HON. MINISTER FOR FINANCE, INDUSTRY
Last year, in presenting the first Budget of the United Workers' Party (UWP) Government to this Honourable House, we articulated a financial plan for FY 1995/96 and an accompanying development programme for the country. The Budget was presented to Parliament on 3rd August 1995, that is, less than two (2) months after the General Elections of 12th June 1995 which brought us into Office. Bearing in mind that the Dominica Freedom Party (DFP) had governed this country for fifteen (15) consecutive years, the new Government of necessity had to sit with senior officials in the Civil Service in order to apprise itself of the state of the country's finances as well as become acquainted with those initiatives already in the pipeline. This review was in-turn used to inform decisions on development policy generally, and the fiscal situation in particular. Further, because Budget authorization typically expires on 30th June each year, it became necessary to seek new authorization from Parliament for spending even though more time was ideally required to complete the Review.
Now that this Administration has had one (1) full year in office, we are in a better position to speak with Confidence on the state of the economy, including government finances, and to set out our approach to correcting the imbalances and stimulating growth, with the aim of sustained improvement(s) in the Quality of Life of our people. In making this pledge, Government is mindful of the magnitude of the Developmental Task confronting the island, a task which will require the understanding and cooperation of all Dominicans if success is to be achieved.
The 1991 Census recorded a population of 71,183 persons or 3.5% less than the 1981 Census figure of 73,795. Accordingly, in 1991, average income per person in Dominica stood at five thousand three hundred and fifteen Eastern Caribbean dollars (EC$5,315.00). However, according to data from the Central Statistical Office (CSO), GDP per capita currently stands at five thousand five hundred Eastern Caribbean dollars (EC$5,500.00) or a mere 3.5% above the 1991 amount. This reflects an average growth rate in income per person of less than 1 % per annum for the period 1991/95. These figures are consistent with the trend in GDP growth earlier reported and confirms the marginal improvement(s) in average living standards in the country during the 1991-1995 period. Moreover, the 1991 Census recorded an unemployment rate of 21%. We know that this unemployment rate has declined within the last year but government is not yet in possession of the requisite data to substantiate this claim.
Since 1990, the United Nations has published a Human Development Index (HDI) as a basis for assessing living standards in countries around the world. The HDI is gradually being recognised internationally and by the academic community, as a more robust or representative measure of living standards, since it encompasses life expectancy and access to education, as well as income. In 1991, the first year in which a HDI was provided for Dominica, the country ranked 53 out of 160 countries. However, the ranking has declined, reaching 64 in 1994 and thus pointing to an erosion in living standards over the period when compared to other nations.
A 1995 study of living conditions in Dominica undertaken with Technical Assistance from the British Development Division (BDD) reported that an estimated 27.6% of the population was living in poverty. Survey data for the study was obtained prior to when Hurricanes Luis and Marilyn struck Dominica in September 1995. The official estimate of damage arising from Hurricanes Luis and Marilyn in 1995 was placed at one hundred and seventy-five million dollars ($175,000,000). In addition to the severe losses in Agriculture, the coastline was badly damaged undermining roads, jetties and beach front properties both residential and tourism belonging to the private sector. The hurricanes definitely aggravated an already difficult fiscal situation confronting the UWP government since we had only taken office in June 1995. We must say thanks to the International Donor Community for the assistance we received during our demise, but one must admit that it was a truly remarkable performance by the economy to have registered a 2% growth in these circumstances.
The low GDP growth of 2% recorded in 1995 which had originally been targeted at about 4% in real terms with the main contributions coming from agriculture, tourism and construction, contributed to a worsening financial position of central government. Foreign exchange earnings from bananas which peaked at $103.7 million in 1988 continued its steady decline reaching $46 million in 1995 from $55.63 in 1994. Overall, agricultural production is estimated to have fallen by about 20% in 1995, compared to a decline of 3.4% in 1994.
Construction activity was given a boost during 1995 by the commencement of work on the eighty (80) suites Oriental Hotel in July, and by other such activities undertaken by individuals and businesses. Data from the Physical Planning Division reveal a substantial increase of 22.6% in the value of Building Starts.
Further in the tourism sector, the number of stay-over visitors rose by 5.4% from 65,331 to 68,838. The Caribbean continues to be our leading market for tourists contributing 57.8% of arrivals and increasing by 7.7% over 1994. The United States contributed 16.2% of arrivals, reflecting a 4.6% rise over the previous year. Arrivals from Europe however, recorded a drop of 4.1%. The number of cruise ship passengers visiting also rose by 7.5% from 125,541 in 1994 to 134,924 in 1995.
Activity in the manufacturing sector, though not buoyant, was positive on balance. Soap production for the year expanded at a rate of 3.6% and was associated with the production of the Palmolive line of products. In addition, the opening of the brewery at Snug Corner in November 1995, which successfully took over the local market and the re-opening of the corrugated box making plant at Belfast under the name of Winera (D/ca) Limited, gave stimulus to that sector.
Meanwhile, the rate of inflation, as measured by the Consumer Price Index (CPI) remained very low at 1.3%. The combined liquidity position of the commercial banks in Dominica improved during 1995 as a whole, despite the devastation to the banana crop.
The liquidity of the banks at the beginning of 1995 was very tight, with a liquid assets to deposits ratio of 14.2%, and a loans to deposits ratio of 91.7%. The position improved significantly during the year, as the banks deposits base expanded, benefitting from improvements in the earnings from early banana exports, increased tourism activity, and foreign direct investment inflows. As a result, notwithstanding the devastation of the hurricanes, the liquid ratio rose to 20.5%, while the loans to deposit ratio fell to 85.9% at the end of December, 1995.
The resulting shortfall in revenue collection of $4.1m, is mainly due to the non-application of the Banana Development Levy for yet another year, and the non-implementation of the National Health Insurance Scheme (NHIS) which was originally scheduled for implementation in January 1996. From October 1995 to March 1996, import duty on chicken was suspended, in order to provide some relief to citizens in the immediate post hurricane period. This also had an effect on revenues collected for the 1995/96 fiscal year.
The projected recurrent expenditure for the fiscal year ending June 1996, compared with the budgeted expenditure for the same period, is as follows:
.......................................... In EC$(000)............... In EC$(000)............ In EC$(000)
Accordingly, the Recurrent Budget for 1995/96 is projected to balance, inclusive of debt amortization.
Expenditure on the Public Sector Investment Programme (PSIP) for fiscal year 1995/96 was budgeted at $103.9m. It is expected that expenditure on investments for the period will not exceed $36.0m. The low expenditure recorded, when compared to the budgeted amount, is due to delays in the implementation of projects arising from the non-satisfaction of conditions precedent for disbursement of funds from lending agencies coupled with the utilization of government’s counterpart funds for Capital Projects in order to satisfy emergency rehabilitation requirements, following the passage of hurricanes Luis and Marilyn.
During the week of June 10 1996, I had the honour to lead a delegation from Dominica to the Caribbean Group for Cooperation in Economic Development (CGCED) Meeting in Washington D.C, U.S.A. The CGCED serves as a forum for resource mobilization/coordination and policy dialogue among the International Donor Community and Recipient Countries. A CGCED meeting is held every two (2) years generally in the U.S.A, and is chaired by the World Bank (WB), in collaboration with the International Monetary Fund (IMF), Inter American Development Bank (IADB) and Caribbean Development Bank (CDB). The Theme of this year’s meeting was ......`Public Sector Modernization and Reform that the Caribbean Countries can take to Successfully Adapt to a Fast-Changing World Economy.’ This theme is of direct relevance to our situation in Dominica, as well as the other Caricom/OECS economies, and hence the need for dialogue with the International Community on matters of mutual concern on the way forward
While in Washington D.C, we took the opportunity to lobby the U.S Government including meetings with Congressman Kingston of Georgia and Senator Jesse Helms, Chairman of the Senate Foreign Relations Committee and key persons at the CGCED meeting, as to the grave situation facing Windward Island Economies, particularly Dominica, should the World Trade Organisation (WTO) Panel on the EU Banana Regime rule against us. Government believes that with the WIBDECO/FFYES joint venture arrangement in place, and the continued support from the EU, the banana industry can be profitable to farmers as well as being a major contributor to foreign exchange earnings in the country.
In preparation for the CGCED meeting, the Donor Community commissioned a series of studies dealing with a range of developmental issues, notably: Physical Infrastructure, Health Care, Poverty Reduction/Alleviation, Tourism, Off-Shore Services and Reform of Public Service Administration. These Technical Papers are expected to serve as a rich source of ideas and data
at country level, as well as within the Caricom/OECS region in the months ahead as we continue the struggle for the survival and prosperity of our people.
A specific country session dealing with Dominica’s financing requirements and policy priorities was held on June 12 at which both the IMF and CDB, among others, gave their assessment(s) of domestic economic performance, along with identifying areas in which they would be willing to assist. A major concern of the international donor community was the need to strengthen the Fiscal and Balance of Payments (BOP) position(s) of the country and the boosting of the rate of economic growth.
The reality of today’s international cooperation environment is such that development financing is becoming increasingly scarce. Dominica’s access to concessionary loans and grants will be made much more difficult if bold action is not taken now to correct fiscal imbalances. That point was made very clear during the required Article IV Consultations with the IMF in April 1996 here in Roseau and re-stated at the CGCED Meeting by the Major Donors present.
The records show that starting around 1991, Government Accounts have registered a fiscal deficit in each year, reaching a peak of EC$16 million in Financial Year 1993/94. Similarly, beginning around 1991, overdraft balances have accumulated steadily from $21.7 million in 1991/92 - $43 million in June 1995. Therefore, at the root of the fiscal problem lay the unsatisfactory performance of the economy, as earlier indicated. This arose partly due to inertia and possibly complacency, hence bold action is necessary to correct the fiscal position thereby strengthening Government’s ability to finance the PSIP and to meet its loan obligations on schedule, which in-turn will contribute to enhanced performance of the economy and strengthen the capacity for improvements in social well-being.
In the circumstances, Government has decided to embark upon a structured package of reform measures in collaboration with the IMF, designed to stabilize the country’s finances and to adjust/transform the structure of the economy in order to boost GDP growth and enhance overall development prospects. The Bretton-Woods Institutions have indicated their willingness to provide a maximum of US$7 million under an Extended Structural Adjustment Facility (ESAF) in order to finance the Reform Measures. Accordingly, discussions are now in-train toward that end.
So far, consensus has been reached between officials from both Government and the IMF that the Reform Measures to be instituted will be guided by the report titled: `Adjustment, Growth and Well-being the Commonwealth of Dominica: Framework Document for a National Socio-Economic Plan’, March 1996. That report which was prepared under the auspices of the National Development Corporation (NDC) and the Ministry of Finance, Industry and Planning, is aimed, inter alia, at setting out an approach to a `Consensus-Driven Home-Grown’ adjustment programme in the context of an overall Recovery Reform Strategy. The report was based on a series of consultations with various stakeholders in the country convened from December 1995 and which and culminated in a two day National Consultation on the Economy in March 1996. That consultation, which was declared formally open and addressed by the Honourable Prime Minister, also, received addresses from the Minister for Finance, Industry and Planning, Leader of the Opposition, his Lordship the Bishop of Roseau, the Vice-President/Operations of the CDB, and the Executive Director of the WB for the OECS region, among others. The Reform Strategy proposes to take action in the following target areas:
Government anticipates that during this calendar year, the discussions with the IMF should be concluded and implementation of the Reform Strategy should get underway accordingly. We look forward to the cooperation and understanding of all Dominicans as together we strive to improve the macroeconomic out-turn as a basis for sustained improvement in the Quality of Life of our people.
OVERVIEW OF BUDGETARY PROPOSALS, 1996/97
Projections for fiscal year 1996/97 have been made on the following assumptions:-
Recurrent expenditure is intended to meet the operational costs of central government during a fiscal year. The amount of $98.40m for salaries and wages, include the increases negotiated between government and the Civil Service Association/Union for the period 1994/95, 1995/96, and 1996/97; the increases agreed were 2%, 1%, and 3% respectively for the years indicated. The cumulative increase of 6.1% will be implemented in fiscal year 1996/97 with wages and salaries projected at 49.7% of total recurrent expenditure. The Civil Service Association must be commended for accepting the percentage increases agreed upon. It is expected that other Unions will be similarly moderate in their wage demands bearing in mind the state of the domestic economy and the need to be internationally competitive. We therefore look forward to the cooperation and understanding of all Dominicans, including the Unions, to collaborate with Government to boost productivity in the Public Service and throughout the economy, since this is the only way that the current level of employment in the State can be improved.
Recurrent expenditure estimates for FY 1996/97 is divided among the main government ministries as follows:-
The Ministry of Finance, Industry and Planning has the largest share of recurrent expenditure at $53.2 million. This includes $31.2 million for debt servicing, $10.1 million in benefits to retired government workers, and$1.1 million as refund for income tax.
Mr. Speaker, in addition to the provision for salaries and wage increase, the number of public officers on government's payroll is increased by over fifty persons. Given the increased services/capacity at the Princess Margaret Hospital, arising from the extension of the hospital with the new Maternity and Paediatrics Wards, it was necessary to increase the number of staff nurses and graduate nurses by 33 persons. Also, the number of teachers at the Clifton Dupigny Community College had to be increased since many subjects are currently being taught by part-time teachers and my government believes that adequate teaching staff is necessary in the area of tertiary education.
I now turn to government's proposal for financing the recurrent expenditure of $198.18 million which includes debt amortization of $14.28 million.
The recurrent revenue for fiscal year 1996/97, is estimated at $186,770,000 to be derived from the following
Taxes on Income, Property and Capital Transactions 48,260,000
Taxes on Commodities 21,180,000
Taxes on Domestic Sales, Transactions, and Services 76,357,000
Income from Investments and Rent 3,253,000
Debt Collections 5,000,000
Other non-tax receipts 23,197,000
Currency profits 2,200,000 $186,770,000
Also Government will reduce, during the fiscal year, consumption tax on a number of selected items in order to lower the cost of living. We expect the private sector to pass on such reductions to consumers. This reduction in revenue is expected to be neutralised by increased efficiency in the collection of the tax plus an increase in the tax on cigarettes.
The recurrent estimates of revenue and expenditure for FY 1996/97 reflects a deficit of $11.41 million or 2.8% of GDP. However, if debt amortization of $14.28 million is removed from the expenditure, a surplus of $2.87 million will be realised. Hence the need for Debt Rescheduling in the context of a Recovery/Reform Programme for the economy as outlined in Section IV of this Address.
The amount targeted for public sector investment is estimated at $165,828,380 million. The sectoral allocation of this investment is as follows:
In Tourism, access to key eco-tourism sights around the island is a major area of emphasis aimed at increasing spending by cruise and stay over visitors. In addition, there are projects dealing with Geneva Estate Restoration; establishing Eco-tourism links in the North and South of the island; refurbishing of the Melville Hall Airport terminal; and restoration work in the Roseau/Botanic Gardens area. In the Education Sector, there is the Basic Education Reform Project aimed at modernization of that sector in order to significantly upgrade Human Resource Development efforts in the school system. In Physical Infrastructure, the major projects include the Delices to Petite Savanne Road; the Wotten Waven to Trafalgar Road; the Delices to Morne Prosper Road; Sea Defenses; rehabilitation works on the Fresh Water Lake as well as on the Pond Casse to Hatton Garden Road. There is also the Roseau Water and Sewerage Project, along with schemes to improve access to potable water by rural households. In Health Care, there is the on-going work on the Princess Margaret Hospital (PMH) Master Plan aimed at modernizing the Operating Theatre and Surgical Facilities.
Financing for the Public Sector Investment Programme (PSIP) is expected to be as follows:
Local Capital Revenue includes:-
Our principal sources of External Concessionary Loans are the CDB , the WB and the Republic of China on Taiwan. As regards external grants, our principal sources are the European Union (EU), Japan and the United Kingdom (U.K).
The budget as presented indicates an overall financing gap of$11.41 million on recurrent spending. Financing of this deficit on the recurrent budget will come, in the first instance, from a reduction of waste and higher productivity arising from the improved management of resources, human and physical. For example, via the consolidation of posts and reduction/savings in the provision for goods and services, where possible. Alternatively, new revenue measures will be introduced during the year to eliminate the deficit. As regards capital spending, the Public Sector Investment Programme (PSIP) typically covers a three (3) year horizon. Accordingly, some of the projects will inevitably be undertaken in FYs 1997/98 or 1998/99 by which time it is anticipated that the additional funding would have been identified. Moreover, the fiscal position should have strengthened by then thereby permitting Government to meet its counterpart contribution for projects without difficulty.
Mr. Speaker, government ministers with responsibility for the various sectors will elaborate on the projects under their control, when they address the House, during the debate on the Motion.
Mr. Speaker, the UWP Government is committed to stabilizing the economy concurrent with laying the foundation for sustained growth and development. For a small island economy like Dominica, it is recognised that changes in the quantum of foreign exchange earnings have a determining effect upon domestic economic performance and living standards. Hence the importance of striving for international competitiveness at least in the principal foreign exchange earning sectors, namely agriculture, tourism and manufacturing. Additionally, measures to increase investment, from domestic and foreign sources, must be strengthened and become more results oriented. In this, private business have a critical role to play, supported by institutions like the Dominica Association of Industry and Commerce (DAIC) and the NDC.
An Adjustment Programme is a Means to an End and there are numerous examples of countries, including in the Caribbean, where such programmes have produced the desirable results. On the other hand, the developing world is littered with failed Adjustment Programmes which have caused much suffering and hardship among people, in terms of unemployment, lost opportunities for business and lower government revenues. Among the many reasons put forward for failure have been incorrect diagnoses, leading to improperly designed programmes, and/or weaknesses in implementation.
Appropriate institutional arrangements, political support, and available resources - human, financial and physical - are vital for success of the Adjustment Programme. New skills and performance standards will be necessary in the Civil Service, the farming community, as well as in business enterprises and NGOs.
An important component of the Adjustment Programme will be to increase the pool of entrepreneurs locally. In that regard, the Caribbean Enterprise Foundation (CEF) is expected to play an important role. The CEF has recognised that the best educated people in the region tend to take up employment with Government, regional institutions and the professions are being channelled away from the private sector. Accordingly, the CEF is focussing its resources on reversing that trend via rekindling the spirit of entrepreneurship and helping the region's brightest people to enter the private sector.
One year ago, the people of Dominica placed their confidence in the UWP to govern the affairs of this country. It was with a sense of humility that we accepted the mandate and pledged ourselves to a stewardship of service in a spirit of brotherly love . The many successes and difficulties of the past year produced new knowledge and increased our yearning to move this country forward.
The new initiatives and directions we propose in this budget are expected to bring about macro-economic
stability to this country, a phenomenon which is necessary for growth and development.
We......., Government, Civil Service, Private Sector, the Unions, the Populace at large, should all work together to achieve, Adjustment Growth and Well-being for all Dominicans.
Created: Thursday, June 27, 1996, 7:14:32 AM