They say that in a democracy, the government only governs with the consent of the governed. Of course, this presupposes that this is informed consent. Based on some discussions to which I have been privy, however, I have reason to doubt the extent to which the citizenry is informed of the things that governments do in their name, and ostensibly on their behalf. Yet, soon enough citizens will be asked to pass judgment on quality of the stewardship provided over the last five years.
Recent discussions on the annual laying of the Estimates again brought this quandary to the fore. Some are cheering and others are jeering, and many of them can’t reason why save for who tabled the Estimates. I am trying to be a good citizen, so I have decided in this brief article to share some information on the budget preparation process, some issues that should be considered when analyzing the efficacy of the budget and some reaction/reflection on the recently tabled budget.
We need to acknowledge that budget planning and preparation is at the heart of good public expenditure management. It is generally believed that for a PEM to be effective it requires the following four forms of fiscal and financial discipline: 1) Control of total expenditure to ensure affordability within macroeconomic constraints; 2) effective means for achieving a resource allocation that reflects expenditure policy priorities; 3) efficient delivery of public services; and 4) efficient budget execution and cash and debt management practices.
In assessing the soundness of the budget, one should examine criteria such as comprehensiveness, transparency and level of realism. For instance, with respect to comprehensiveness we could ask: Is the coverage of government operations complete? Are estimates gross or does netting take place? To determine levels of transparency one may discuss the usefulness of the budget classification, or try to determine the ease with which policies connect expenditures through a program structure.
The realism of the budget will be gauged by ascertaining whether the budget is based on a realistic macroeconomic framework and whether the estimates are based on reasonable revenue projections. One should also seek to determine whether the financing provisions are realistic, if the costing of policies and programs are realistic, how future cost implications are accounted for, and whether there is a clear separation between existing and new policies.
To my mind, the recently tabled Estimates of Revenue and Expenditure by the Minister for Finance and Prime Minister Allen Chastanet is akin to a placebo. It is a sugar pill that will make some people feel good, but not address or reverse the underlying deterioration afflicting the country.
The Estimates appears comprehensive as it covers all government operations and provides gross as opposed to net estimates. Staff of the various government agencies may be satisfied with or are clear about the classification system utilized. However, the citizen may have some niggling concerns or areas that will be less than clear. Equally translucent is the extent to which policies can be connected to expenditures through their program structure.
Based on the Estimates for fiscal year 2021-22, the government expects to collect $909,019,294 from tax revenue, $92,688,706 from non-tax revenue, just over $6,048,000 from capital revenue and $121,255,917 from grants, representing $1,119,498,472 in total revenues. These figures seem quite remarkable a year after what is supposedly the biggest shock to the global economy in almost 100 years.
Thus the big question is: Are those revenue projections gold-plated to coincide with the impending elections? The annual Social and Economic Review that usually accompanies the Estimates was not released, so it is a bit more difficult to assess the macro-economic assumptions that may have informed those projections. Notwithstanding the unavailability of the SER, one may still assess the realism of those projections by examining the historical record and look at the trend line for consistency. Revenue performance relative to approved estimates over the previous three budgets will cast doubt on the realism of this year’s revenue estimates.
For instance, for fiscal year 2018/19, it was estimated that the government would collect $1,008,358,634 from tax revenue; $100,846,666 from non-tax revenue; $7,720,358 from capital revenue and $69,693,994 from grants, making it a total of $1,176,215,662 in revenues. Most of these targets were realized and even surpassed, as the respective intake was as follows: $1,098,213,289; $69,303,356; $274,062; $46,487,659; and $1,203,719,544.
In fiscal year 2019/20 the government remained optimistic, estimating that it would collect $1,137,714,734 in tax revenue and $69,765,066 in non-tax revenue. Capital revenue expected to yield $2,673,322 while grants would hopefully contribute $49,078,671, and total revenue be $1,247,967,793.
When all was said and done, the actuals for that year were significantly lower: tax revenue $1,071,783,656; non-tax revenue of $84,083,100; capital revenue only $874,349; and grants $40,031,981, with total revenue at $1,187,892,862. It must be recognized that this is pre-COVID.
Last fiscal year, 2020/21, as COVID was envisioned to adversely impact performance, the government expected to collect $924,924,355 from tax revenue, $94,591,045 from non-tax revenue, $10,827,575 from capital revenue and $106,984,472 from grants, totaling $1,126,813,447 in revenues. Though we don’t yet have the actual figures, the projected outturn is $802,825,759 in tax revenue, $92,688,705 in non-tax receipts, $374,261 in capital revenue and $31,602,475 in grants, bringing the total revenue to $908,240,528.
Thankfully for all concerned, on the expenditure side of the Estimates, for the corresponding 3-year period the totals have come in lower than the amounts approved by Parliament. Though beyond the spatial constraints of this paper, there is need to pay closer attention to the breakdown of those expenditures to get the greater perspective on where we are heading. It should however be noted, that in what would presumably be a recovery year, the amounts budgeted for transfers is $50 million lower than the amount approved last year. Is that an indication that the state de-prioritized support to citizens and institutions, as it is expecting a major recovery?
Perhaps the most concerning issue reflected in the Estimates relates to debt and its servicing. To understand how well the government is managing its money and how much breathing room or fiscal space it has, one should explore what is happening to the primary balance. The primary balance represents the difference between the government’s revenue (its earnings) and its non-interest expenditure (what it is spending not including debt payments). This difference is usually measured as a percentage of GDP. Ideally, this figure should be positive as it allows for the easier servicing and lowering of debts, and ultimately the financing of projects that could stimulate growth in the economy.
Over the past three years the primary balance has been negative and portends much vulnerability and debt related risks, particularly given the volume of borrowing that has taken place in the past two years. In fiscal 2019/20, the primary balance as a percentage of GDP was forecasted to be -0.1%, whilst the actual turned out to be -0.5%. For 2020/21, unsurprisingly, a deficit was anticipated of -4.5%. The projected outturn is now expected to be -7.5%. For this fiscal year, 2021/22, a primary deficit of -4.3% is budgeted, and at this stage in the cycle there is nothing to suggest it would turn out better.
What the above referenced figures demonstrate is that the decline in Saint Lucia’s financial health did not begin with COVID, that this year’s estimates will not reverse that slide, and that contrary to Meredith JnPierre’s assertion (STAR 27 March, 2021) that the budget gives hope, it is merely a sugar pill. Richard Peterkin (STAR Online) in his analysis of the budget suggests without reason the tabled estimates was not reflective of “an election budget.” In a subsequent article I will explore the error limits of that assertion by paying a little closer attention to the breakdown of expenditure.
