More excess needed to stimulate economic activity – Glasgow

St Vincent and the Grenadines has allocated over 62 per cent (from our recurrent budget) to paying our public service, while debt servicing accounts for another 30 per cent of the budget.{{more}}

“…and that is significant,” says KPMG accountant Brian Glasgow, adding, “for a country to move forward aggressively and economically the way that a small developing country like ours should be, we need more of a buffer between wages, salaries and debt financing.”

Glasgow gave a summary of the 2015 budget Thursday, February 12 at the Paradise Beach Hotel’s conference room. The event was organized by the St Vincent and the Grenadines Chamber of Industry and Commerce and sponsored by the local branch of the FirstCaribbean International Bank. Representatives from a large number of private sector entities were present.

Glasgow, an accountant for over 30 years stressed that the January 28, 2015 budget presented by Prime Minister Dr Ralph Gonsalves was said to be presented in the context of a “continuing quest for wealth, job creation, equity, resilience and fiscal consolidation in a small multi-island economy in the midst of exogenous challenges.”

Glasgow said that the first thing that stands out is the recurrent revenue, projected at $532.34 million and the recurrent expenditure, projected at just over $560 million, “so we know first off that we are in a deficit budget.”

He said that the PM explained that a deficit budget can be a deliberate economic tool, known as countercyclical economic policy, where in a state of recession, “which we know the entire region to be in,” is a deliberate policy (of deficit budgeting) used to stimulate economic activity.

Giving figures, Glasgow said that the public sector wages and salaries stands out, as it comprises 51.5 per cent of the recurrent budget, while pensions and National Insurance Services (NIS) payments account for another 10.9 per cent.

“So, from our recurrent budget we are allocating over 62 per cent to paying our public service and that is significant,” stressed Glasgow, who noted that in addition, the debt to Gross Domestic Product (GDP) ratio is growing.

“…another private sector interest lies in the growing debt to GDP ratio and when you look at the debt financing provisions in the budget, amortization and the sinking fund contribution, we would recognize that debt servicing accounts for another 30 per cent of the recurrent budget, so before we even begin to spend any money on social services, infrastructure or any of the other items that are necessary to run a country, we have already allocated over 92 per cent of our recurrent budget to salaries, wages and debt financing.”

Glasgow said that while this may be the reality in St Vincent and the Grenadines, similar situations exist in the region.

Glasgow said that in his opinion, the country “needs more excess to be able to stimulate economic activity.”

The accountant added that the total revenue for the year, when we add capital receipts into the recurrent revenue, is $971 million, while capital expenditure accounts for $296.35 million, “and as you would appreciate, the single most significant item on capital expenditure in 2015 is the Argyle international airport.”

He said while the Government started with a position of a deficit budget, understanding that it is a countercyclical policy designed to stimulate economic activity, we do in fact have significant obligations with our capital budget and that is, completing the airport within the Government’s expected deadline of 2015.

Giving more figures, Glasgow noted also that 26 per cent is the provision for general public services, while education continues to occupy a significant percentage of the budget at 14.2 per cent.

He said that it was noted by the PM that current revenue is expected to be higher than what has been budgeted, through more aggressive tax collection.

Glasgow also pointed out that capital expenditure “as usual’ is expected to be financed mainly through grants and local and external loans, while other receipts are placed at $154.98 million.

Other receipts relate to grants and loans which are in the stage of being negotiated by the Ministry of Finance and are not yet completed.

The discussion was held mainly to look at the budget with a focus on issues that represent the concerns and interests of the private sector.

During the discussion, Glasgow and his colleague at KPMG, Reuben John, apart from touching on the issues regarding the Argyle international airport and its implications for the short, medium and long-term economy, also spoke about the revitalization proposal for the agriculture industry and the extent to which it addresses what we consider to be the main-stay of the economy (bananas), the competitiveness of our tourism product, energy issues and the increase in the debt to GDP ratio and what it means to our competitiveness in Caricom.

John, in one of his economic overview presentations, stressed that the budget has to be looked at in the context of the prevailing macro-economic factors that exist globally, regionally and internationally.

The approved budget is EC$971, comprising EC$675 million of current expenditure and EC$296.3 million of capital expenditure. The recurrent revenue is EC$532.3 million and the capital revenue is EC$439 million, while there is a deficit of EC$142 million.