Maintaining a healthy nation and restoring a vibrant economy: Part 1

0
144
Prime Minister, Gaston Browne

By Caribbean News Global contributor

ST JOHNS, Antigua – Prime minister and minister for finance, corporate governance and public-private partnerships, Gaston Browne, on Thursday, January 28, 2021, presented the 2021 budget statement, amid the “overriding issue on everyone’s mind is COVID-19 – and its devastating effects”.

Prime minister Browne explained that citizens worry about the health of their elderly family, their young children, and other relatives and friends.

“People are also worried that their jobs have been lost; that their savings are depleting; and that they are living in suspense and uncertainty. Everyone wants an end to the pandemic and a swift return to life as it was before, including employment, festive gatherings, congregating to pray in Church, attending sports events, and just simply being able to commune with friends and family.

That is why we present this budget statement under the theme: “maintaining a healthy nation and restoring a vibrant economy”.

“Everyone knows that on the health aspect, our government has done better than most to keep the people of our country safe; we are amongst the few countries in the world with a low rate of death, a low rate of infections, a high rate of recovery, and no known community spread. That is an achievement of which we should all be proud. It could not have happened without the cooperation and responsibility of the great majority of our people.

For that great sense of civic duty and discipline, the people of our nation, especially those on the frontlines, deserve the deepest appreciation and warmest applause.

On the economic side, our government has done all in its power, despite significant odds, to maintain public sector employment; to pay our pensioners, and to provide safety nets for the most vulnerable.

Our country remains stable. Our people remain undaunted. Our government will continue to do everything possible to guide our nation successfully through this era; which, too, shall pass.”

Massive development and social progress

One year ago, we had reduced unemployment to a single digit for the first time in over a decade. It was an estimated 8 percent. The prospect of 6.5 percent growth, after a reported growth rate of 7 percent in 2018 and 3.4 perent in 2019.

Public and private sector investment was set to reach $2 billion, generating an economic boom, creating more jobs, and increasing income for all.

All these rewarding conditions were created by the constructive and productive policies that our government vigorously pursued, with the strong support of the people of Antigua and Barbuda.

We were on the cusp of a great take-off.

The COVID-19 pandemic, in whose grip we are still clutched, exacted a heavy toll on our shared planet and our common humanity. Nations around the world continue to be paralyzed by the pandemic.

Lockdowns have derailed economic activity, affecting not only national economies, but the global economy; which is a network of countries, interconnected in trade in goods and services, in a shared financial system, and myriad forms of social contact, including tourism.

Global projections for 2021

International financial institutions are cautious in their forecasts for 2021. Economic performance and recovery depend on many factors; the most important of which is how quickly and fully all countries bring the coronavirus under firm control.

On January 5, the World Bank published a careful statement, suggesting that the global economy could expand by 4 percent this year. But the Bank warned that this would depend on the widespread rollout of the COVID-19 vaccine to tame the pandemic. If nations fail to control the rise in infections by timely vaccine rollout, global expansion could be limited this year to just 1.6 percent.

The Word Bank Group’s Chief Economist, Carmen Reinhart, also emphasised that the economic impact of the pandemic was more acute for most emerging markets and developing economies, such as ours.

Against the backdrop of global lockdowns and travel restrictions, Gross Domestic Product (GDP) in the ECCU plummeted by 16.2 percent for the year 2020.

This contraction was mainly driven by the severe decline of the tourism sector. Total visitor arrivals over the period January to September 2020, contracted by 52.5 per cent compared with the same period in 2019. The entire sub-region was dramatically and grievously impacted.

ECCB data further reveals that the overall central government fiscal balance for the ECCU region deteriorated from a surplus of $4 million for the first six months of 2019 to a deficit of $297 million for the same period in 2020. That the $4 million surplus plunged to a deficit of $297 million for the first half of 2020 was no fault of any member state of the ECCU.

This calamity was driven by the loss of revenues created by the global effect of the COVID-19 pandemic.

The situation confronting Antigua – Barbuda in 2021 

Faced with severe shocks from the pandemic, economic activity in Antigua and Barbuda is projected to have declined by 17 per cent in 2020.

We should recall that this decline came after an annual average 5 percent growth over the preceding five years. Further, this Administration increased GDP from $3.2 billion in 2013 to $4.5 billion in 2019. This is a $1.3 billion increase in the value of economic output.

Were it not for those five years of robust growth, engendered by our government’s policies and private and public sector investments, our nation could not have withstood the steep decline experienced in 2020.

Our country was sustained by the previous five years’ successful performance that helped to cushion the impact of the pandemic.

We saw similar resilience when our country recovered from the devastating impact of hurricane Irma in 2017, to become the world’s tenth fastest-growing economy in 2018. So, we have a track record of recovering from crises.

Economic performance in 2020

The tourism sector – our main revenue earner and significant employer – was heavily impacted in 2020. The economies of all our major source markets were devastated by COVID-19, resulting in restrictive measures on travel.

Consequently, there were 395,647 total visitor arrivals for 2020 – a 62.5 percent reduction from the 1.05 million visitors recorded in 2019.  Of this number, cruise visitors contracted by 64 percent from 753,076 to 270,327 and stay-over visitors dropped by 58 per cent from 301,019 in 2019 to 125,320 in 2020.

This decline in visitor numbers, combined with shutdowns, implementation of curfews and social distancing measures, resulted in a 63.6 percent contraction of the hotel and restaurant sector for 2020 as compared to growth of 7.7 percent in 2019.

Additionally, the construction sector, which had real growth of 6.6 percent in 2019, is projected to decline by 22 percent in 2020. The sector for transport, storage and communication experienced a decline of 25.2 percent for 2020 as compared to growth of 3.8 percent in 2019. The wholesale and retail sector also declined by 13.5 percent.

Effect on employment

Figures from the Social Security Scheme indicate a decline of nearly 40 percent in the number of contributors. This translates to about 11,000 fewer employed persons than when we started the year in 2020. More than 70 percent of these persons were employed in the hotel accommodation and hospitality sectors.

Accomplishments despite the pandemic

In the face of this unprecedented and unexpected crisis, the government did not wring its hands and lament its misfortune.

… The priority was to stop infections by the coronavirus and to create conditions for saving the lives of our people. Without a doubt, our management of the virus was the singular most important accomplishment in 2020.

Our mantra was the Latin phrase that has guided all success – Acta, non verba. – Action, not words!

Mindful of the devastating effect that sudden unemployment would bring to families, the government decided that, despite a major reduction in revenue, no public sector worker would be laid off. We continued to put money in the pockets of over 12,000 public sector employees, ensuring that they could care for their families, and continue to spend in the economy, thereby keeping businesses alive.

Apart from this, we executed an Emergency Food Assistance Programme, providing for the well-being of the elderly, disabled, single mothers, and other needy persons. Several thousand persons benefitted from this programme.

We also initiated a Government Assistance Programme (GAP) under which beneficiaries received vouchers for redemption at supermarkets, to ensure these persons and their families do not go hungry.  In addition, we rolled out the Pandemic Relief Barrel Initiative in April 2020. To date, almost 13,500 barrels have been cleared under this initiative.

LIAT – Rising like a phoenix

We were confronted with a major threat to regional air travel and to regional integration itself. A decision was taken by shareholders of LIAT 1974 Ltd., to wind-up the airline, leaving a great void in regional air transportation and hundreds of Caribbean people unemployed.

The government concluded that other options could keep the airline flying, maintain a level of employment and continue to provide the arteries without which regional economic integration would wither. Appropriate legal steps were taken to keep LIAT alive, and the Court appointed an administrator, to maintain operations and examine options for reorganizing the airline, so that it could be a profitable operation going forward.

We have already committed to provide over US$20 million to help reorganize and recapitalize LIAT. However, we are aware that LIAT’s future depends on the contribution of other governments in the region, whose countries will benefit from its continued existence.

We expect LIAT to rise from these ashes and to fly high again like the proverbial phoenix. That is a goal to which we are fervently working with the administrator.

Fiscal performance in 2020

Before the horror of COVID-19 spread across the globe, we had forecast a fiscal deficit of $96.1 million or 1.9 percent of GDP in our 2020 budget, and a primary surplus of $27.1 million or 0.5 percent of GDP.

Significantly, before the virus fully made its presence felt, we had a 28 percent improvement in tax revenue in the first quarter of 2020 compared to the same period in 2019. The nation was on track to achieve the fiscal targets set out in the budget. However, preliminary data for 2020 now shows an overall fiscal deficit of 5.5 percent of GDP, and a primary deficit of 2.9 percent of GDP for fiscal year 2020.

Collected revenue was $100 million less in 2020 compared to 2019. In the face of declining revenue, government took immediate steps to curtail expenditure. There was an 8 percent or $83 million decline in total expenditure.

Government focussed spending where it was most needed – in safeguarding the health of our people and protecting them from the coronavirus. Savings were also realized from a moratorium on loan payments and extended credit facilities from merchants and vendors.

Public debt developments

It is estimated that the total public sector debt to GDP, at December 2020, amounted to 89 percent. Government’s policy to lower the debt to GDP ratio, and at the end of 2019, we had done so successfully, reducing the ratio to 67 percent.

At the end of 2020, the government’s total public debt portfolio was $3.34 billion, of which central government debt was $2.85 billion and $490 million was government-guaranteed debt.  Of that amount, external debt was $1.68 billion and domestic debt amounted to $1.7 billion.

There are two points here:

The first point is because of the skewed criterion of ‘high per capita income’, our country could not access concessional funding or grants from the international financial institutions as did a number of other countries in the region.

We were punished for our good economic performance, by being denied assistance, when consideration was most needed. Therefore, we borrowed from willing lenders, among whom were the Eastern Caribbean Central Bank and the Regional Government Securities Market.

Others gave us cash flow relief for which we are grateful. They include the Caribbean Development Bank, the Abu Dhabi Fund, and domestic Banks.

The second point is that, notwithstanding the cash flow challenges occasioned by the pandemic, the government has not defaulted on any of its debt service obligations on the Regional Government Securities Market.

We continue to make every effort to meet our debt commitments as they become due and payable. That took some doing, particularly as we have not laid off one public servant, and we have maintained spending on the health, education, and the well-being of the nation.

That is not only good governance; it is indicative of good performance!

Monetary developments

An analysis of the movement in the monetary aggregates since the onset of the crisis presents an interesting picture that is worthy of discussion.  For the 10-month period ending October 2020, the Money Supply grew by 1.8 percent to $3.5 billion. This was related to positive developments in Narrow Money, which includes private sector demand deposits and currency in circulation.

Narrow Money grew by 9.9 percent between January and October 2020. This was fueled by a 15.2 percent increase in private sector demand deposits and a 3.4 percent increase in currency in circulation. Some of the increase in Narrow Money was partly offset by an 18.2 percent decline in commercial bank deposits, as banks saw a decline in their liquidity position.

On the other hand, our people benefitted from the moratoria on rents, loans and APUA utilities. This allowed persons to use their limited household earnings to provide for their families and not reduce their aggregate savings in the banking system. This is borne out by the growth of $97 million in household savings deposits between January and October 2020.

Further, in the midst of the pandemic, there was also an increase of $119 million in domestic credit. Of note is the 14 percent or near $100 million increase in credit to businesses.  If ever there was a demonstration of confidence in this administration’s capacity to manage the economy through turbulent times, this is it.

Net liquid assets declined by $327 million to $1.4 billion in September 2020. This is associated with the loan moratoria extended to households and businesses. Nevertheless, our banks remain significantly liquid and are the best capitalised in the ECCU region.

These outcomes indicate that quick and decisive action by our government to contain the spread of the virus and to maintain employment levels; provided a level of confidence to households, businesses and investors that mitigated against a more sizable decline in output.

Financial sector stability

Having expended significant resources to ensure a strong and resilient banking sector in Antigua and Barbuda, the government has seen returns in the form of dividends from its investment in the Eastern Caribbean Amalgamated Bank (ECAB).

ECAB has generated profits averaging $18 million annually for the last six years and has paid dividends and corporate taxes totalling $30 million to the government since 2016.

Because of government’s intervention, ECAB is now poised to double in size, as it finalizes arrangements to acquire the Bank of Nova Scotia business in Antigua.

At the same time, the government is working with the principals of ECAB, to increase the domestic shareholding in the bank for the benefit of Antiguans and Barbudans. This is to be achieved through the conversion of the government’s preference shares in ECAB.

We have every reason to be proud of the achievements of ECAB and look forward to the continued profitability of this domestic institution.

The Caribbean Union Bank (CUB) has also benefitted from the government’s capital injection of $30 million in 2016. Since the government acquired 78 percent of CUB’s shares, this institution has started to make profits for the first time since its formation in 2005.

Strategy for fiscal resilence

The global health crisis laid bare the need for the government to strengthen public finances over the medium term. Therefore, we have developed a Medium-Term Fiscal Strategy (MTFS) for execution over the next three to five years.  The comprehensive fiscal strategy document is being finalized and will be published in the coming weeks.

However, our fiscal strategy focuses on enhancing revenue performance, increasing efficiency in public spending, securing debt sustainability, and positioning the government to meet its obligations in a more timely and predictable manner.

Key fiscal targets include:

  • Primary surplus between 0.5 percent and 1 percent of GDP by 2023;
  • Overall deficit less than 1.5 percent of GDP by 2024;
  • Wages and salaries accounting for not more than 9 percent of GDP by 2025;
  • Tax to GDP to increase to at least 18 percent by 2023 and be maintained at a minimum of 20 percent over the medium-term;
  • Debt to GDP ratio to fall below 70 percent by 2030.

In last year’s budget, I emphasised that although the Antigua and Barbuda economy is the second-largest in the Eastern Caribbean Currency Union, and enjoyed far higher growth than most, our tax to GDP ratio was the lowest, at 16 percent.

In other Eastern Caribbean countries, the ratio was as high as 27 percent.

Clearly, this system of lop-sided advantage cannot continue. The practice of tax avoidance and tax evasion must and will be addressed. It robs the majority of people of benefits they are entitled to enjoy, while a few gain greater individual prosperity.

It is not right; it is not just, and it cannot continue. I now describe the policy interventions, that will stem the haemorrhaging of revenues through under-payment of a range of taxes.

  • They include an end to tax exemptions and duty-free waivers for anything that is not firmly linked to provisions under the law.
  • Revenues from property taxes will be improved by increasing compliance from less than 50 percent to 70 percent in 2021 and up to 80 percent by 2025.
  • Tax audits and improved tax administration will cause a 15 percent increase in compliance for corporate income tax and unincorporated business tax by 2023.

Careful note should be taken that, in 2019, of every $1.00 that was collected by the Customs and Excise Division, an equivalent amount was waived.

This is not acceptable nor sustainable. Therefore, the decision has been made to gradually reduce total exemptions, to no more than 25 percent of potential revenue.

  • The Revenue Recovery Charge Act (RRC) will be amended in the first quarter of 2021, to limit the waiver of the 10 percent charge.

The House will recall that this measure was planned for 2020. It was delayed due to the pandemic.

  • With effect from March 2021, RRC exemptions will only apply in a few cases, including for current exemptions in the law for agriculture and fisheries inputs and equipment; medicines and pharmaceutical supplies; and entities with which the government of Antigua and Barbuda has International Assistance Agreements.
  • While the law will maintain some allowance for waivers in support of business activity and a major investment, such waivers will not exceed 50 percent of the applicable charge.
  • With effect from February 1, 2021, where the CIF value of imports is $10,000.00 or less, no exemption will be granted.
  • The Tourism Accommodation Levy (TAL) will also be implemented in 2021.

This measure was also planned for 2020 but had to be delayed. It will now be instituted on May 1, 2021, and will fund the Climate Resilience and Development Fund.

This will be a special fund whose purpose is to finance projects and programmes that will build climate resilience, provide a fiscal buffer for public finances in times of natural disasters and economic shocks, and support the development of our country.

The TAL along with a portion of the additional revenues yielded from the RRC, will be deposited to the Climate Resilience and Development Fund.

The TAL will be applied as follows:

  • US$3 per night per guest for all room rates that are US$150 or less; and
  • US$5 per night per guest for all rooms that are over US$150.

It is applicable to tourism accommodations including hotels, guest houses, apartments, AirBnB rentals, and villas.

  • The government is considering amending the ABST legislation, to allow for the application of the ABST to online purchases, to include Amazon.

The details of this initiative will be declared when the methodology for applying ABST is finalised. These interventions, the intention is to ensure that the tax yield does not fall below 20 percent of GDP – even then, it will be lower than in other Eastern Caribbean countries.

The fiscal strategy also includes policies that will help to improve the government’s delivery of value for money, and ensure that government spending on general operations, does not exceed the revenue generated on an annual basis.

Some of the interventions include:

  • Bringing the recently gazetted Procurement Administration Act into force by June 1, 2021, along with accompanying procurement regulations.
  • We will also maintain the wage freeze and continue to limit hiring except in cases where hiring is necessary; to achieve the objectives of the government’s fiscal and growth strategy, or to deliver essential services.
  • We will also reduce the rates now being paid to rent office space and equipment, as is being done all over the world as revenues rapidly decline.

To be continued … (Citizenship by Investment (CIP), debt payments, restoring the economy, etc.,

LEAVE A REPLY

Please enter your comment!
Please enter your name here