Published On: Thu, Jun 11th, 2020

Financial supervisor Cft critical of 2020 budget

Picture by © Berber van Beek www.studiorootz.co

PHILIPSBURG — Financial supervisor Cft has expressed serious criticism about St. Maarten’s approved 2020 budget in a letter to Finance Minister Ardwell Irion dated May 20. The letter became public this week.

The Cft urges St. Maarten to amend its budget, among others by budgeting for improvements at the Pointe Blanche prison and to include these investments in the capital account. In 2019 the government budgeted 5.7 million guilders ($3.18 million) for improvements to the detention situation, but because the country did not receive the required loan for it, the project stalled. This investment is not part of the capital account in the 2020 budget.

The Cft notes that St. Maarten insufficiently honors agreements about the prison and suggests making the 5.7 million investment part of the capital account through a budget amendment.

The Cft furthermore notes that there is a projected investment of 47.6 million guilders ($26.6 million) for the construction of a new prison for the years 2021 and 2022. However, funding for this project is lacking.

The 2020 budget shows a deficit of 263.2 million guilders ($147 million), while the Kingdom Council of Ministers set the maximum deficit (excluding COVID-19 effects) at 31 million ($17.3 million). The financial effects of the corona-virus crisis are budgeted as 196 million (($109.5 million of which 80 million ($44.7 million) lower revenue and 116 million ($64.8 million) higher expenditures).

On April 23, the Cft concluded that St. Maarten would have to scale back its financial support program or find funding for it within its budget. For the months of May and June this amounts to 8 million guilders ($4.46 million) per month. The Kingdom Council of Ministers agreed with this recommendation and the Cft now urges the government to take cost-cutting measures as soon as possible.

The current budget anticipates expenditures on the financial support programs only up to June. Continued support will require a budget amendment.

The Cft sees options for cutting costs in posts like depreciation, budgeted vacancies, and goods and services. The latter post is in 2020 six percent higher than it was in 2019.

The debt of the collective sector will increase to 1,079 million ($602.8 million) guilders this year. The government wants loans worth 453 million ($253 million) of which 230.6 million ($128.8 million) is earmarked for the financial support program, while another 57.7 million ($32.2 million) goes to repayment and refinancing of existing loans. Under these conditions, the debt to gross domestic product ratio will increase to 66 percent.

The Cft notes that the country’s financial management is still insufficient. In 2019 the Council of Ministers approved an improvement plan that aims to obtain an unqualified accountant-declaration by 2021. While the 2020 budget contains a 7.5 million guilders provision for this plan, the Cft notes that – a year after its approval – the execution of the project has not started yet.

The Cft also urges the government to take measures to keep the costs for healthcare and pensions sustainable. Next to an increase in the retirement age from 62 to 65, the Cft refers in a footnote to other options like introducing a contribution from patients to their healthcare costs, basing these contributions on income, introducing a higher wage ceiling for healthcare insurance premiums, decreasing the number of referrals and lowering the costs of medication.

The Cft-letter contains five recommendations for budget amendments. The first one is to decrease the budget deficit (excluding COVID-19 effects) to 31 million guilders ($17.3 million). The second one is to implement cost-cutting measures to cover parts of the financial support package that are not covered by liquidity support – an amount of 8 million guilders ($4.46 million) per month.

The Cft also suggests that St. Maarten fully complies with agreements it made with the Netherlands about improvements to the detention situation and the judicial chain by including them in the budget.

Another suggestion is to budget expected decreases in revenue for the second half of 2020 on the latest estimates from the Central Bank.

The financial supervisor also encourages St. Maarten to come up with a plan for structural reforms in the fields of the economy, the capital market, the social security system, the healthcare system, the government organization, and governance.

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Related links:
Opinion: Follow the money
Letter Cft to Minister of Finance