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Informing The Uninformed....
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MINISTER OF FINANCE AND THE ECONOMY
TUESDAY, NOVEMBER 30, 2004
With your permission, Madam Speaker, I would like to begin by inviting the
nation to exhale.
Madam Speaker:
Today, November 30th, 2004, the Sunshine Government of Antigua and Barbuda
again breaks new ground in our nation’s transition to 21st century
governance.
It is my special privilege, Madam Speaker, and it is my honour, to
present, in the year 2004, the National Budget for 2005.
I think it is a historic first in this honourable House, Madam Speaker,
that the Government is presenting the nation’s annual Budget in the year prior
to the financial period in which the Budget’s judgments and its measures will
take effect.
This dramatic departure from accustomed practice, this preparation and
presentation of the Budget in advance of the period to which it relates is
respectful to, and considerate of, the people whose businesses and lives the
Budget will affect.
Advancing the timing of the Budget Presentation is in consideration of
individual as well corporate interests, providing time for planning and
adjustments in households as well as in businesses.
With typical fiscal waywardness, the previous government practiced a
policy of cruising without a compass, well into every budget period, plunging
the economy and the people of this country into increasingly troubled waters.
There was, inevitably, a crying need for a rescue mission, Madam Speaker.
Eight months and seven days ago, on the 23rd of March, 2004, an educated
and conscious electorate, acting in their considered judgment, and using their
inherent and unfailing common sense, overwhelmingly placed their faith and
future in Government in the Sunshine.
The good people of Antigua and Barbuda turned to the United Progressive
Party to rescue our nation from the road to ruin, from the continuing corrosion
of corruption, and from the arrogance and incompetence of the ALP regime.
The long embedded regime had become glaringly dysfunctional and lacked any
perceivable capacity to take this nation into a transition to 21st century
governance.
The Antiguan and Barbudan people had long been desperately yearning for
rescue from their years of mounting misery at the hands of a decaying dynasty.
The people of Antigua and Barbuda understood on March 23rd, as they
understand now, that the bitter harvest that so many of the less fortunate in
our society are reaping today, was sown by the seeds of greed and corruption and
wanton waste that defined government in this country over the years.
We now face formidable challenges in restructuring
and giving our economy a fresh start and in coping with shocks and uncertainties
in our external environment.
Let me outline a scenario that will be familiar to everyone, Madam
Speaker:
Ribbon-cutting
ceremonies marking the opening of investment projects such as roads, power
plants, ports, airports, schools and hospitals are many a politician’s dream.
These occasions
present splendid photo opportunities, while the very act of cutting the ribbon
seems to identify the shear-wielding politician as a contributor to the future
growth of the economy.
In some
countries, however, corrupt politicians appear to choose investment projects,
not on the basis of their intrinsic economic worth, but on the opportunity for
bribes and kickbacks these projects present.
Such corruption
increases the number of capital projects undertaken and tends to enlarge their
size and complexity.
The result is
that, paradoxically, some public investment can end up reducing a country’s
growth, because even though the share of public expenditure in gross domestic
product may have risen, the average productivity of that investment has dropped.
When corrupt
politicians influence the approval of an investment project, the rate of return
as calculated by cost-benefit analysis ceases to be the criterion for project
selection.
The process of
approving an investment project can be an irresistible temptation for the
unscrupulous.
In some of
these cases, a strategically placed, high-level official can manipulate the
process to select a particular project.
He can also
tailor the specifications of the design to favour a particular enterprise by,
for example, providing inside information to that enterprise at the time of the
issuance of the tender.
Corruption can
reduce government revenue if it contributes to tax evasion, improper tax
exemptions or weak tax administration; and the diversion of funds from the
maintenance of existing infrastructure and from social programs such as
education and health.
Madam Speaker:
This Honourable House, might, understandably, have
thought that I had written the scenario I have just outlined.
That scenario might have seemed a precise fit to such controversial public
investment projects as the former Royal Antiguan Hotel; Heritage Quay; the
Vendors Market; and the Mount St. John Medical Centre.
Those notorious excesses of the former government are indeed prime
examples of public investment projects serving as conduits for personal gain for
unscrupulous public officials and their accomplices in private enterprise.
The scenario fits Madam Speaker, but I do not claim authorship.
The references to the manipulation of public capital investment projects
that I have just presented are, in fact, taken directly from the IMF publication
titled “Roads to Nowhere: How
Corruption in Public Investment Hurts Growth”.
That thesis was co-authored by Dr. Vito Tanzi, Director of the Fiscal
Affairs department of the International Monetary Fund and Dr. Hamid Davoodi, an
economist in the same department.
“Roads to
Nowhere: How Corruption in Public Investment Hurts Growth” was drawn from an IMF Working Paper captioned, “Corruption,
Public Investment and Growth” and published in 1988 in an IMF series on economic issues.
The International Monetary fund published that scenario examining
corruption in public sector investment projects 16 years ago, Madam Speaker.
The relevance to Antigua and Barbuda over the last couple of decades is
quite striking.
15 days ago, the International Monetary Fund published a scenario specific
to Antigua and Barbuda today, which was researched by executives of the IMF.
The IMF released that scenario, specific to Antigua and Barbuda today, on
November 15th.
This new scenario is defined in an assessment of Antigua and Barbuda by
two Directors at an IMF Executive Board Meeting on November 15, 2004.
I quote from this current IMF assessment of Antigua and Barbuda’s
economic circumstances and the options that these circumstances mandate for this
country, Madam Speaker:
“It is
difficult to avoid the conclusion that the country’s current economic
difficulties have been largely self-inflicted.
“As a small,
open and shock-prone island economy constrained by a narrow economic base and
limited capacity, Antigua and Barbuda’s economic progress has additionally
been challenged by a problem of governance, particularly in the sphere of fiscal
management.
“It is clear
that the policy missteps of the past have left the country with a legacy of
difficult economic challenges.
“Given the
role which governance factors have played in constraining the performance of the
economy, it is difficult to overestimate the importance of reforms in this
critical area.
“We are
encouraged by the current authorities’ determination to break decisively with
the past and by the strong legislative and other actions recently taken to
improve transparency, accountability and integrity across the board; including a
code of conduct for Ministers.
“The new
administration in Antigua and Barbuda is making a strong and committed effort to
confront the country’s daunting economic challenges.”
End of the quotation.
There could hardly be a more objective, more penetrative, and more
authoritative summary of where Antigua and Barbuda stands today and the enhanced
regard with which the international community now views Antigua and Barbuda,
Madam Speaker.
One of our most daunting challenges is the mountain
of mounting debt that is the legacy of the previous administration.
On March 31st, 2003, in what has turned out to be, and certainly was
destined to be his final Budget presentation in this or in any other Parliament,
the former Member of Parliament for St. John’s Rural East and then Prime
Minister and Minister of Finance, confirmed that the public sector wage bill was
some 74% of recurrent revenue.
This left 26%, just one point over one quarter of recurrent revenue, to
fund the government’s obligation to the Antiguan and Barbudan people.
After meeting the public sector wage bill, only 26% of recurrent revenue
was available to maintain public infrastructure; to provide essential services
to the population; to fund social programmes; and to meet the Government of
Antigua and Barbuda’s crippling debt obligations to our legion of creditors
throughout the country, across the region and around the world.
Government revenue cannot support the current public service wage bill,
Madam Speaker.
Nor can we arrest the continuing expansion of interest on arrears on the
mountain of overdue debt generated by our predecessors that Antigua and Barbuda
owes to local and foreign creditors.
The former Prime Minister confirmed this in his final Budget Presentation
on March 31st, last year, Madam Speaker.
He ventured no solution to the problem that his irrational policies had
created, save and except for hallucinatory wishful thinking that the private
sector would some day, in some way, absorb enough public servants to bring the
public service payroll down to a manageable size.
The leadership of the previous administration was beyond their depth in
dealing with the economic problems they had inflicted upon the country.
The size of the public service payroll and the staggering volume of debt
are not the only monuments to the fiscal lunacy of the last administration.
In hopeless and increasing financial crisis, that government perversely
gave away some $200 million in duty free waivers in 2003.
This was a blatant effort to bribe voters in what had been scheduled as an
election year.
That gigantic $200 Million giveaway did not go to any known investment
project of any known significance.
In the weeks leading up to the elections this year, the Cabinet approved
something in the region of 1,000 duty free waivers for the importation of motor
vehicles.
To the enduring credit of the integrity of the Antigua and Barbuda
electorate, that astronomical level of bribery by a desperate government could
not buy enough votes to prevent the complete rout of the most dismally
ineffective group of economic policy makers to have held office in this part of
the world.
In what was certainly the most daring fiction committed by any Minister of
Finance, in any Budget Presentation, in this or in any other Parliament, former
Member of Parliament for Rural East told the Speaker, told Honourable Members,
told the nation, and told the world, that his Government had either paid off or
rescheduled much of the national debt and was continuing to service what
remained.
Madam Speaker:
That was a calculated misrepresentation of indictable dimensions and an
arrogant demonstration of contempt for the intelligence of the Antiguan and
Barbudan people.
Paid-off, rescheduled and timely debt service could not possibly have
attracted arrears on external and domestic debt at the level of $366 Million,
which was where the arrears on debt repayment stood when the United Progressive
Party came into government.
The total debt burden was within striking distance of ten times that
amount, Madam Speaker.
To underline the magnitude of the past mismanagement
of this country’s fiscal and economic affairs, comparison with a number of
other economies is instructive.
Net debt is now 45% of national income in France.
In America it is 50%.
In Germany, net government debt is 55% of national income.
In Japan it is 86%.
It is 94% in Italy.
This year, the net government debt in the United Kingdom is 34 % of
national income.
In Antigua and Barbuda, the Central Government debt
is over 500% of the government’s highest recorded annual revenue.
Total Debt in 2002 amounted to $2,649,131,826 or 136.5% of GDP, while
total Debt in 2003 grew to $2,818,314,637 or 137.1% of GDP.
Of these totals, Central Government domestic debt represented $659,581,000
in 2002, while external debt represented $1,352,350,000.
In 2003, Central Government domestic debt recorded $651,232,000, while
external debt increased to $1,538,628,000.
It is obvious that for some time to come, the people of this country will
have to live with the cumulative consequences of the aberrant and irresponsible
approach of our predecessors in government to fiscal affairs over the years.
It can only be assumed that my predecessor had deluded himself that what
the people did not know would not hurt them.
In contrast to such calculated deception of the people, the Sunshine
Government has broken new ground with unprecedented public consultation in the
formulation of the fiscal and economic policies that are embodied in the 2005
Budget.
Madam Speaker:
Budget 2005 is therefore, quite literally, the people’s budget.
It embodies the stated aspirations and concerns of a wide cross section of
the population of Antigua and Barbuda.
I am indebted to innumerable persons across the length and breadth of
Antigua and Barbuda for their contribution to the judgments that I articulate in
Budget 2005.
I wish to place on record my gratitude to all the persons who were
participants in the extensive public consultations that the Ministry of Finance
and the Economy conducted across the country.
I am grateful to the many units of civil society, including business and
labour and the NGO’s, whose observations and advice I greatly appreciate and
have factored into the judgments I have made in the 2005 Budget.
I am indebted to the Governor of the Eastern Caribbean Central Bank and
his staff, and to the Caribbean Development Bank, CARTAC, and other regional and
international organisations for their insight and for their valuable counsel on
fiscal policies common to the member states of the OECS.
The media have been critical catalysts in making economic realities and
fiscal issues subjects of topical public discussion.
I thank you for raising public consciousness in these matters, ladies and
gentlemen of the media.
I thank the public service officers in every Ministry, whose labours were
vital in the preparation of the voluminous data and the plethora of policies
that are coordinated in the Budget process.
I particularly wish to thank officers of the Ministry of Finance and the
Economy for their unwavering dedication to the Government’s policy agenda for
turning around the economy and propelling it on a path to sustainable growth.
Their sensitivity to the needs of the competing groups in the society and
their all round professional competence has helped, immensely, to relieve the
burden of the Budget exercise that would otherwise have fallen to their
Minister.
Of this group, I wish to recognise the work of:
The Budget Director, David Matthias;
The Financial Secretary, Whitfield Harris, Jr.;
The Director of the Economic Policy and Planning Unit of the Ministry of
Finance, Yolanda Goodwin;
The Coordinator of the Economic Policy and Planning Unit of the Ministry,
Rasona Davis; and
The Tax Consultant to the Minister of Finance, Carey Thompson.
I pay special tribute to Senator, the Honourable Lenworth Johnson,
Parliamentary Secretary in the Ministry of Finance and the Economy, an able and
committed partner in the overall Budget endeavor.
I ask the forgiveness of those whose names I have not mentioned.
My gratitude to them is just as great.
I especially thank the technical and support staff of the Ministry, and
the Budget and Planning Staff who assisted with the national consultations.
They went beyond the call of duty. They
were evangelists in this mission of empowering the Antiguan and Barbudan people.
I must thank my colleague Cabinet Ministers for their recommendations for
the Budget.
I am grateful, too, for their goodwill and cooperation in holding the line
on expenditure in the current Budget period.
Madam Speaker:
It is not the practice of the Prime Minister to ask members of his Cabinet
to put people first.
In his actions, and in his injunctions, Prime Minister Spencer has always
demonstrated and asserted his core political and economic philosophy that people
do, in fact, come first.
Putting people first is therefore not a matter of choice for the UPP
administration.
Putting People First is the essential reason why we are all here.
I am grateful to you, Honourable Prime Minister, for keeping us focused on
our fundamental philosophy in politics and in governance, People First.
Madam Speaker:
It is self evident that Budget 2005 is informed by the insight of the
Antiguan and Barbudan people of all groups in the society; all callings; all
walks of life; every station; and from every constituency.
The reconstruction of the economy and the renewal of the nation will call
for the combined effort of the government and the people, in common purpose and
in joint endeavour.
To maneuver this nation on the challenging path ahead will require the
unwavering commitment of all in this nation.
There is a place for everyone; and there is a role for everyone.
This Budget sets out to lay a foundation for a fresh start for Antigua and
Barbuda; and a fresh start for everyone in this nation.
It is an honest examination of our nation’s economic realities and a
solid foundation for a fresh start.
If we are to look forward to happy days for all in this country, all in
our nation will have to go through a period of austerity, a period of
adjustment.
Every one will have to demand less and give more.
Now, more than ever, the obligation falls to every Antiguan and Barbudan,
every citizen, every resident, to ask not what our country can do for us, but
rather to ask what we can do for Antigua and Barbuda.
Budget 2005 speaks to both propositions.
Our current circumstances and the global environment present continuing
challenge.
The path and priorities we outline in Budget 2005 confront the challenges
that surround us, and they will prepare Antigua and Barbuda for the challenges
that are coming at us.
That path and those priorities also present exciting opportunities.
Madam
Speaker:
It is
fitting at this point to look at the global economic terrain, which Antigua and
Barbuda has to negotiate.
In 2003, real
GDP in the world economy grew by 2.6% compared to 1.8% in 2002.
For the first
half of 2003, adverse economic and socio-political shocks – particularly the
war in Iraq - affected world economic performance.
However,
economic performance in the second half of 2003 improved, bringing year end
performance above that of 2002.
For 2004 and
2005, economic growth is projected to rise further by 4.2% and 4.1%
respectively, reflecting a marked upswing in private investment.
World trade is
also projected to expand significantly by 8.9% in 2004 and 10.1% in 2005, with
China, the US, Japan and the European Union being the main contributors in world
trade.
The pegging of
the Eastern Caribbean dollar to the US dollar means that developments in the US
economy can have direct economic implications for the Antigua and Barbuda
economy.
Real GDP growth
in the US is expected to increase over 2003 performance, which was 1.8%.
For 2004, GDP is
projected at 4.3% and for 2005 growth is forecasted to slow to about 3.3%.
This upturn in
the US economy in 2004 over performance in 2003 reflects an increase in private
investment as well as acceleration in private consumption and exports.
However, the
continued weakening of the US dollar, which is expected to depreciate a further
2.7% against the Euro in 2004, remains a concern for the US economy.
This weakening
of the US dollar, in conjunction with rising oil prices, is expected to increase
the rate of inflation from the 1.8% registered in 2003 to 2.4% in 2004.
Despite the
growing world economy, the widening US deficit, the large deficits of a number
of European Union countries, along with the slow turn around in a number of
these key economies, may dampen economic growth in the next few years.
However, the
recovery of the Japanese economy and the booming Chinese and South-East Asian
economies are expected to contribute possibly to world economic output.
Another key
factor that remains paramount is the continued instability of oil prices.
As indicated in
a report by the Energy Information Administration earlier this month, the
short-term energy outlook shows that oil prices for the fourth quarter of 2004
are projected at just over US$51 per barrel.
This is US$20
above prices in the fourth quarter of 2003.
The continued
rise in oil prices and the instability has had economic consequences for
oil-importing economies and more so for oil-importing developing countries.
For Antigua and
Barbuda, rising oil prices, if fully passed on, may place upward pressure on the
cost of doing business, drive up domestic prices and further deteriorate our
Balance of Trade.
That steady
climb in oil prices will have implications for electricity generation and the
cost of utilities to consumers and businesses.
The Government
of Antigua and Barbuda cushioned motorists from rising prices at the pump by
direct subsidy over several months.
Regrettably, the
Government is in no position to sustain this subsidy.
On the bright
side, the continued depreciation of the US dollar vis-à-vis the Euro offers
significant economic opportunity for Antigua and Barbuda.
Euro-rich
vacationers are visiting Antigua and Barbuda in increasing numbers, and the
prospects for continuing growth in our European business are positive.
The issues of
trade liberalization and globalization remain at the forefront of world economic
developments.
For Antigua and
Barbuda, our more immediate concerns relate to the World Trade Organization and
the proposed Free Trade Area of the Americas.
The Government
of Antigua and Barbuda is pressing its WTO backed claim, for the removal of the
US bar to our access to the US market for Internet Gaming.
The removal of
that bar would immediately restore a number of well paying jobs for young
Antiguans and Barbudans.
The
implementation of a Free Trade Area of the Americas arrangement will
significantly impact all economies of the Americas.
Antigua and
Barbuda will continue to be an active participant in the CARICOM bloc in FTAA
trade negotiations.
We must ensure
that our best interests as a small island developing state are well served in
the eventual FTAA equation.
Post 9/11
difficulties in the world economy in 2003 led, inevitably, to a downturn in
economic performance in the CARICOM region.
However, most
Member States have since enjoyed some growth in real output.
In particular,
Barbados and Trinidad and Tobago realized 2.2% and 3.4% growth in real GDP
respectively.
As the
developments that negatively impacted world economic performance in 2003 come
under control and a turn around in the US economy takes effect, it is projected
that the regional economic environment will show further recovery in 2004.
The turnaround
in the world economy is expected to positively impact economic performance in
the region.
While inflation
remained relatively low – between 1% and 3% - the region experienced
unemployment rates in excess of 10%.
Despite the
reduction of interest rates in a number of CARICOM member states, high liquidity
of commercial banks continues in 2004.
While all
CARICOM member states continue to work towards the establishment of the
Caribbean Single Market and Economy, Barbados, Jamaica and Trinidad and Tobago
are CSME-ready and are expected to implement the treaty from January 2005.
The CSME can
help to prepare the region’s producers and its professionals for competing in
the wider hemispheric and international markets.
This can enhance
our economic performance in an increasingly liberalized, an increasingly
competitive, and an increasingly borderless global economy.
As we enhance
our productivity and competitiveness, the region should see increased export
performance driving economic growth.
Recognising the
importance of the CSME for Antigua and Barbuda, government is accelerating its
efforts to prepare our nation for regional integration.
It is critical
that our producers and professionals, and our citizens in general, are equipped
to seize the opportunities that the CSME will offer.
From the mid
1980s to the mid 1990s Antigua and Barbuda enjoyed average annual growth rates
of 6%. However, between 1994 and
2003, the average annual rate of real economic growth declined steadily from a
high of 6% to 2%.
For 2004, it is
expected that real GDP growth will expand as projections indicate a 3.97% growth
in real output.
Further increase
in economic growth is anticipated in 2005.
With the
Government focusing on improving its fiscal position, reducing the national
debt; making significant investments in social and physical capital
accumulation; enhancing development of the tourism sector and promoting
expansion in agriculture, light manufacturing and agro-processing activities,
conservative projections indicate a 4% growth in real output for 2005.
Madam
Speaker:
Between 1999 and
2003, the fiscal situation in Antigua and Barbuda grew progressively worse.
In 1999, the
current account and overall deficits were $74.47 Million and $70.61 Million,
respectively.
By 2003, the
current account deficit and the overall fiscal deficit had ballooned to $83.85
Million and $158.78 Million respectively.
Through
intensive efforts by this Government, the current account deficit and overall
fiscal deficit are expected to decline by the end of 2004 to $68.80 Million and
$80.91 Million respectively.
Despite this
anticipated improvement in fiscal performance, there are still significant cash
flow constraints, which make it difficult for the Government to meet its current
and outstanding obligations.
Consequently,
our initial efforts to prevent further declines in the fiscal accounts must be
buttressed by a comprehensive programme of fiscal reform.
With such a
strategy, government will be able to move to a sustainable level of fiscal
operations.
Our current
fiscal objectives include:
i.
A Current Account Surplus equal to 4% of GDP within 5
years.
ii.
An overall Fiscal Balance not exceeding –3% of GDP
within 5 years.
iii.
Disbursed Outstanding Debt not exceeding 60% of GDP
within 10 years.
iv.
Debt Service to Current Revenue Ratio of no more than
15% within 5 years.
The achievement
of these fiscal benchmarks should in turn facilitate the realization of our
macro-economic goals, which include:
¾
Full
employment in the Antigua and Barbuda economy.
¾
Containing
inflation rates to no more than 3% annually.
¾
Sustaining
real growth in annual output of no less than 5%.
The Government
anticipates that new standards of fiscal management will facilitate the
attainment of these macro-economic goals within the next 5 years.
Madam
Speaker:
Clearly, a
significant turn around in the Antigua and Barbuda economy will require more
than improved fiscal management.
The National
Strategic Development Plan, which will be fine tuned for implementation from
2005, will detail the Government’s economic programmes through the next five
years.
In formulating
the National Strategic Development Plan, Central Government will work closely
with the Barbuda Council to prepare a comprehensive and integrated development
plan for Barbuda.
However, the
court’s determination of the Barbuda issue, which it is currently
adjudicating, is a prerequisite to full consultation with the Barbuda Council.
The tourism
sector remains the most significant foreign exchange earner for Antigua and
Barbuda.
A conservative
estimate for 2004, projects a 5% expansion in the tourism industry, with a
contribution of 12.46% to GDP.
The Government
has formulated strategies for accelerated development of the tourism sector as
we approach a peak in the wave of visitors for World Cup Cricket in 2007.
The Sunshine Government is committed to dramatically
improving Antigua and Barbuda’s perilous fiscal situation.
Large and unsustainable deficits will no longer be
the order of the day.
Nor will mounting debt and accumulation of arrears of
public debt be acceptable.
This Government
fully intends to improve revenue generation, as we introduce new standards in
expenditure management.
We
have to ensure that the chronic fiscal deficits that plagued Antigua and Barbuda
over the years are effectively reduced.
To this end, the
Government will initiate a comprehensive fiscal reform programme.
This programme
will focus on improving revenue collection from existing revenue streams; on the
introduction of new revenue measures; on streamlining the public service; on
enhancing efficiency and productivity in the public sector; on rationalisation
of government expenditure; and on the operation of efficient expenditure
management systems.
As the
Government works to improve the country’s fiscal position, our motto,
‘People First’, will remain paramount.
We will
introduce specific measures to ensure that citizens and residents are not unduly
burdened by the revenue and expenditure management imperatives that we have to
introduce.
The Government
will remain true to our commitment to keep current on payments to Social
Security, Medical Benefits and the Board of Education, in respect of public
servants’ contributions.
Madam
Speaker:
Recurrent Expenditure for the 2005 financial year is
estimated at six hundred and nine million, six hundred and seventy two thousand
seven hundred and two dollars ($609,672,702).
This represents a decline of $17,815,858 from the
2003 recurrent expenditure estimate, which was $627,398,640.
Though
government has been able to reduce this estimate through effective
rationalisation of expenditure, we recognise that essential services must be
adequately funded.
These services
will therefore be supported by provision of the resources to ensure efficient
and timely delivery of services to the public.
The Royal
Antigua and Barbuda Police Force has operated under unsatisfactory and
deteriorating conditions over the years.
Our Police
officers have been required to function in deplorable conditions, with
inadequate equipment, limited technology, and limited training.
Urgent
corrective measures will be implemented in the 2005 Budget period.
The Defense
Force is understaffed and urgently needs equipment essential to the proper
discharge of its functions.
Allocations have
therefore been made for the purchase of equipment and vehicles, and for the
employment of 56 recruits.