1. Fiscal and Debt Management, and

2. Economic Growth

Both strategies must succeed together in order to pull SKN out of its debt burden.

The strategy of fiscal and debt management are well presented and sound – save more and spend less. However, ideas on economic growth are scant. But here are some challenges:

• On average, past behaviour is a good predictor of future behaviour. Can SKN authorities reverse its behaviour to save and spend less?
• High crime rate is a turnoff to traditional FDI.
• Low productivity hinders growth.
• Inflation will increase: global food prices are rising (price of rice may double soon); rise in local business costs, e.g., electricity rates, will be passed on to increase retail prices.
• Debt reduction by selling the former sugar lands will be a very sensitive issue of sovereignty and have a nationalistic backlash.

Nevertheless, IMF’s lack of clear goals on economic growth is a good thing – it creates a great opportunity to develop home-grown solutions. Another useful insight is that the report provides residents information to protect themselves against possible fallout if the IMF policies don’t work.