St. Maarten’s GDP: Measuring an elephant in a room, using Wittgenstein’s ruler, by gaslight.

A critical analysis series of Sint Maarten’s official macro-economic statistics.

Part 1 : Sustainable Economics and a Sound Base

It’s tough times in Sint Maarten. Up to this point our economy has been unable to recover from hurricane Irma in 2017 and more recently the pandemic. As a country, we have had to look for financial support.

Anyone who has ever borrowed knows that loans need to be repaid. In order to repay a loan income is required. The more you borrow the more future income is required.

Finances are sustainable as long as you have the income to pay your bills as well as to service your loans. Borrow too much, spend too much, and invest too little in future economic activity and your financial position becomes unsustainable.

On a national level, economic activity and income are measured by the Gross Domestic Product (GDP). There are international institutions tasked with defining how this aggregate number should be established. Many secondary statistics have GDP as their base figure – GDP/capita. Tax to GDP, Debt to GDP etc.

The key components for deriving GDP is the System of National Accounts and the Balance of Payments

There are many reasons to question Sint Maarten’s macro-economic statistics;this is the most critical one:

In the official GDP publication of GDP 2017, GDP 2016 is 1.919 billion Guilders. In the GDP 2020 publication GDP 2016 is 2.745 billion guilders. This is an increase of 43%

The GDP estimation is not a calculation done by SHTA – this is evidence from 2 official releases pertaining to GDP as published by STAT.

At no point has this difference been qualified or motivated.

This level of difference in the two estimates is tantamount to going to the bank with significantly inflated income numbers in order to get a loan so that a bigger car can be bought.  Even if you manage to keep up the charade for a while, one little setback ensures that you will not be able to meet your financial obligations, you start to fall behind in payments and debt increases even more and you risk having the car taken back by the creditor.

Institutions like our Central Bank and the CFT as well as international organizations like the IMF and the World Bank have no choice but to adopt these official statistics as published. They must incorporate the official GDP statistics as provided by the official authority.    

It is rather unfortunate that there is so little discourse and substantiation when it comes to the establishment of this very critical macro-economic figure.

One might argue, who cares about GDP in 2016, that is 6 years ago!

Consider that GDP 2020 is set at 2.095 billion guilders. Consider that the tax to GDP ratio went from an acceptable 30% in 2017 as per the official data, to about 17% (CFT report 2022).

17% is too low and unacceptable to the CFT. We agree that 17% would be unacceptable. However, no-one has offered any proof that it is 17%, to the contrary. Recent history shows it is likely to be almost double!

Shouldn’t that warrant a good look at the GDP statistics? Consensus among the technocrats seems to be that if only tax compliance improves public finances will be fine and budgets balanced. As in debt sustainable/serviceable. But if income is severely overstated that sustainability is unlikely, and the debt not servicable

Why this is important for the private sector

Private sector businesses should be concerned. In fact, every taxpayer should be concerned. Government seems intent on taxing you on income you never earned. It’s great for the government to say in 2020 that GDP 2016 was 43% higher, but nobody woke up on a random morning in 2022 and found out that they earned an additional 43%.

We have years of Audit Chamber and SOAB reports that tell us about the state of the government’s financial administration. Are we just supposed to accept the government’s GDP statistics as accurate? The reports are clear, the government’s administration is not in order, can we expect them to have the national accounts in order?

The SHTA has attempted to address the GDP issue. It has been addressed with TEATT/STAT, Parliament, the Central Bank, the IMF, the World Bank, CFT, the COHO and probably a few more entities.  The response is usually somewhere along the lines of issues with data and capacity. While we certainly share those concerns that reasoning cannot justify using the available GDP statistics, there is simply too much at stake if we have the number wrong. Setting fiscal policy and budget spending based on overinflated income projections is a sure recipe for disaster.

In the course of several papers that will be published in this newsletter, the SHTA will clarify its position pertaining to income/GDP.  Stay with us, and feed back welcome.