As I stated previously this year’s Estimates of Revenue and Expenditure is a placebo that won’t address the deterioration in the economy. I also pointed to the need to pay closer attention to the breakdown of planned expenditures so as to get a greater perspective on where we are heading. I now return to address why the Estimates cannot offer the hope that Meredith JnPierre’s puff piece desperately desires, and why Richard Peterkin’s notion that this is not a typical election budget is, at best, misguided.
There is no formal definition of the concept. However, when people refer to election budgets they usually mean that it has lots of unrealistic promises, giveaways in the form of tax breaks, or pork spending and is usually manifested in primary deficits. So does the Estimates reflect any of those elements?
I will avoid the seduction of saying numbers don’t lie because numbers can and do tell many stories. For starters, we already know that a deficit, more specifically -4.3%, is forecasted on the primary account.
Peterkin is correct that the PM has not given his policy address to help us understand the story he wishes to weave about his expectation of the economy. Yet, based on some of the numbers included in the Estimates, Peterkin is himself doubtful that they will be realized. The amount projected to be collected from taxes is overly optimistic, predicated as it were on a strong rebound of tourism. Further, given the implementation rate of government projects and the rate of grant disbursement, Peterkin, like myself, believes the anticipated levels of grants is quixotic. I shall return to other unrealisms in the budget; for now, I merely want to highlight those identified by Peterkin.
On the issue of giveaways, while no new ones have been announced, some expired ones are set to be renewed. The tax everyone loves to hate—property tax—as part of the government’s “5 to stay alive” election mantra, was supposed to be exempted for three years. Based on the revenue projected from this tax, it is obvious that the exemption will be extended for another year. While it may be true that some homeowners are still struggling and it would be a bad time to re-introduce the tax, do we really believe that an impending election played no role in that decision?
I don’t! In any event, given the government’s deteriorating fiscal space, there’s not much in its Santa Claus bag. Now to pork spending. This column is too short to permit a deep dive and dissection of government expenditure, but even a summary analysis of planned expenditure raises several troubling questions, not to mention the several inconsistencies in Ministerial statements. For general edification, government expenditure is broken down between recurrent and capital. Recurrent expenditure represents all payments other than for capital assets, including on goods and services, wages and salaries, employer contributions, interest payments, subsidies and transfers. Capital expenditure, on the other hand, are payments for the acquisition of fixed capital assets, stock, land or intangible assets. The budget summary informs us that total expenditure for 2021-22 is expected to be $1,638,600,900—of which recurrent expenditure is $1,359,997,100 and capital $278,603,600.
A closer look at the recurrent budget will indicate an allocation of $574,414,194 for wages and salaries. This figure represents an increase of 3.7% over the 2019-20 actuals, 1.7% above the approved Estimates for 2020-21, and 6.4% above the projected outturn for 2020-21. Instructively, the increased allocation is not due to any newly signed collective agreement with public sector unions, nor any retroactive payments. In this election season, should this be interpreted as an indication of new hires? A similar concern arises when the allocation for goods and services is compared to previous years. For fiscal 2021-2, an allocation of $325,389,181 is set aside for goods and services.
This figure represents an increase of 21.7% above the projected outturn for the same category in 2020-21, 16.1% above the approved Estimates for that year, and 24.4% above the amount spent in 2019-20. One may well attempt to argue that such increases are necessary as a means of priming the pump to spur growth and counter the depressed economy. However, this argument is undercut by the reduction in the allocation for transfers. With only $149,751,001 for transfers for 2021-22, the amount represents a decrease of 20.9% on the projected outturn for 2020-21, and 24.5% lower than the amount approved in 2020-21. Space does not permit an examination of the allocations across agencies, but such an examination is necessary.
I wish to remind that one criterion for assessing a budget is its level of transparency. I previously indicated that though the various government agencies may be satisfied with the classification system utilized, its translucence may well befuddle outsiders.
The budget summary states that the government intends to spend $278,603,600 on its capital program. However, when financing of the capital program is examined, the stated figure is $394,473,793—or $115,870,193 more than what is stated in the budget summary. The capital program is supposed to be financed through $19,823,085 from local contributions, $121,255,992 from grants and $253,394,716 from loans. The five agencies that are to receive the lion’s share of the allocation are Infrastructure, Economic Development, Health, Agriculture and Education, with the following respective allocations: $120,485,765; $56,457,000; $56,083,642; $35,594,823; and $35,311,414.
Out of pique, a peep into the capital budget of the Department of Economic Development would reveal how much obfuscation can sometimes take place when policy debates are being held. I will cite one item to illustrate: the provision for the St. Jude Reconstruction Project. In this year’s Estimates, a total of $12,000,000 has been allocated for work on the project. I wish to point out three other interesting numbers associated with the project—all according to the tabled Estimates. 1) the estimated project cost is $190,935,936; 2) cumulative expenditure to date on the project is $166,097,436, and 3) the estimated balance that will be available in 2022-23 of $12,838,500.
There is much to unpack in those numbers but I won’t at this time, except to surmise that the government either does not anticipate the commissioning of the St Jude Hospital in this financial year or has poorly allocated resources for that task. This conclusion is reinforced when one notes that in this year’s Estimates, the Ministry of Health’s capital budget has an allocation of $12,985,714 for the Commissioning of the OKEU Hospital.
Returning to the seeming ambiguity in the capital expenditure figures, the extent of the deficits, both primary and overall, may be worse than stated, leaving us with even less fiscal space to respond to any further economic shock.
In Peterkin’s assessment and JnPierre’s paean, they both cited the Prime Minister’s touting of the reduced weighted average cost of debt in the past year. While this is a good thing for the country, this occurrence is not the result of any deliberate policy decisions by the government, since we don’t determine interest rates. Globally interest rates have been falling, and we have been taking large loans at these lower rates. Consequently the weighted average cost of debt is lowered. Notwithstanding, our concern should be on the very large debt stock and the trend that predated COVID-19 of ever larger primary deficits, which indicates even more limited fiscal space to respond to scenarios such as a natural disaster, other exogenous shocks, or possible interest rate adjustments. Despite their previous castigations, the administration has made no provision for a Sinking Fund.
Meredith JnPierre quotes the PM as stating: “A comparison of the movement of the central government debt stock over the past decade shows that the annual average increase between 2011 and 2015 was 9% compared to 4.89% in the period 2016 to 2020.” The PM was factually incorrect. The outstanding central government debt as at 31 December 2011, was $2,090,830,919 compared to $2,675,834,835 on 31 December 2016, and $3,064,448,508 at 31 December 2020. This represents an increase of $585,003,916 or 28% between 2011 and 2016, and $388,448,508 or 14.5% between December 31, 2016 and December 31, 2020.
These would in no way yield annualize averages of either 9% or 4.9%. Instructively, the PM did not cite rate changes in contingent liabilities, when, for the corresponding periods the changes were as follows: a 9.6% reduction between 31 December 2011 and 31 December 2016, and a 20% increase from 31 December 2016 to 31 December 2020.
The basis for the changes in the debt stock is an important discussion but beyond the remit of this article. However, I would be negligent if I did not point out that the true analysis of a country’s debt position goes beyond the examination of loans, bonds and treasury bills. The use of structured finance products, called by various names (e.g. BOLTs, DFCs), imposes a liability on the government in very much the same manner as a financial instrument but is largely absent in current discussion on debt.
There is a need for a dispassionate review of where we are and what it will require to take us where we need to be. It is in that vein, I repeat, that in this election year the tabled Estimates is merely a sugar pill that cannot address or reverse the underlying deterioration afflicting the country. The policy address by the PM may attempt to apply a coat of paint on the deteriorating structure, but the underlying numbers will betray the narrative.
