Gov’t $240M in debt; @ brink of borrowing capacity- Claude O. Skelton-Cline
With the recent decision of the United Kingdom UK) to force selected Overseas Territories (OTs) to make public the beneficial owners of offshore companies and the possible negative impact on the economy of the VI, there is a need to have good financial management.
The Protocol for Effective Financial Management was signed and enacted to ensure that our economy remains financially stable. However, it is now evident that the stipulated borrowing cap may need to be revised in order for us to not only recover from the natural disasters of 2017 but also the possible economic fallout from the Financial Sector, which contributes 60% of the Territory’s annual income.
In explaining the principle behind the protocol, Hon Fahie stated that the Protocol for Effective Financial Management signed by the National Democratic Party (NDP) Administration in 2012 was a guide of how the UK wanted the finances to be dealt with. "In that document it stated clearly that the government of the Virgin Islands could only borrow up to 80% of their recurring expenditure, in terms of their annual recurring expenditure, which roughly calculates to 250 million dollars.”
In light of this the recent borrowing by the government is a cause for concern to many. Former Managing Director of the BVI Ports Authority Mr Skelton-Cline highlighted the present position of the Government as it relates to its recent borrowing.
“125 million we have on the books right now in debts. Last year, December 14, we borrowed another 65 million, just last week the government passed to borrow another 50 million. That’s 240 million in debt right now. Which brings you up against the number that you [Hon Fahie] just mentioned, 250 million or there about at its 80% threshold. So, we are already on the brink of our borrowing capacity," he explained.
It was at the ending of 2017 that saw the approval to borrow $65M from the Caribbean Development Bank (CDB) to offset recovery and development expenses. The budget estimates of 2018 revealed that the expenditures this year is more than the revenues, which has resulted in a deficit. In order to address this deficit, the Government intends to borrow from CDB a loan not exceeding $50 million to be used as budgetary support for 2018.
What is to become of the VI?
Coupled with the recent UK vote, the high level of borrowing is worrisome for many. Questions like ‘How will we repay our debts if our revenue is cut by almost half? Will the UK impose direct rule if they have to bail us out as our debts or will they lift the borrowing cap to allow us to borrow more?' are being frequently asked.
The Premier and Minister of Finance, Dr The Honourable D. Orlando Smith (AL), has since met with other government officials to discuss a way forward. In a press conference held at the Office of the Premier on May 2, 2018, Premier Smith had assured the people that the VI Government will “continue to work to make sure that financial services continues to be relevant.”
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11 Responses to “Gov’t $240M in debt; @ brink of borrowing capacity- Claude O. Skelton-Cline”
The PEFM stipulates a limit of 80% of current expenditures, which is currently estimated at $240M. Further, some major financial institutions suggest a prudent debt to GDP ratio of 1)60% for developed countries or 2)40% for developing/emerging countries. However, in working with these limits, a cushion/capacity for adverse shocks must be considered. Assuming a GDP of $1B, the territory’s working debt is approximately $400M. The MoF will have to reconcile the delta b/w the PEFM and debt to GDP ratio with the UK. The territory’s debt load is approaching the PEFM limit but below the suggested prudent debt to GDP ratio so it (VI) may need to work close up with the UK for some relaxation of the PEFM, due to the current crisis.
Moreover, if the UK adopts registry of beneficial ownership legislation, the BVI economy, along with government revenue intake and service delivery will take a big hit. As such, the territory will have to plan and brace itself for some major structural adjustments. It will take sacrifice, struggle, patience, understanding, strong solutions, urgent action ......etc to stop the hemorrhaging, dig itself out of the hole and put the territory back on a steady and rising course. This will require national unity, all hands on deck and rowing in unison.
. AND GET THE POWER BACK IN THE HANDS OF THE PEOPLE
rEAL TALKKKKKKK AMEN RAM
Then focus on what’s remaining after you have secured the economy’s source of income. Y’all know financial was plunging anyways.................