Lyndon Trott, vice-president of the Policy & Resources Committee, said the States must play a ‘decisive and active role’ amid forecasts of unemployment rising to 2,000.
But to do that, the States needed more financial firepower via up to £500m. of borrowing, as proposed by P&R and set to debated by deputies tomorrow.
Deputy Trott said an immediate requirement of up to £250m. to fund the short-term 2020 implications of Covid-19 had been identified. The provision of up to an additional £250m. was needed to fund the longer-term implications on States’ finances and enable economic recovery.
‘We are facing a fall in employment, as firms seek to cut costs to mitigate the fall in demand or are forced to close. Some forecasts fear unemployment rising to 2,000 people,’ he said in an open letter to islanders.
‘Many firms and individuals are already experiencing extreme economic hardship.’
A fall in profits in the finance sector was likely plus a much sharper fall in non-finance sectors. Meanwhile, ‘any permanent reduction in travel’ would challenge sectors reliant on visitors.
‘Our economic recovery is essential because we are dependent on that economic recovery to help us fund public services – health, education and the States pension alone make up over 60 pence in every pound of States expenditure,’ said Deputy Trott.
‘Our economic recovery will be driven by our fiscal response to the Covid-19 pandemic.’
Driving home the point, he quoted the International Monetary Fund as saying: ‘As the shutdowns end, broad-based coordinated fiscal stimulus – where financing conditions permit – will become more effective in fostering the recovery.’
For Guernsey, that meant a ‘need to invest in our future, and on a scale, we could not have imagined just three months ago’.
‘Funding our economic recovery is likely to require funding of structural changes to the economy, funding measures to increase competitiveness, and deploying funds to economic development that hitherto would have shocked this Assembly and our community.’
He continued: ‘We need to start planning for recovery now.
‘So we need to have the financial firepower to start that recovery investment now.
‘It is critical to know if the States have the willingness to borrow in order to facilitate the recovery strategy which is currently in development.’
Stressing that Guernsey could pay for such borrowing, Deputy Trott said the island could not afford not to take such action.
‘As the world has shown, there is no alternative to government financing of the economy and the community during this period of enforced economic inactivity.
‘Guernsey is no exception to this new rule.’
The alternative would require ‘radical austerity of spending cuts and tax increases’ to balance the budget, he said. This would prolong the recessionary period as well as hinder competitiveness and impact on hard-working people and families.
‘This means we are going to need flexibility of financing that only can come through borrowing – short term and long term. I don’t like it but it is a fact.’
An independent expert advisory panel drawn from economics and fiscal strategy would provide ‘independent challenge and advice and to help support the whole recovery process,’ he added. This would ensure strong governance and give the States and taxpayers independent assurance through periodic reports and updates on progress.