By Carlton Augustine
There is a common saying which goes like this: In the land of the blind, the one-eyed man is king. This fits the ongoing debate about the loan arrangement versus the Public Private Partnership (PPP) arrangement for the redevelopment of Hewanorra International Airport (HIA).
Many people have been touting gobbledygook about guaranteed revenue stream which will be used to repay the loan. However, the idea of a guaranteed revenue stream is such a stretch and shows a lack of understanding of basic economics.
There is nothing certain about the Airport Development Tax (ADT). This idea of a guaranteed revenue stream is utter nonsense, no person of sound mind should be touting.
The same economic gurus who claimed that the 2.5 percent reduction in the Value Added Tax (VAT) rate would lead to an increase in government revenue, are the ones who are talking about guaranteed revenue. We now know that following the 2.5 reduction in the VAT rate, over the last two years, the revenue from the VAT has been short of $345 million for both 2015 and 2016 respectively.
What prime minister Allen Chastanet and his team have done is to use the same type of overly optimistic framework in order to tout this guaranteed revenue line.
They have ignored the observations of the International Monetary Fund (IMF), Caribbean Development Bank (CDB) and International Travel Agency, (IATA) who all cautioned against the imposition against the ADT; on the grounds that it could adversely affect air travel, thus making it difficult to realize the targeted amount of revenue. Prime minister Chastanet and his team are assuming [ incorrectly] that there will be no adverse effects from the imposition of the ADT.
The spectre of a hurricane or another natural disaster blows this guaranteed revenue stream argument. Likewise, Virgin Atlantic’s decision to review its global flying programme that will cease flying to Saint Lucia from June 8, 2020 ‘for the foreseeable future’.
Saint Lucia will end up adding over $800 million in public debt. This is unnecessary. The debt to GDP ratio is already at an unsustainable level. With this loan debt to GDP ratio will be pushed towards 90 percent.
All the countries of the Eastern Caribbean Currency Union have agreed to reduce their debt to GDP ratio to 60 percent by 2030. St Kitts and Nevis has already met this target. Saint Lucia seems to be ignoring its commitment to the currency union.
Several sources are being tapped for the funds. Do we know the total cost of the project? Do we know the actual cost of these loans in terms of interest and other charges, how then could anyone be talking about a guaranteed stream?
Let us assume that the ADT tax brings in the desired amount of revenue. We would be taking money which can be used to bolster physical and social infrastructure to service the loan.
The proponents of this guaranteed revenue line are being naïve in that they are ignoring the costs and uncertainties of the loan framework. These are the one-eyed men; who regurgitate gobbledygook blinded by loyalty to their party.
If there was an argument for borrowing the PM’s explanations are ridiculous and shameful; it reeks of financial and economic naivety. It’s analogous to a person trying to determine the weight of an object with a measuring tape.