Got TIPS or BREAKING NEWS? Please call 1-284-442-8000 or Email ALL news to:newsvino@outlook.com; ads call 1-284-440-6666                               Tune into 90.9FM from 04 September until 12 October for the 2019 Caribbean Premier League: visit www.cbnvirginislands.com for more information: 1 284 340 3461

Borrow from home or abroad?

Dickson Igwe. Photo: Provided
Dickson Igwe

Governments, even micro administrations of tiny jurisdictions, have the ability to raise finance, to an exponentially greater degree than individuals and small businesses.

In the aftermath of the September 2017 natural disasters that devastated the Virgin Islands economy, borrowing heavily to stimulate economic growth is not an option.

The [British] Virgin Islands requires at least 3 billion dollars in infrastructure spending over the coming 5 years to get the economy back to pre Irma GDP. Most of this cash will come from deficit spending, another name for borrowing.

However, borrowing must be tied to a long-term strategic economic plan. Financial management of the borrowing that drives Post Irma economic recovery, must be part of a vision for the country, transparent, efficiently administered, and effectively audited.

Now, there have been assertions that borrowing from local institutions is a better option for the country than external borrowing. Why? Because interest payments on local loans mean revenues remain in the territory.

Consequently, these local institutions are strengthened financially. The preceding keeps cash working in the local economy as the loaned cash is sourced and utilised locally. This cash increases the velocity of transactions in the internal market economy which is a form of economic stimulus.

The question must then be asked: have those institutions the capital requirements and cash reserves that offer them the ability to lend government the hundreds of millions required for short to medium term disaster and economic recovery?

And how would lending government the cash impact the bottom line and mandated operations of these organisations? How would becoming lender of last resort for government change the specific call and nature of these organisations?

There are voices that state that caution, and a gradual approach to borrowing, is what is appropriate at this time, and not taking on borrowing from external sources that have no interest in the welfare of the Virgin Islands.

Government can borrow locally gradually, over a longer period of time. Doing the preceding, and adopting a gradual approach to borrowing for redevelopment, is more sustainable, than heavy external borrowing for swifter economic stimulus and disaster recovery.

All of the preceding assertions and arguments are worthy of detailed analysis and assessment.

To be Continued.

Connect with Dickson Igwe on Facebook and Twitter

8 Responses to “Borrow from home or abroad?”

  • yes (24/03/2018, 07:28) Like (4) Dislike (3) Reply
    the premiere wants us to sell the cow to get a bell.... the heart and soul of the BVI is not worth all the money in the world...too many sacrifices have been made to get us where we are today to now bow in gratitude and embrace debt (that's more like death) from our colonizers.... a friend told me that if the uk is in play they will help to keep track of the monies and hold our ministers accountable... for some reason I'd rather be swindled by my own; that is of course if it is even possible now that the proverbial blinders have been removed from many eyes... we won't be able to spend money overnight so it makes sense that we don't borrow it all at once. In hind sight we would not be subject to such harsh mandates if we were borrowing a smaller more manageable sum. ..one project at a time and prioritizing and we'll get there. can't wait for the rest igwe
  • Local it is (24/03/2018, 07:56) Like (5) Dislike (0) Reply
    Thank you for such good article. Hope those members who are in Cavour of borrowing from abroad think this over . We need every dollar in our economy.
  • Diplomat (24/03/2018, 08:32) Like (7) Dislike (0) Reply
    True, governments, including governments of microstates, have the authority to increase taxes and fees to fund government to deliver vital services. However, microstates have distinct disadvantages to do so; they have small economies, small populations and limited sources from which to increase fees and taxes. Further, increasing taxes do not necessarily mean increased revenues. For example, when taxes are too high, taxpayers find ways to avoid paying them. High taxes boost the underground or informal economy. Additionally, increasing overall tax rates too high relative to GDP can adversely impact economic growth. There must be a balance b/w revenue and growth.

    Ok. The BVI was battered by 2 monster Cat 5 catastrophic hurricanes, Irma and Maria, along with a historic flood that cancelled/shortened the annual Emancipation celebration. The estimated recovery cost per government information is approx $3.6K. There is a proposed project on the board to invest $721,000,000.00 over 5 years on the recovery effort. The question is if the $3.6B is in the ballpark is investing $721M over 5 years aggressive enough to get the economy and GDP revived quickly enough to pre Irmaria level?

    Moreover, no doubt, the BVI lacks the fund reserves to fuel the recovery and have to borrow money from either internal or external lending institutions, agencies........etc to do so. True, the recovery effort/need provides an opportunity for banks, social security .....etc to invest locally, ploughing money back into the community and keeping money local. Do the local institutions have the capacity to fully meet the borrowing needs? Further, will government borrowing heavily from local institutions crowd out residents borrowing ability, ie, home construction, business start up/operation, home repair, buy cars/equipment ..........etc.

    Further, the territory depends heavily on external investment; it was so b4 Irmaria and it is so now; foreign direct investment (FDI) is vital to economic growth. Bottom line is the BVI needs to borrow money; it needs to employ a balanced mixture of local and external borrowing. It needs to borrow money at the lowest cost so as to put the most money into rebuilding. The UK £300M ($403M) loan guarantee and the proposed Agency is a discussion for another day.
  • Nick Brass (24/03/2018, 12:19) Like (3) Dislike (0) Reply
    Some body screwed up some where in the fiscal management of funds collected and donated over the years. All the revenue from Financial Services over the years and little to show is a cause for concern. Seize the time.
    • Yes (25/03/2018, 18:02) Like (1) Dislike (1) Reply
      There is alot to show. Many grossly overrun capital projects and over 2500 civil servants. Thats where the $200+million is spent annually but everyone wants to act stupid and saying its being stolen etc. We all know where the money is going and we dont care because once we have certain trade licenses we get a slice whether we do the job properly or not.
  • Xxx (24/03/2018, 14:01) Like (1) Dislike (1) Reply
    Pay them no mind as it matters not from where, as stones are only thrown at fruit bearing trees
  • me (25/03/2018, 09:52) Like (2) Dislike (1) Reply
    Why is this even an issue? It doesnt matter where you borrow from the UK has to approve it. Stop confusing people with nonsense!! The opposers have no real reason to oppose or no solution so theyre trying to make it a local vs international thing. Borrowing locally does NOT changr the lending requirements the BVI has to deal with via the UK.


Create a comment


Create a comment

Disclaimer: Virgin Islands News Online (VINO) welcomes your thoughts, feedback, views, bloggs and opinions. However, by posting a blogg you are agreeing to post comments or bloggs that are relevant to the topic, and that are not defamatory, liable, obscene, racist, abusive, sexist, anti-Semitic, threatening, hateful or an invasion of privacy. Violators may be excluded permanently from making contributions. Please view our declaimer above this article. We thank you in advance for complying with VINO's policy.

Weather


Follow Us On

Disclaimer: All comments posted on Virgin Islands News Online (VINO) are the sole views and opinions of the commentators and or bloggers and do not in anyway represent the views and opinions of the Board of Directors, Management and Staff of Virgin Islands News Online and its parent company.