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Informing The Uninformed....
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BUDGET STATEMENT 2006
DR.
THE HON. L. ERROL C
MINISTER
OF FINANCE AND THE ECONOMY
2007
BUDGET PRESENTATION
THURSSDAY NOVEMBER 30, 2006
GOVERNMENT
OF
BUDGET
PRESENTATION 2007
Introduction:
Madam
Speaker:
It
gives me great pleasure to present this year’s Budget from our new and
ultra-modern Parliament Complex. This
new home of the Legislature of our beloved Antigua and Barbuda is not only
modern in architectural design but also includes facilities that will allow us,
through our Digital Agenda, to incorporate cutting edge technology into our
governance structures.
I
intend, Madam Speaker, with your gracious consent, to make full use of this
technology in my presentation.
Madam
Speaker, the Government wishes to express its appreciation to the Fares Hadeed
Group of Companies for the excellent partnership arrangements which have led to
the erection of this national edifice.
The
Sunshine Government, in keeping with its commitment to presenting the National
Budget before the commencement of the fiscal year in which the policies will be
implemented, is pleased once again to present Budget 2007 on this the 30th
day of November 2006.
Madam
Speaker, in Budget 2005, we laid the Foundation for a Fresh Start and in Budget
2006, we Geared up for Growth.
These
two carefully designed Budgets provided the blue prints from which the United
Progressive Party Administration began the long and difficult task of
reconstructing the economy of
We
steadfastly pursued these objectives through the implementation of fiscal,
institutional and legislative reforms and by introducing policies to encourage
private sector development.
These,
Madam Speaker, are the PILLARS upon which fiscal improvements and economic
expansion have been achieved under this UPP Administration.
These,
Madam Speaker, are the fundamentals behind Budget 2007.
These,
Madam Speaker, are our “Pillars of
Progress”.
During
the course of my presentation, the pleasure will be mine to share with our
citizens and residents the great news of the many strides this Government has
made towards achieving its stated objectives.
I
will demonstrate, Madam Speaker, not with inept theories and baseless conjecture
but with simple factual evidence that this Sunshine Government has truly placed
Madam
Speaker, gone are the days when a budget is presented without the citizens first
receiving a comprehensive account of the Government’s activities in the
previous fiscal cycle. This
Government is dedicated to engendering accountability, transparency and good
governance.
These
are not buzz words or rhetorical reflections but represent the principle by
which we conduct the business of this nation.
In
fact, Madam Speaker, we enshrined these doctrines in legislation with the
enactment of the Prevention of Corruption Act, the Freedom of Information Act,
and the Integrity in Public Life Act. This
trilogy of legislation holds us to higher standards and empowers the citizens to
demand the best from their Government.
Madam
Speaker:
Our
Silver Jubilee Independence Celebrations were a resounding success and we now
look forward to the coming year with great anticipation.
Indeed, Madam Speaker, 2007 will be a flagship year for
The
people of this nation can expect that the unprecedented high levels of economic
performance in 2006 will carry forward into 2007.
This
Government, emboldened by these successes to date, will accelerate its Agenda
for Change based on the pillars of fiscal reform, institutional strengthening
and capacity building, legislative reform, and private sector development.
Madam
Speaker, the improvements in economic performance and financial management that
I am about to reveal would not have been possible without the hard work and
dedication of the staff of the Ministry of Finance and the Economy, particularly
the Budget Team.
I
wish, on behalf of the Government, to thank these officers for their
steadfastness in the face of multiple challenges as we collectively pursued a
path of macroeconomic transformation in
The
key members of my Budget Team include:
Madam
Speaker, our progress was also made possible with the generous support of a
number of regional and international agencies including the Eastern Caribbean
Central Bank (ECCB) and the Caribbean Regional Technical Assistance Centre (CARTAC).
The
Sunshine Government is very proud of its achievements, and we are equally
confident that, by the end of my presentation of Budget 2007, despite the best
efforts of our staunch critics, the people of Antigua and Barbuda will also be
satisfied that their overwhelming confidence in the United Progressive Party
Administration, demonstrated on March 23rd 2004, was indeed well
placed.
World
Economic Trends:
Despite
high energy prices along with the resultant inflationary pressures, and rising
interest rates, the global economy is expected to log solid growth for 2006 and
2007.
World
economic output is projected to grow by 5.1% in 2006 and 4.9% in 2007.
This strong performance should reflect increased economic performance
mainly in the Peoples’ Republic of China, the
According
to the IMF’s World Economic Outlook for September 2006, the
For
the Euro area, economic growth is projected at 2.4% in 2006 as the countries
continue to experience investment-driven economic expansion.
However, the persistence of a number of structural challenges along with
the risk of tighter monetary policies in order to combat inflation could lead to
a decline in the growth rate to 2% in 2007.
Madam
Speaker:
Given
that
Specifically,
strong performance in the
In
this regard, the
Economic
output in the
High
demand for non-oil commodities also led to record high prices in 2006.
This was an especially positive development for the developing countries
that export these commodities as they are expected to experience strong growth
in 2006.
However,
this rise in prices is not expected to persist so that the high growth rates of
2006 may begin to taper in 2007.
Overall
growth in the volume of world trade is projected at about 9% for 2006 but may
decline to around 7.5% in 2007.
Madam
Speaker:
Trade
liberalization and globalization remain critical issues, particularly for
developing countries. However, the
apparent standstill in respect of the Doha Development Agenda and the seemingly
deadlocked FTAA negotiations continue to retard the global integration process.
Despite
these setbacks,
Madam
Speaker:
Whatever
the outcome in respect of these major trade liberalization and globalization
initiatives, special provisions that address the vulnerability and development
challenges of countries such as
As
the current chair of the Caribbean Forum of the African, Caribbean and Pacific
States (CARIFORUM), the Government of Antigua and
Moreover,
we continue to work with other CARIFORUM member states to arrive at an
acceptable draft of the Caribbean Regional Indicative Programme and Strategy for
consideration of all stakeholders. Once
completed, the
Regional
Economic Overview:
On
the regional scene, Madam Speaker, real GDP growth for the CARICOM region is
projected to be at around 6% for 2006 and should be between 4 and 5% for 2007
following a slow down in the level of investment after the significant increases
for Cricket World Cup 2007 preparations.
Trinidad
& Tobago is expected to register very high growth rates with projections for
12.5% growth in 2006 and about 6.9% for 2007.
The strong performance in the twin island republic is led mainly from
activities in the area of natural gas production and processing.
For
Real
GDP growth rates for
Madam
Speaker:
Economic
prospects for the Eastern Caribbean Currency Union (ECCU) remain strong and it
is expected that for 2006, real GDP in the ECCU region will grow at a rate of
about 7%. This is more than 1
percentage point higher than economic growth in 2005.
The
main drivers of growth in the ECCU area will be increased construction activity,
growth in tourism and agriculture and an expansion in the wholesale and retail
trade sector.
In
2007, growth in real economic output is projected at about 6.5% reflecting a
slow down in investment from the record levels of 2006.
The tourism sector, however, is expected to experience significant
growth, particularly due to Cricket World Cup 2007.
Also,
Madam Speaker, it is expected that construction activity will remain high,
though not as impressive as in 2006, with the implementation of a number of
public and private sector projects in 2007.
While
projections for the coming year look very optimistic there still remain a number
of challenges that confront the sub-region – namely, issues such as debt,
large fiscal deficits, escalating oil prices, rising international interest
rates, and managing the opportunities to be created by the Cricket World Cup
event.
Madam
Speaker, it is critical that the ECCU member countries adopt the appropriate
policies and pursue effective structural reform initiatives in order to maintain
strong economic growth and to precipitate sustainable macroeconomic outcomes.
Regional
Integration
Madam
Speaker:
The
Government of Antigua and
While
we fully intend to adopt the appropriate measures for the full implementation of
the CSM, the Government of Antigua and Barbuda will continue to push for the
establishment of special measures and programmes that will deliver tangible
benefits to
The
completion of all arrangements relating to the Regional Development Fund (RDF)
is, in our minds, paramount to securing the interests of the LDC’s and
ensuring the promotion of sustainable development in
In
order to ensure that the private sector is well positioned to thrive under the
CSM arrangement, we will in conjunction with the USAID’s Caribbean Open Trade
Support (COTS) expedite the development of a trade policy framework.
A
critical component of this programme will be the creation of the enabling
pro-enterprise environment to assist the private sector to take advantage of the
open and liberalized trade environment of the CSM.
Madam
Speaker:
At
the sub-regional level, the OECS member states are working towards deepening
integration through the establishment of an OECS Economic Union.
This decision was cemented at the 43rd meeting of the OECS
Authority and against the backdrop of the 25th anniversary
celebration of the signing of the Treaty of Basseterre through which the OECS
was created.
On
21st June 2006, Prime Minister Spencer along with the other OECS
Heads of Government signed a Declaration of Intent to establish an OECS Economic
Union by 1st July 2007.
This
further strengthening of the OECS integration movement will build on the
successes of 25 years of close cooperation and will further enhance economic and
social policy coordination and harmonization among the member states.
We
are convinced that closer cooperation among the OECS countries will only serve
to advance the integration initiatives at the CARICOM level and, more
importantly, reinforce the OECS countries’ ability to benefit from the CSM and
other CARICOM arrangements. As
such, the Government of Antigua and
National
Economy:
Madam
Speaker:
In
September 2006, the International Monetary Fund (IMF), following its annual
Article IV Consultations, announced its conservative estimate of 8% real
economic growth for
On
the other hand, the Eastern Caribbean Central Bank (ECCB) projects that the
Madam
Speaker, it should be noted that the average rate of growth of GDP between 2004
and 2006 stands at approximately 7.5% per annum while, for the period 2000 to
2003, real GDP grew at an average annual rate of about 3%.
Madam
Speaker:
This
unprecedented level of real economic growth is expected to be driven by
significant expansion in the construction sector and a rebound of the tourism
sector.
The
anticipated double digit growth is supported by the half year economic report of
the ECCB which indicates that for the period January to June 2006, the GDP index
for
Madam
Speaker:
This
surpassed the performance in all of the other ECCU countries and was six
percentage points higher than the ECCU average.
Construction
Madam
Speaker:
The
construction sector is set to be the main driver of economic growth reflecting
the considerable number of private and public sector projects being undertaken
in preparation for Cricket World Cup 2007.
Specific
projects that have been undertaken in 2006 include the construction of the Sir
Vivian Richards Stadium, the construction of the new Transport Board
Headquarters, the development of the Sunrise Community Hub, the commencement of
a number of housing developments, the refurbishment of a number of hotels and
the construction of several new tourist accommodation properties.
As
a result of these various projects, Madam Speaker, the growth in construction
for 2006 is estimated at 35% thereby increasing the sector’s contribution to
GDP by over three percentage points to 18.97 percent.
This
tremendous performance in the construction sector is supported by a 45%
expansion of the mining and quarrying sector.
In
fact, the production of aggregates increased by over 132% from 81,000 tons for
the first half of 2005 to 188,000 tons for the first half of 2006.
Further, the output of aggregates for the period ending June 2006 was
107% higher than the 90,655 tons produced over the same period in 2003.
Madam
Speaker:
Growth
in the production of concrete was also significant in 2006.
For the first half of the year, 31,000 cubic yards of concrete was
produced. This was 73% greater than
the 17,900 cubic yards produced for the first half of 2005 and 44% higher than
the 21,463 cubic yards produced for the first half of 2003.
In
addition to the significant increase in the production of aggregates, there has
been substantial growth in cement imports.
For the period January to September 2006, cement imports amounted to
91,479 metric tons. This represents
a 141% increase over the 37,928 metric tons imported for the whole of 2005 and
an increase of over 300% above the 22,760 metric tons imported in 2003.
This
considerable increase in demand for cement is also indicative of the boom in the
construction sector.
However,
there remains the challenge, at times, of a shortage in the product which
reflects an upsurge in the demand for cement on the global front.
This high international demand continues to place upward pressures on the
international price and hence the local price of cement.
Given the importance of this product in determining the cost of
construction, this Government will continue to work with the cement providers to
ensure that the prices remain stable and competitive.
Tourism:
The Beach is Just the Beginning
Madam
Speaker:
The
tourism sector, which is the mainstay of the
Also,
stay over arrivals in 2006 were 21% higher than the 239,185 recorded in 2003.
Madam
Speaker:
Cruise passenger arrivals in 2006 will amount to 457,535, which
is a slight decline compared to the 466,851 registered in 2005.
This decline was driven mainly by the increased competition in the cruise
sector, which has diverted a number of vessels from the region to North American
ports. However, cruise passenger
arrivals in 2006 were 19% higher than the 383,834 cruise passenger visitors in
2003.
Further,
total visitor expenditure for 2006 is projected at $919.8 million which
represents a nearly 2% increase over the $904.5 million in 2005 and is about 14%
higher than the $809.5 million recorded in 2003.
Strong
performance with respect to stay over arrivals was a result of increased
marketing efforts by the Ministry of Tourism.
Through these efforts, we were able to increase the number of stay over
arrivals from the
A
boost in performance in the sector is expected with the commencement of Excel
Airways flights out of the
Despite
the increased competition in the cruise sector, we have managed to add two new
ships for the 2006/2007 tourist season. In
October the Holiday Dream made its inaugural visit to our shores while in
November the Crown Princess made its first call to
Growth
in Other Sectors
Madam
Speaker:
The
robust performance in the two main economic sectors in 2006 has had positive
spillover effects on the other sectors of the economy.
In
particular, the wholesale and retail trade sector is expected to grow by 15%,
agriculture by 6.5%, manufacturing by 3%, banking and insurance by 7.5%,
communications by 6% and the transport sector by 14.3%.
This is clearly an indication of a vibrant and thriving
While
these sectors are growing, the Government’s contribution to economic output is
steadily declining. This is, no
doubt, Madam Speaker, good news as this Government continues to focus on
providing the enabling environment for economic growth while allowing the
private sector to serve as the engine of growth.
The
rate of growth in the Government sector is projected to decline from 3% in 2005
to 2% in 2006. The sector’s
contribution to GDP has declined steadily since 2003 from about 17% to 14.9%.
Madam
Speaker, we are encouraged by this development and will continue our efforts to
reduce the size of Government thereby allowing the private sector to play a more
pivotal role as the main driver of economic growth.
Financial
Services Sector:
Madam
Speaker:
The
Financial Services sector remains a viable option for economic diversification
and the creation of employment in
In
July 2006, we strengthened the regulations governing the operations and types of
institutions that can function within our jurisdiction.
Since
the enactment of the new regulations, the Financial Services Regulatory
Commission (FSRC) has received US$7.2 million in statutory deposits from the
companies operating in the offshore banking and financial sector.
The
FSRC will also seek to amend the legislation governing the operations of IBCs,
particularly international insurance businesses in order to further develop the
sector. In addition, new
legislation will be enacted to allow the FSRC to regulate and supervise both
domestic and international insurance companies to maintain international best
practices.
Madam
Speaker:
Over
the course of the coming year, the Government will pursue further
diversification initiatives and seek to increase the number and types of
international businesses that provide high quality financial services.
The
regulatory regime will be enhanced shortly to allow for the introduction of new
financial services products to include:
§
Foundations;
§
Limited
Liability Companies;
§
Limited
Liability Partnerships;
§
Segregated
Accounts; and
§
Mutual Funds
Internet
Gaming:
Madam
Speaker:
The
Gaming industry proved to be one of the most viable services within the
Financial Services sector. However,
the United States ban on internet gaming has, over the past few years, had a
negative impact on growth within the industry.
Consequently, we have seen a reduction in the number of gaming companies
from 47 at the end of 2004 to 38 in 2006.
Despite
In
fact, the
Madam
Speaker:
The
recent arrest of
Most,
if not all of our publicly listed companies have disposed of the US-portion of
their operations and moved to private entities in other countries.
Given the reduction in revenue to and the exit from the lucrative US
gaming market by several of our large gaming operators, the overall impact on
employment in this sector is likely to be significant, at least in the short
run.
Madam
Speaker:
The
Government, however, remains committed to the internet gaming sector.
Despite the challenges, the sector generated $6.3 million in revenue from
licenses and fees up to September 2006. This
sector has, in fact, contributed to about 90% of the FSRC’s revenue from
license fees.
In
addition, the sector plays a significant role in providing employment for our
young people and remains an excellent example of how a developing nation can
create a niche market that would provide significant socio-economic benefits.
Civil
Aviation Sector:
Madam
Speaker:
Air
transportation in the
While
the air transportation business may be a more viable business proposition in
larger economies, it has proven necessary for the Governments of this region to
play an active role in ensuring the continued viability of regional air travel
services.
Madam
Speaker:
As
a major shareholder in LIAT, the Government of Antigua and
This
investment by
In
addition to facilitating travel, LIAT makes significant contributions to the
Madam
Speaker:
While
this Government is committed to ensuring that LIAT continues to contribute to
employment in
In
this regard, the future development of LIAT is presently being examined within
the context of a possible merger with its principal rival, Caribbean Star.
While discussions are still ongoing, the intention is to form a single
airline utilizing the rationalized assets of both companies.
The
company would be jointly owned by the principal present shareholders of LIAT and
Caribbean Star with the intention of securing additional third party private
sector investment into the airline at the earliest opportunity.
A
series of working groups covering all aspects of airline operations, and
comprising management officials of both companies, have been set up. It is
expected that these groups will shortly prepare a Draft Action Plan, which will
serve as the working document for the merger.
The
intention of the merger is to put into place a financially viable airline
operation capable of meeting the challenges of competition and liberalization,
providing high quality tourism and other air transport needs at an economic
rate, and eliminating the need for government financial support to airline
services in the
The
move comes against the ongoing transformation of air services in the wider
Utility
Services Sector:
Madam
Speaker:
This
Government remains committed to ensuring the provision of high quality,
dependable public utilities services to the people of
The
Antigua Public Utilities Authority (APUA) has worked diligently to improve
operations and to ensure minimal interruptions in the provision of water and
electricity services to the general public.
In particular, Madam Speaker, steps have been taken to enhance water and
electricity production to meet the growing demand for these services.
In
order to enhance water output, the production capacity of the Enerserve
desalination facility will be expanded by 1.4 million gallons per day by the end
of December 2006. This should
increase output to about 3.5 million gallons per day by the end of the year.
In
addition, water production capacity will be further enhanced with the
installation of reverse osmosis plants in a number of locations.
With
the installation of these plants, water production should increase by a further
1.5 million gallons per day. Also,
Madam Speaker, particular focus will be placed on increasing well development,
construction of storage facilities and the replacement of water mains in St.
John’s commencing in 2007.
With
the increased production capacity, it is expected that, by the end of 2006,
total output would amount to about 2.0 billion gallons.
This represents an 11% increase over the 1.8 billion gallons produced in
2005 and a more than 50% increase over the 1.3 billion gallons produced in 2003.
Madam
Speaker:
With
respect to electricity, production capacity was increased with the expansion of
the Antigua Power Company facility from 12 megawatts (Mw) to 27Mw and the
commissioning of a temporary power facility with an output of 10Mw.
The result has been a 7% increase in electricity output from 262 million
kilo watt hours (KwHrs) in 2005 to 281 million KwHrs in 2006.
Further, total electricity output in 2006 was over 20% higher than the
238 million KwHrs produced in 2003.
Madam
Speaker:
In
2007, we will undertake joint venture projects to increase electricity output by
up to an additional 50.9Mw. Our
efforts in 2007 are expected to lead to even higher levels of water and
electricity output to meet the increasing demands of household and commercial
consumers. We are well positioned
to effectively provide reliable services and stand ready to tackle any
challenges that may arise.
Improvements
in Human Development:
Madam
Speaker:
I
now turn to the issue of human development in
Economic
and social development experts agree that the Gross Domestic Product gives an
overall picture of the wealth of a nation and growth in GDP provides an
indication of increases in that wealth.
However,
these indicators are not necessarily sufficient guides to the level of human
development and ultimately the quality of life within a nation.
Indeed, one could ask whether the positive economic performance in
Well,
according to the United Nations Human Development Report for 2006, the answer,
Madame Speaker, is a resounding yes!
Madam
Speaker, I am extremely pleased to report to this Honourable House that,
according to the United Nations Human Development Report,
Yes,
Madam Speaker, under the leadership of Prime Minister Baldwin Spencer and his
UPP Administration, Antiguans and Barbudans are assured an improvement in
conditions that promote human development.
Madame
Speaker:
It
is indeed a truism that this UPP Administration has ensured that citizens of
Oil
Prices and Inflation:
Madam
Speaker:
High
oil prices remained a significant challenge in
While
fuel costs, particularly in respect of gasoline, diesel and LPG, continued to
rise for the most part in 2006, we have sought to keep the prices to the
consumer unchanged.
Madam
Speaker:
The
Government will, however, seek to implement a pricing mechanism that will
facilitate the pass-through of the international prices of petroleum products.
In essence, we will ensure that whether international prices are rising
or falling, this will be reflected in the price of the product on the local
market. Such an approach will be in
keeping with the ECCB Monetary Council decision taken earlier this year.
Over
the past few months we have seen the international price per barrel fall below
US$70 and this has led to local pressures to have the prices at the pump
reduced. It should be noted
however, that when the prices were significantly higher at almost US$80 per
barrel, the Government absorbed these higher prices at a tremendous cost.
Essentially,
in order to keep the prices at the pump unchanged, we reduced the consumption
tax on the product in an effort to absorb the higher costs.
What
this has meant is that consumption tax revenue was well below the required level
of $2.60 per gallon for both gasoline and diesel for the period March 2004 to
September 2006.
Overall,
since March 2004 the Government forfeited $18.1 million in revenue in order to
cushion the general public from the increasing cost of gasoline and diesel.
Over
the past few months, we have seen some fall off in the price per barrel of crude
oil. However we have not been able
to recoup the revenue lost over the past two years.
Further,
Madam Speaker, the international price of fuel is still volatile and the threat
of high spikes remains a reality, particularly given the possibility of a
reduction in supply by a number of oil producing nations.
Despite
these challenges in respect of higher oil prices, the inflation rate for 2006 is
expected to remain low at about 2.5%. Further,
for the first half of 2006, the average inflation rate for the ECCU region was
about 1.0%.
On
the other hand, Madam Speaker, the inflation rate in
Madam
Speaker:
Over
the past several months, the Government has been extremely challenged by
requests for increases in wages and salaries.
The increases sought ranged from 10% to 40% and would significantly
increase the wage bill.
A
sound wage policy would dictate that any increases should be influenced by
movements in the cost of living represented by the inflation rate.
As such, any increase in wages and salaries should, at best, be in line
with the inflation rate which is expected to be 2.5%.
With
respect to food, the most heavily weighted item in the CPI basket, the average
ECCU price increase was 1.2% for the period January to June 2006.
However, for
In
terms of the other items in the basket, including clothing, transportation and
communication, and accommodation, increases have been significantly less than 1%
since January 2006.
To
further illustrate the point that there has been no whirlwind increase in the
cost of living here in
I
will go one step further, Madam Speaker, and demonstrate that, in
This
Commodity Price Matrix tracks the prices of a number of products in a shopping
basket that is standardized across the ECCU member states.
The shopping basket includes milk, flour, chicken, rice, sugar, cooking
gas and electricity services, among others.
Madam
Speaker:
Between
October 2005 and October 2006, the following price movements were recorded in
§
The price of
a 5 pound bag of Purity White Flour fell by $2.05 from $7.13 in October
2005 to $5.08 in October 2006;
§
The price of a 2
kilogram bag of Three Jewels Rice fell by 57 cents from $7.11 in October 2005 to
$6.54 in October 2006;
§
A pound of loose
white sugar was 91 cents in October 2005 and increased by 34 cents to $1.25 in
October 2006;
§
The price of a
12.3-ounce box of Kellogg’s Cornflakes fell by 6 cents from $9.78 in October
2005 to $9.72 in October 2006;