Published On: Tue, Apr 21st, 2020

Draft 2020 budget meets with criticism

Government Building Closed - 20200224 JH

PHILIPSBURG – The draft 2020 budget closes with a deficit of 263.2 million guilders ($147 million). Expenditures total 610.5 million and revenue 347.3 million. The Council of Advice is critical of the budget: “We regret that the draft shows little to no progress compared to the previous budget,” the Council writes in its advice dated March 31. “We advise not to approve the budget in this form.”

The draft budget oozes the impact of the COVID-19 virus crisis and the uncertainty it represents for St. Maarten’s reality.

Minister Ardwell Irion writes in the explanatory memorandum that the budget is based on the optimistic scenario of the Central Bank of Curacao and St. Maarten. That scenario reckons with a drop in economic activities for three months followed by a gradual recovery that would result in pre-COVID-19 levels by the end of the year. “This scenario could very well be too optimistic,” Irion notes.

In 2021 the budget deficit will still be around 18 million, while the government projects a budget surplus of 28.3 million in 2022.

The Ministry of Education, Culture Youth and Sport takes the biggest bite out of the budget with projected expenditures of 125.4 million, followed by the Ministry of Finance (124.9 million), the Ministry of Public Health, Social Development and Labor (108.5 million) and the Ministry of Justice (84.1 million). The Ministry of General Affairs has a budget of 79.5 million, VROMI 38.9 million and Tourism and Economic Affairs (TEATT) 25.3 million. Total cost for the Parliament is 23.8 million.

The Ministry of Finance is expected to bring in most of the revenue in 2020 (292.9 million), followed at a distance by Justice (12 million) and General Affairs (3.3 million).

Minister Irion writes that it is too optimistic to expect the realization of pension reform in 2020, even though the draft law was already in 2018 at the parliament. Healthcare reform remains also elusive; it is now projected to take effect per January 1, 2021.

Outstanding loans currently total 742 million

Per the end of 2019 the government’s debt to SZV amounts to 72.6 million guilders and to the general pension fund APS 26 million. Outstanding loans currently total 742 million, and that could become a problem.

In 2019 the country’s gross domestic product was around 1.8 billion guilders. If the financial assistance to St. Maarten for battling the COVID-19 crisis comes in the form of loans, the debt to GDP ratio could shoot up to 90 percent according to the International Monetary Fund.

“This means that government investments won’t be possible for many years. The only solution is to refinance maturing loans,” Irion wrote. While this is under the current circumstances feasible, increasing interest rates could have “a stifling influence on the budget.”

This year a 50 million guilders bond loan matures and the finance ministry expects to deal with this by contracting a new loan for the same amount.

Budget deficits the government will have to compensate currently amount to 322.9 million guilders; the COVID-19 effect is not taken into account with this number yet, so the real situation could become even worse.

The 10 percent salary cut for parliamentarians and ministers Minister Irion announced earlier does not appear clearly from the draft budget. Parliament sees a decrease in personnel costs of 8 percent (from 5.7 to 5.3 million) and at the Ministry of General Affairs the salary for Prime Minister Silveria Jacobs goes down by 4.35 percent.

Looking at personnel costs elsewhere, at the Council of Advice it goes down 13.3 percent, at the General Audit Chamber 8.5 percent and at the Social Economic Council 22.4 percent. At the national security service VDSM personnel costs go up by 50 percent.

The prime minister will also see a cut in her vacation allowance of 4.24 percent, but on the other hand her contribution to the general pension fund APS (33,876) has been taken out. Her total personnel costs amount to 261,429 guilders – a decrease of 44,818 guilders or 14.6 percent. Jacobs’ representation costs decrease from 65,000 guilders in 2019 to 55,250 in 2020 (down 15 percent); but in 2018 representation costs for the prime minister stood at 32,378.

The capital investment account mentions a reservation of 1 million for the design of a new prison in 2020, with another 5 million is earmarked for 2021. The second phase, in 2022, projects an investment of 42.6 million in the construction of the new prison.

…inconsistencies in this budget…

Elsewhere the budget notes however that the cost of the new prison is 27 million. And the chapter about the Justice Ministry does not even mention the construction of a new prison. Instead, it speaks of “renovation, repair and possible extension of the Pointe Blanche prison.”

There are more seemingly inconsistencies in this budget. The overview of subsidies shows for instance that the library will get 1,097,000 in 2020 – the same amount it received in 2019. Elsewhere it is stated that the library has requested settling its subsidy for 2017. “It is unclear whether this has to be paid considering the damages caused by Hurricane Irma.

For this year the government expects a drop in tax revenue of 80.3 million, a decrease in revenue from economic permits of 17 million and 4.3 million less from permits for urban planning and long lease.

The government furthermore considers buying the building of the Bureau Telecommunication and Post for 8 million guilders. According to the finance ministry, this purchase will save the country 500,000 guilders per year.

The budget stipulates that each ministry is held to realize savings of 1.5 percent compared to the previous year. For 2021 this would mean that the education ministry will have to cut down its expenditures by almost 1.9 million, finance would have to drop a bit less (1.8 million) and Public Health, Social Affairs and Labor 1.6 million.

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