Open letter to the Private Sector of Sint Maarten, the Central Bank, the Department of Statistics, the Ministry of TEATT, the World Bank, The UNDP, the IMF, ECLAC, the CFT, The Governor of Sint Maarten, the Kingdom of the Netherlands and everyone else interested in St. Maarten.
Last week marked 6 months since the passing of hurricane Irma, the economy has been severely affected; at best some sectors are achieving only 30% of their pre-Irma revenues; and it will likely take years of planning and hard work to recover, if indeed we are ever able to return to pre-Irma levels. While many efforts are focused on moving forward with recovery, some crucial things are still pending. Two reports were recently published that provide some serious food for thought about the economic future of St. Maarten. One is the Statistical Yearbook 2017 published by the Department of Statistics (STAT).
And the other is the 3rd Quarter Report of the Central Bank of Curacao (CBCS) and St. Maarten. http://www.centralbank.cw/uploads/files/Quarterly%20Bulletin%202017-III%20%28final%29.pdf
Hard data is very difficult to come by. That was already the case pre-Irma, but now even more so. Case in point, the Central Bank could not obtain data for the 3rd Quarter from St. Maarten. In the meantime, we have had numerous entities attempt to put some analysis together, as a basis for Recovery Plans: The Netherlands, the World Bank, ECLAC and the UNDP just to name a few. With the best of intentions, the 4 mentioned are completely data dependent and are lacking in local knowledge; which puts them in a very difficult position when it comes to helping chart a way forward economically. This is obviously not their fault—but a recognized problem.
SHTA’s recent membership surveys point to an economy that has been struggling for the last many years and may very well have closed 2017 down over 2016 in profitability as well as turnover even without Irma. Some statistics report a very slight GDP growth for the years 2015 and 2016 but that could actually indicate a decline considering the margin of error in statistics. Data taken from the Yearbook (see link above) indicates GDP and Per Capita comparison for the years 2013 – 2016 as follows:
Note that as a result of a growing population the actual average income per resident (per capita) decreased over 2015 and 2016. Data for the year 2017 is not yet available but it is safe to say that there will be a significant decrease in both GDP and Per Capita.
Due to the unavailability of 2017 data, the Central Bank Report includes a study of economic development after a catastrophic event and includes scenarios for the development of St. Maarten’s post-Irma economy, we refer to page 38 of the quarterly report, which is academic and very well elucidated. We encourage you to read the report.
4 Post-natural disaster GDP/Capita versus Time growth scenarios
Some of these scenarios forecast a better picture than others, but in all 4 you have GDP/Capita rising above pre-Irma levels over time, indicating that GDP development will in general, more or less, return to the “pre catastrophe trend”. By using the upward trend graphics, the Central Bank may create the perception that St. Maarten appears to be okay, despite the Irma blip or blips (depending on the scenario) it looks like over time we will again be on the right track.
Unfortunately, as we have noted in the data included in the Statistical Yearbook 2017 (we refer to top of page 65) the GDP development showed low or no growth whereas Per Capita development was reported as negative. Therefore, apparently, we do not have a rising trend in GDP/capita! If we apply the well-considered reasoning of our Central Bank; we can only conclude that the following 4 scenarios give a better reflection of our St. Maarten reality.
4 Scenarios GDP/Capita versus TIME based on actual Pre-IRMA GDP/Capita trends
In these scenarios, over time the GDP/capita never makes it above the pre-Irma levels.
This is where St. Maarten’s real challenge lies; how do we use the available recovery funds in such a way that the existing GDP trend improves and starts showing a healthy upward trend of say 3% growth per year and improving Per Capita income for its residents? As the personal income tax and wage tax is based on a progressive tax bracket system, lower per capita means reduced Government income from personal income tax and wage tax even if the economy increases. As a result of lower purchasing power TOT revenues will also decrease (or at least show lower growth than GDP growth would suggest). The fact is, that our economy was underperforming, with (intended) government expenditure outpacing real growth. While GDP was growing with less than 1% per year, Government Budgets were growing with 5% per year.
The developments in 2017 and 2018, GDP as predicted by the Central Bank and budgets as presented by Government, result in a dramatic increase of Government spending, especially when presented in a percentage of GDP. This is an unsustainable path in the post Irma reality; deficit spending by government without providing stimulus for the private sector to achieve real growth. Continuing on this path is a big mistake. Considering that the economy was already shrinking, it is clear that from a policy perspective that stimulus was not there pre-Irma. The logical conclusion is that without structural changes to policy, economic performance will continue to deteriorate.
Given the above, a few questions need urgent answers. If Government does not try and reduce expenses, it will need to borrow significant amounts of money for the years 2017, 2018 and 2019. Chances are that they will hit the established lending ceiling, especially if global interest rates increase over time (which is the market consensus). How does government intend to service that debt? How do they intend to fund new policies and capital investments when they cannot borrow additional funds? Raise taxes? Combining increased tax rates with a downward GDP trend will only worsen the situation, decrease private sector economic activity more. That is not how you get out of the downward spiral that we are caught in.
The SHTA has been stressing and will continue to stress with increasing urgency the need to address the size of government vs. the private sector. Just as Irma decimated the private sector, so should government curb spending. Not increase it by borrowing from the future of a private sector in shambles. There could be nothing left by then.
Looking forward to fruitful dialogue with all the stakeholders on what is and isn’t a good idea under current circumstances. With hard work and sacrifice we can come out on top. Sit and wait seems to have run its course and hasn’t produced any improvements.
To be continued....