To an economic debate!
The Draft Estimates were laid in the House last week and will likely be debated during this week. The Estimates are a vital part of Government’s annual financial management process, but will likely take on additional meaning or importance as they come not only in the midst of the adjustment programme, but also following the recent report from the IMF Article IV consultation.
Summary: Government has projected revenues of $2.49 billion and expenditures of $3.94 billion, leaving a projected fiscal deficit of $1.45 billion or 58 per cent of projected current revenue and an increase in the fiscal deficit to be carried of $195.5 million over the previous year projections. It is projected that current revenue will decline by $131.8 million and expenditure will increase by $63.8 million over 2013/2014.
Actual revenues to the end of March 2014 are expected to be some $422.4 million less than budgeted and total expenditures to the end of the current financial year will be $51.09 million more than budgeted for the current period. This therefore means that the ending deficit will likely be approximately $473.5 million over budget for 2013-2014.
The effect of the reductions in expenditure and additional revenue as a result of the adjustment programme for the last seven months of the financial year will have to form part of the context and debate of the Estimates document and would require further analysis in the short term, following the relevant updates from the Ministry of Finance and Economic Affairs.
Revenue: Government has been forced once again to reduce its expected revenues primarily as a result of the sluggish economy and its effect on the commercial sector and this appears to be highlighted in the extent of the 2013-2014 revisions and 2014-2015 projections in revenue for goods and services from the following areas:
liquor licences (-$5,150,000); betting and gaming (-$7,296,317); excise duties (-$25,650,000); taxes on remittances (-$5,521,808); VAT (-$15,693,400).
This data also clearly suggest the extent of the reduced disposable income of individuals and changes in their patterns of spending and consumption. It is, however, encouraging the upward revisions and projections for the international business, banking and to a lesser extent insurance sectors.
Taxes on income and profits continue to be projected downwards and this is in line with the trends established for the previous two years at least. Other non-tax fees and revenue remain relatively stable, with the exception of the increase in customs-related fees and revenue even though commercial activity is depressed at best.
Our revenue position continues to indicate the urgency for the execution of plans to bring growth to the various sectors of our economy, as growth is the only mechanism to increase revenue without the use of debt.
Expenditures: the adjustment programme aims to reduce current expenditure by $285 million over 19 months and targeted areas such wages and salaries, approval of supplementaries, transfers and subsidies, grants, and so on. Against this backdrop the key points to note as evidenced in the Draft Estimates for the coming financial year are as follows:
1. Personal emoluments: it is unclear at first glance where the reductions in this line item are, as they are spread across each ministry, but they are noted from the Prime Minister’s Office to the lowest ministry and department. However, there are also some increases over last year and this will clearly have to be reviewed against Government’s policy and the 19-month adjustment programme.
2. Grants, transfers and subsidies: it is evident across all ministries that Government had sought to reduce the levels of these expenditures in just about all cases. In applauding this step we must also encourage the affected agencies with the assistance of Government to formulate plans to adjust their modes of operation in line with these planned reductions.
3. Supplies and materials: there have been reductions across the board in Government’s planned procurement of goods and services, and this was already indicated as a part of the adjustment programme.
With my overall summarized observations above, the following are also worthy of note:
(a) the subsidy to Transport Board remains untouched at $20 million; but the Ministry of Transport & Works has been subject to significant reductions in expenditure across all other departments;
(b) the Water Authority is to receive grants for capital works projects only and not for operations. Additional information will be required as to whether based on existing revenues the authority can maintain its new facilities and infrastructure in addition to its existing operational costs;
(c) in education the expenditure for Scholarships and so forth is as estimated last year, but the Revised Estimates for last financial year doubled the figure originally estimated. It is unclear whether student performance outstripped expectations, and so more information may be required;
(d) there have been notable reductions in the planned expenditures on “free bus fares”, Constituency Councils and free summer camps, with the last being reduced by about $3 million
over last year.
(e) the transfers to UWI are at 2013-2014 budgeted levels, but how this relates to the proposed fee structure is a bit unclear as the Revised Estimates called for $139.4 million for last year to UWI. The planned transfers to BCC however remain intact.
(f) support and expenditure for business development, international business, small business remains intact for the most part and Government must be lauded for this. This area is one of the key planks to assist in taking us forward out of the current economic situation.
(g) the transfer to Invest Barbados has been reduced by $4 million
Summary: the ensuing debate across both Houses of Parliament will be instructive and I trust we will have an economic debate and not a useless political debate as we continue to face our economic future head-on. The format of the Estimates has included forward estimates for the next two financial periods, which
I have not seen before; and this is a useful step.
I would encourage the Ministry of Finance to now consider adding a column to track the variance between estimate and actual revenues and expenditures by head and line item. Following the debate in both Houses I will return with further analysis as Government outlines the policy framework that informs this document.