Friday, 24 March 2006

By Harry Lawrence - Publisher

In the eighth year of his administration as Leader of Government, Prime Minister Said Musa has turned his back on supply-side economics introduced almost a decade ago by finance Whiz Kid Ralph Fonseca.

In a dramatic turn-about brought on by an overwhelming two billion dollar debt burden, Musa on Friday last introduced a bare bones budget amid sombre warnings from the International Monetary Fund that the dollar peg, the lynch-pin of the Belizean economy, was at risk.

He said by way of explanation: “Government took the decision to rein in the deficit because we recognised fundamental imbalances had emerged in our fiscal accounts and time was not on our side in correcting those imbalances.

“The alternative would have been to continue to delay the adjustment with potentially disastrous consequences for our economy and our nation.” Musa’s haad times budget calls for spending the $562.9 million the country expects to earn this year and $20.4 million more he expects the country will not earn for an overall domestic spending package of $583.3 million.

To accomplish this he has divided debt repayment into two parts, the interest of which ($145.6 million) has become part of the recurrent budget.

The amortisation portion of the national debt ($123 million) has been morphed through a black hole and appears on the other side of the budget spectrum as Capital II expenditure, to be met by loan financing (102 million), proceeds from privatisation ($30 million) and domestic financing ($60 million).

For a better understanding of how the recurrent budget was conceived, please see pie chart in the adjoining column.

The steady hand and clear thinking of Ministry of Finance C.E.O. Carla Barnett is reflected in the budget, which is as practical as can be expected under the circumstances.

Increments to Public Officers have been restored after a 12-month freeze and tighter oversight is to be applied to control expenses.

Under Barnett, deviousness gives way to common sense and the explanations are clear and helpful. For example he admits flat out the Central Statistical Office (C.S.O.) needs to be transformed “into an autonomous and top quality statistical institute.”

The C.S.O. expects the Gross Domestic Product (G.D.P.) to grow unimpeded, despite the hiccup of two years ago when it actually declined. The projections are as follows:

Gross Domestic Product

2004/2005 (actual) $2,214 bn.

2005/2006 (projected) $2,372 bn.

2006/2007 (projected) $2,414 bn.

There is an up-side and a down-side to last year’s economic performance. The good news is the private sector performed well, despite gloomy conditions for sugar and bananas. The bad news is the public sector did not do well. The greatly anticipated budget surplus did not materialise.

Despite the freeze on salary increments, curtailment of capital projects and new taxes, the public debt grew by 50 million and the overall budget deficit was $69.3 million.

While the Recurrent Budget tends to get all the media attention, it is the Capital II Budget which needs careful scrutiny.The Musa Government plans to finance Capital II through more loans variously described as loan financing, domestic financing and external loans - all to the tune of $182.1 million.

Any failure to meet targets in the Capital II budget will spell disaster for Belize’s credit ratings.

Other information taken from the budget speech:

GOB intends to set up a National Tranportation Authority and will be selling bus routes.

“It is not government’s intention to allow any one entity to monopolize the transportation system” the Prime Minister said. “Neither is it the intention of this government to unilaterally deprive any municipality of the revenue that it is earning from licenses and fines”.

GOB intends to make over the Central Statistical Office to make it autonomous and tranparent. The CSO will subscribe to an internationally accepted General Data Dissemination system which sets international standards for preparation and publication of economic information.

The Office of the Auditor General is to be strengthened and also the Integrity Commission.

New focus on poverty reduction. Economic growth does not translate into poverty reduction.There is a need for well-planned interventions.

$47 million set aside for Southside Poverty Alleviation over four years.

A Rural Development Project, funded by the European Union, will bring new development focus to the districts and rural areas and external loans - all to the tune of $182.1 million.

Any failure to meet targets in the Capital II budget will spell disaster for Belize’s credit ratings.

BELTRAIDE is to have a change of heart and will focus now on rural develop-ment and help for Belizean exporters.

Belize Tourist Board will also focus on promoting small and medium size tourism enterprises and the transformation of whole communities into tourism destinations.

There is to be a Trust Fund for Cultural Preservation, to be funded from NICH contributions received from visits to Belize heritage sites.

There is to be National Housing Corporation that will oversee all existing housing initiatives. This will confine government intervention to no more than regulation of the industry.

Government is to invest re-newed interest in renewable energy, beginning with solar energy.

No thoughts yet on the emerging petroleum industry until further assessments can be made.

There is a plan to pave the Placencia road this year and the rest of the Southern Highway into Punta Gorda.

Two million is to be spent to improve the Marion Jones Sporting Complex in Belize City.

The Prime Minister’s rationalisation of government’s poor economic performance was interesting. He said:

“The internally generated factors arose from Government’s initiatives to expand the economy by assisting in arranging financing for businesses and by privatising several entities.

“On their part private sector counterparts failed miserably, running up heavy debts and mismanaging their enterprises, raising the question of corruption and good governance.

“As private sector counterparts did not or could not repay their loans, Government went deeper into debt and over time it beame increasingly difficut to meet debt payments (and) at the same time finance the projects necessary to improve the social and economic well-being of our citizens....

“Today, eight years later we need to re-think the policies which we must pursue to ensure a better future for Belize....

We have to depend on our own resources and on our ability to access the international financial markets at affordable rates.

“The policies that might have worked in 1989 will not work in 2006. New policies are needed and we have already done considerable work during the last year and a half to set the stage for a change of policy.”

But it wasn’t the private sector that failed the PUP. The private sector is what kept the Belize economy going, and the record is there to prove this.

The PUP policy failed because it tried to create a political dynasty, rewarding the party faithfuls with big money by fascilitating large government-assisted loans from D.F.C. and S.S.B. and stomping on people and institutions with less political clout (e.g. Batty Brothers Bus Service, B.T.I.A., N.D.F.B., Belize Printers Association, and landowners in Corozal who were dispossessed without compensation.
Last Updated ( Friday, 24 March 2006 )
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If the government really talked to the private sector and implemented ideas from there I think they could get the deficit zeroed out quickly and get the Belize house in order. A few suggestions:

1. Don't make the change from Sales Tax to GST. The government can't audit this properly. It's too complicated. There will be too much cheating and revenues will fall.

2. Make ALL businesses and self-employed people (including salespeople who make a living off commissions) register for Sales Tax no matter how much they gross a month. Currently we have this "get out" clause which means that any business or self employed person who says they're grossing under $4500.00BZE per month doesn't have to register to collect and pay Sales Tax. This rule is being carried over to the replacement GST. It's daft. I know for a fact that there are businesses and persons out there who gross TEN TIMES that and don't register. If they don't register they don't pay. The rest of us do.

3. Drop the Stamp Duty on Real Estate transfers to 5% across the board. Right now it's 15%. No-one wants to pay that. An example of how this hurts the government: A friend and I were going to buy 2.5 acres of land a couple of miles north of the bridge. He was the "money guy" and I was the "ideas guy." We were going to build 22 affordable new homes. We dumped the plan. We didn't feel comfortable about the chances of buyers wanting to pay GST at 10% and Real Estate stamp duty at 15% on their new homes. I worked out how much tax revenue the government lost becuase of this. $1.2M BZE. And that's just two guys and a little building project.

I've heard this over and over and over. New developments will simply not get started. The government will lose hundreds of millions and employment in the construction sector will be much reduced.

Construction workers have a lot of energy to expend each day. I'm not sure how they would respond if masses of them lost their jobs.

There is not one single example of an economy in crisis being turned around by tax increases but there are MANY examples of tax reductions stimulating growth and resulting in tax revenue increases.

Agree with you 100%, Chris.

--Lan Sluder