St. Maarten suffers from a complete lack of multi-sector discussions regarding the actual state of our economy, and factual data to support any of the reporting that has been published. This has been the case for years and continues to be self-perpetuating. Statistics are hard to come by. Several publications by STAT, the IMF, Moody’s and the Central Bank form the basis for the analysis outlined herein.
In April 2020 the IMF 2019 article IV consultation report was published. This is the report based on discussions that ended on Nov 22, 2019. In June 2020 the IMF conducted a staff visit. This report has not yet been published but was made available.
In the period Nov 22, 2019 – June 2020; a substantial jump in GDP is reported. This is based on official numbers received from TEATT indicating that a rebasing of GDP has taken place. The SHTA has had discussions about this with most entities involved without fully understanding the reasoning for the rebasing.
Therefore an attempt was made to correlate economic activity as presented across the various data sets, with other indicators such as the Balance of Payments of the CBCS and tourism arrivals. In analyzing Tourism arrivals we found that they don’t correlate with GDP. In a tourism driven economy you expect to see more correlation.
After closely analyzing the data a pattern emerges, and a correlation can be found. In the present case, it seems that public debt figures feature prominently in the establishment of Macro data. GDP developments appear to be driven by having to maintain an adequate debt/GDP level with ever increasing debt levels.
It is clear that the IMF uses GDP data as published by STAT/TEATT. From the Balance of Payments foreign public debt is mentioned, however there is little information published on domestic public debt. The CBCS used to publish a report “Public Finance Key Figures” that contained information on domestic debt; but no longer does so.
In APRIL of 2016, the financial rating agency –Moody’s downgraded Sint Maarten. In that report, they mention a large GDP per capita number (CAP). Subsequent reports contain GDP/CAP as well as DEBT/GDP ratios. There is no mention of whether it is Domestic or Foreign debt or what the split of each is. Within the IMF report info only on external (foreign) debt is found. The last “public Finance Key Figures” was published in JUNE 2016. After that only External Debt figures are presented in the “selected monetary figures” dataset that starts in JULY 2016.
When the IMF Article 4 reports over the years 2016, 2018, 2019 and 2020 are compared, you can see a considerable increase in DEBT/GDP in 2019. This is registered as an increase in DEBT as compared to GDP. Moody’s report from June 2019 also confirms a higher Debt to GDP ratio.
The IMF 2020 Staff Report shows the same higher debt levels in nominal terms on the adjusted GDP figures, this increase also matches the STAT GDP reports; with the notation from STAT on increases in production. When we look at the expenditure side, most growth is in the capital formation; which does not equate to increased production; in fact we find no economic indicators that justify an increase to GDP based on increased production.
What the figures indicate is that GDP has been adjusted upward to maintain the lower (historical) DEBT/GDP ratio, while the country has actually been incurring higher debt. Take the year 2018, for example, the adjustments made represent an increase of 24.3% to GDP; this correction was introduced somewhere between November 2019 and June 2020. In 2019 and in 2020 the government of Sint Maarten attempted to issue bonds; after the adjustment which skewed the room for borrowing upward before hitting the DEBT/GDP ceiling with the increase in GDP.
In the opinion of the private sector, it is clear that our MACRO position is only defined by increased debt levels and a desire to do more borrowing; which will be financed by taxing private sector production, production that has been artificially inflated to achieve a “better” DEBT/GDP ratio, in order to all for the borrowing.
It appears that entities that review the financial position of the Country, like the IMF, the CFT and the CBCS have all adopted this new data set. The CFT commits a paragraph to it in their latest “uitvoerings rapport Q3”. This is a clear injustice to Sint Maarten taxpayers; who will ultimately have to foot the bill for this debt.
Given the economic situation of the last 3 years, and possibly much longer, has actually been declining productivity; in order to get St. Maarten back on the track of economic recovery, it will require fiscal stimulus; not increased taxation rates. The SHTA advocates that the discussion on fiscal reform should start sooner rather than later. Using the current approach of rebasing GDP on fictive productivity levels is a monumental mistake. Which if not corrected now, will carry forward to all policy, by using overinflated private sector / productivity numbers the Country will never be able to realize the fiscal revenue needed to service the level of debt that we seemingly have already arrived at.
Discussions on this topic have been ongoing, SHTA has discussed the issue with the CBCS, the CFT, the ministry of TEATT and the IMF. While every single one of them underscores the challenges Sint Maarten has with data, they appear willing to just accept the numbers as presented; without actual basis.
As employer representatives we cannot be as complacent. We demand that a proper procedure is followed in establishing base data. We do not see a need for pretending GDP is diligently established for a year or two only to find out that there are shortfalls; especially during times of crisis as we are currently in which need liquidity support to make it thru when we know that this increase in “temporary emergency measures” will almost certainly result in a higher tax burden for the people.
For all the talk post Irma and mid pandemic, about planning and a sustainable recovery and structural reforms, and the strength of our resilience it seems we are now going to build that sustainable economy on what amounts to an overinflated debt driven pipedream?
It is high time this conundrum gets the time and attention it deserves in order to define a proper baseline for steering a true economic recovery that can support prosperity for all citizens.
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