P.M.: Budget charts a new way forward
If nothing else, today’s budget presentation was stark in contrast to February 2005 when tear gas and angry protests interrupted the proceedings in the House of Representatives. The police was out in force this morning, but inside and outside the House, the yearly financial report was distinctly anticlimactic. News Five’s Janelle Chanona reports from Belmopan.
Prime Minister Said Musa
?We have to depend on our own resources and on our ability to access the international financial markets at affordable rates. The policies that might have worked in 1998, will not work in 2006. New policies are needed and we have already done considerable work during the last year and a half, to set the stage for a change in policy. … This budget is not just about revenue and expenditure. It is about making hard choices, defining priorities, charting a new way forward.?
Janelle Chanona, Reporting
There were no new taxes and no surprises in the 2006/2007 budget of the Said Musa administration. Despite the belt tightening measures of the past year, public debt stands at more than two billion dollars. And the fiscal deficit, while down from eight percent, is still at an unsustainable three point nine percent.
Prime Minister Said Musa
?After posting an overall deficit of one hundred and seventy-seven point eight million in financial year in 2004/2005, the approved budget for financial year 2005/2006 targeted an overall deficit of sixty-six million dollars. This sharp reduction in the deficit was intended to be achieved through a combination of expenditure controls and new revenue measures.?
?These adjustments resulted in a revised overall deficit target of seventy-nine point three million or approximately three point six percent of estimated G.D.P.?
?The outturn for the first ten Months of Fiscal Year 2005/2006. During the first ten months of fiscal year 2005/2006, the tightening of Government?s fiscal policy was reflected in a sharp reduction in its recurrent deficit to six point eight million dollars, as compared to forty-two point four million for the same period of the last fiscal year. There was also a substantial reduction in the overall deficit from one hundred and twenty-seven point six million for the first ten months of last fiscal year to sixty-five point one million for the same period this year.
Recurrent revenue collections totalled four hundred and forty-one point three million in the first ten months of fiscal year 2005/2006, an increase of sixty-two point three million over the same period of the 2004/2005 year. Recurrent expenditure rose by twenty-six point seven million with outlays for goods and services and wages and salaries rising by twelve point six million dollars and nine point eight million, respectively. On the other hand, capital expenditure declined by thirty-three point nine million to seventy-five point eight million.
?The expected outturn for the Fiscal Year 2005/2006. On the basis of the actual outturn for the first ten months and reasonable expectations for the remainder of the year, the overall deficit for the current fiscal year is expected to be eighty-nine million dollars or three point nine percent of G.D.P.
The recurrent deficit is expected to be at about twenty point one million by the end of this fiscal year. This is a significant deviation from the position set out in the approved budget for this year, which provided for a recurrent surplus of fifty-two point six million. This expected outturn is also short of the revised recurrent deficit target of one point four million set at the end of the first quarter of fiscal year 2005/2006.
?This negative performance on the recurrent account relative to the revised targets primarily reflects the shortfalls in collections of Revenue Replacement Duty on imports of fuel. This was the direct result of the Government?s decision to absorb a significant portion of the sharp oil price increase experienced in 2005 through reductions in the R.R.D., rather than pass on the full impact of the oil price increases to the public.?
?Achieving and maintaining an overall deficit target below three percent of G.D.P. remains the over-arching objective of financial management of this budget. The budget proposals for the coming fiscal year continue to emphasise health, education and poverty alleviation. Therefore, the portfolios and projects which address these concerns will continue to receive the greater share of proposed allocations in the next fiscal year.
?Government will continue to exercise control over the expansion of staff complement. The staff containment policy continues to be in place and, as in the budget presented last year, this budget limits the creation of new positions only to indispensable positions in priority areas.
?The budget is predicated on the basis that G.D.P. will grow in real terms by between two point five and two point eight percent in calendar year 2006. The Central Statistics Office has confirmed that it estimates G.D.P. to have totalled two point two-one-four billion in current year prices in calendar year 2005.
?For the purposes of the budget, the C.S.O. has prepared projections of G.D.P in fiscal years 2005/2006 and 2006/2007 to facilitate estimates of the fiscal deficit to G.D.P. ratio. The C.S.O has estimated G.D.P. at market prices for fiscal year 2005/2006 at two point two-five-four billion and for fiscal year 2006/2007 at two point four-one-four billion. This translates into growth in G.D.P. at current market prices of seven point two percent. These are the numbers which are used in the calculation of the fiscal deficit as a proportion of G.D.P.
?The budget presumes that economic growth, as indicated by expansion in G.D.P. in current market prices, would naturally produce around seven percent growth in revenue collections. In addition, there should be some improvements in revenue administration, which would add to total revenue collections. The repeal of the Sales Tax with effect from July first, 2006, and the introduction of the General Sales Tax from that date is conservatively estimated to be revenue neutral. There is no new revenue measure in the 2006-2007 budget.?
But the P.M.?s budget presentation did include blame for an unlikely suspect: the private sector.
Prime Minister Said Musa
?Among the external factors which adversely impacted on our economy were the several major hurricanes which affected Belize, the systematic erosion of preferential markets, the weakening prices for our traditional agricultural products, and the rise in petroleum prices to unprecedented levels. These factors interrupted domestic production, weakened export performance, and put pressure on our balance of payments.
?The internally generated factors arose from Government?s initiatives to expand the economy by assisting in arranging financing for businesses and by privatising several entities. On their part, certain private sector counterparts failed miserably, running up heavy debts and mismanaging their enterprises, raising the question of corruption and good governance.
?As private sector counterparts did not or could not repay their loans, Government went deeper into debt and over time it became increasingly difficult to meet debt payments, while at the same time finance the projects necessary to improve the social and economic well-being of our citizens.?
Dean Barrow, Leader of the Opposition
?The new position is that now he is involved the private sector and he is saying that now they are the ones that are responsible. He doesn?t tell how, but I just think it?s amazing that he is by doing that deepening the confrontation between the government and the private sector. The private sector revolted against the government with respect to these municipal elections that were just held. That was good for us the U.D.P. as an opposition party politically; it?s not good for country. And I do think that the Prime Minister makes a huge mistake when he fires another shot across bow of the private sector.?
According to the Prime Minister, traditional exports such as sugar, bananas, and even new industries such as shrimp, brought in less money than the previous year. And while many had predicted that the recent petroleum find would dig the government out of the hole the P.M. says …
Prime Minister Said Musa
?Once the quality of the oil, the size of reserves and the rate of extraction have been established, we will be in a better position to assess the contribution of the oil industry to Belize?s economy. We should have answers to these questions and be in a position to begin to quantify the economic impact of the oil industry early in the coming fiscal year.
?We have, therefore, not included in the draft budget, any assumptions of revenue inflows from this industry. Similarly, the Central Bank has not included any assumptions of foreign exchange inflows into its estimates of balance of payments. We will revisit our projections when complete information on the potential of the oil industry is available. We think it is wiser not to count our chickens before they are hatched.?
Dean Barrow
?Our only remedy seems to be borrow to repay what we already owe and that option is fast disappearing because nobody is prepared to lend us anything more.?
Snap analysis from the Leader of the Opposition Dean Barrow was brutal.
Dean Barrow
?Its sole claim was that there has been a reduction of fiscal deficit to three point nine percent of G.D.P. or eighty-nine million dollars. You look at the actual budget book and in fact elsewhere in his speech and you realise that?s a false boast. They have not included in the equation the three hundred and ninety odd million dollars that was required over the past fiscal year for amortisation. So the total financing shortfall is not just the eighty-nine million dollars that they?ve spoken about, it?s actually four hundred million dollars. So again it comes right back to this huge debt crisis that continues to cripple us.?
?That is the rub, where is the money going to come from to service the debt? The group of experts confirm that the debt servicing requirements for next year are two hundred and eight odd million dollars. And you do find those figures in the Prime Minister?s budget. He doesn?t tell us how he?s going to find the two hundred and eighty odd million; he tells us that he is awaiting the report of the experts to tell him how he will do so. You cannot claim any success at all in putting forward these budget proposals if you don?t tell the nation where on earth you?re going to get two hundred and eighty million dollars from to service your debt.?
?Again you see that the numbers in terms of what was projected for revenue collection over the past year, there was a shortfall of about twenty-two million dollars. Worse, what was projected in terms of recurrent expenditure was underestimated by fifty-two million dollars, so the figures are completely out of whack in terms of what the government says at budget time and what happens over the year.?
Prime Minister Said Musa
?The revenue and expenditure plans which I have set out for the consideration of the members of this Honourable House at some great detail, reflect a decisive change in the policies of this Government from grandiose projects to programmes that directly benefit the majority of people with a renewed commitment to policies that combine economic efficiency with social justice and greater equity.
?The budget proposals provide greater opportunities for Belizeans to acquire the skills and education they need to make the most of their lives. Quality, affordable health care, spreading the benefits of land ownership, and better housing conditions, while stimulating job creation and self-employment through micro-enterprises, are central to improving the quality of life, safety and security for all.?
?Underlying all this is the importance of controlling the fiscal deficit. We are making strong progress and we are committed to continue to do so. Tight fiscal discipline will remain in place, and, as we have clearly demonstrated this year, it can be done.?
Government?s financial advisors agree.
Jose Coye, Minister of State, Ministry of Finance
?I do believe that the need for reform was long overdue and I think this government will be remembered for initiating a reform. And I?d like to emphasise here that the breakdown came clearly in the post independence era where the internal controls were not in place?or were not being complied with I must say. But you will recall again one of the big things that we did in the fiscal reform, was reforming the finance and audit act, which is so key again to the whole oversight of a budget and the controls that they need in expenditure. We are strengthening the revenue departments and I think that is well-known today too. In fact, there is the study that is yet to be completed for the comprehensive review, which will deal with the administration and compliance apart from the policies of the tax systems. So all these things to me act as well indeed of achieving what the budget is projecting. It is conceived in that sort of environment, very professional I think, and I must give credit to the budget indeed, I think it?s achievable.?
Reporting for News Five, I am Janelle Chanona.
Another topic on the table at the House of Representatives today was the Southside Poverty Alleviation Project. The bill was passed, as was approval for an agreement between the OPEC Fund and G.O.B. for a six million U.S. dollar long-term low interest loan to kick start the development initiatives.