Anesia, Arnhim create their own Maths

by Dr. Jerrol Thompson Tue, Nov 1. 2011

One of the most boring and misunderstood parts of the annual estimates (Budget) is the debate on the Financial Summary, the confusing financial jargon and whether there is a surplus or deficit.{{more}}

Annual budgets have estimates of the Recurrent Expenditure and proposed Capital Expenditure for the upcoming year and the actual expenditures for the previous year. At the end of each budget year, we assess the Recurrent Expenditure and how successful were the revenue measures to finance the expenditure. If government spent less than the revenue received, there is a surplus; however, if more is spent than received, there is a deficit. Having a surplus is generally considered evidence of prudent fiscal spending and efficient revenue collection. Deficits up to 3 per cent are acceptable, however.

Governments often find some crafty ways of creating a surplus, like not hiring or replacing staff or towards the end of the year, they may avoid buying supplies or providing some services. This artificially created surplus can be used towards the capital spending of the following year. Although it is nice to have a large surplus, if you have a very large number of readily available grants (as occurred between 2002 and 2009), it is then counter-productive to artificially create a large surplus by holding back spending at the end of the year, which was a characteristic Eustace strategy and trademark. At the end of 2000, true to form, Arnhim Eustace created a surplus of 17.6 million by holding back on spending. Sadly, his total capital expenditure was only $35 million, a mere 24 per cent implementation rate, resulting in very little money in circulation in the months before the March 2001 elections. He lost the election.

For the last 10 years, Arnhim Eustace has spent over an hour of his budget response on Amortization or whether or not we had a surplus or deficit. More recently, there was a puerile attempt by Anesia O. Baptiste to take up his mantle on surplus and deficit and it was clear that she had no idea what she was talking about. Arnhim did not provide her with the true facts. She falsely claimed that the ULP Government had run a deficit every year for the last 10 years. She stated as usual, she was “telling the truth”, but similar to pronouncements on immunization, laptops, calling a person a boy, etc, she has shown a gross lack of research and reliance on her sales pitch that the NDP just wants to tell the truth. Whenever some persons start out stating they are telling the truth before they talk, you should brace yourself for a lie.

The official figures for surplus and deficits are published each year in the budget. They are available from the IMF and the ECCB Web Site (www.eccb-centralbank.org/PDF/na2009.pdf). No one should make up their own figures; however, Anesia wants you to accept her handwritten figures on a Bristol board as gospel and call it the truth.

What Arnhim Eustace did not tell her, his party and the nation was that in the aftermath of the 1994-95 International Financial Crisis, the IMF introduced the General Data Dissemination Standards (GDDS) initiative and ISIC Rev2 in 1999. Eustace is quite familiar with this, but has callously chosen to snub and ignore it. The IMF’s intention was to establish standards to guide countries in compiling their National Accounts, the dissemination of economic and financial data to the public and the availability of timely and comprehensive statistics, for the conduct of sound macroeconomic policies. It is widely acknowledged that the adoption of these internationally recognized standards or codes of good practices has helped to improve economic policy-making and strengthen the international financial system.

Many countries, including those in the OECS, presented their budgets and National Accounts differently and this prevented the IMF, ECCB and other agencies making proper comparisons. In SVG, we were doing some things incorrectly. Social Protection and Education were added as sectors and the new standards changed the way Amortization was being recorded. Every accountant or A-level business student knows that you cannot include in your costs, the money you have to pay back as principal on loans, as it is being already captured elsewhere in the costs categories (Education, Health, etc) on what it was actually being spent on. If included, it would be double costing. It is only the interest payment that should be added as a cost and somehow Anesia and Arnhim have not grasped this basic principle and continue to add amortization, to eliminate the official ECCB surplus and create a deficit in their new erroneous form of math.

Between 1995 and 1999, the NDP Government had surplus ranging from 19.2 million to 33.19 million. However, there was also a pattern of low implementation and spending of the capital expenditure, characteristic of the Eustace era. Similar to 1995, the 1996 and 1997 rates were less than 35 per cent.

Between 2001 and 2010, the ULP Government has had a surplus in 9 of those years ranging from 11.48 million to 58.16 million. It also had an unprecedented level of capital expenditure steadily increasing from 46.73 million in 2001 to an impressive 145.18 million in 2007 (61.3 per cent implementation rate), fueling our national growth and development. These years represent a very high implementation rate of the Capital Budget (one of the highest in the OECS) and twice the NDP’s low average implementation rate. It was only in 2009 that there was actually a small deficit of $3.38 million, but in that same year, we had one of the largest Capital expenditure (130 million) and a 50 per cent implementation rate.

So why do Anesia and Arnhim present bogus figures? We probably won’t get an answer. The discrepancy between Anesia’s figures and the official Government, ECCB and IMF figures is simple. Hers are incorrect and even today Arnhim refuses to accept the IMFs GDDS standards.

2011 has seen a fall in revenue due to the protracted Global Financial Crisis. A deficit around 20 million is likely, but far less than the accepted 3 per cent. What is clear is that the people want facts and information properly explained. Creating new math with bogus figures does Anesia little credit; rather, whatever she says will be met with skepticism and questioned for its truth.