Today’s Opinion: Interesting factsPOSTED: 05/30/11 12:10 PM
A review of Finance’s Minister Hiro Shigemoto’s Financial Note reveals some figures that we find interesting. It also gives a confirmation that government and the population is wise to take heed of advice and projections given by independent institutions like the Central Bank. Let’s start on that latter point.
Early in the year the Central Bank projected that the economy would only grow by up to 0.3 percent. Later in the year as things developed they revised that further and said there would be no growth or there would a contraction in the economy. When the first projection came out the government rejected it and said they believed the economy would grow by 1.3 percent. The Board of financial supervision (Cft) held on the Central Bank’s position – it’s no wonder that happened by the way considering that Alberto Romero who works at the Central Bank is also a member of the Cft on behalf of Curacao.
What is interesting from the Financial Note is that the Central Bank and the Cft were right and that based on the hard facts the politicians in our government were attempting to paint too rosy a picture. The minister states in the note, “At present, in this tumultuous world, it is hard to predict what the actual growth for 2011 will be. The first quarter figures are not great, nor bad. Constant monitoring is demanded.”
This statement is the beginning of the minister’s implicit admission that the Central Bank is right and the government does not have sufficient data to have backed their early, rosy prediction. The explicit admission that the Central Bank got it correct is on page 6 of the note where the minister states, “Total income in the first quarter of 2011 is in line with the first quarter of 2010, taking into account the change from Island Territory to country status.”
With those words the minister absolutely confirms as fact that there will be little to no growth this year because government revenue is a key economic indicator. So if it remains flat, then the picture is indeed more like what the Central Bank has said and the Cft has held on as the correct percentage to use when calculating revenue.
Some of the raw numbers in the minister’s note also give some interesting facts. One of them is that the informal sector, which is currently out the government’s reach, can generate income into the millions of guilders. Under that heading the minister states that if the informal sector represents 15 percent of the total economy government is missing out on 15 to 25 million guilders in wage and income tax.
Things continue to get interesting when one reads that the country’s debt burden could climb to 31 percent if all the capital investments government has planned for the year are executed. Compared to other countries St. Maarten is in a good position. In fact it is comparable to Canada, which is coming out of the international recession faster than any other developed country and oil rich Trinidad and Tobago, which continues to make in country investments like the ones Prime Minister Kamla Persaud Bissessar announced when her government marked its first year in office. Interesting as well is that two key partners in the Kingdom are doing worse. Aruba’s debt to GDP ratio is 46 percent, and the Netherlands, which is conducting massive layoffs in its public service and cutting funding programs for culture has a debt to GDP ratio of 65 percent.
What also falls under interesting is the fact that government will remain in a tight financial position next year. One reflection of how tight things are is the government’s available cash. At the end of the first quarter – March 31 – the government had 16.7 million in cash at its disposal. At the end of 2010 there was only 4.4 million. This kind of level means the government can pay salaries and then must pray there is not a disaster of some kind that it has to respond to.
And from all indications next year will also be tight despite a new tax system that will target the “free riders” in the informal sector. This tightness in 2012 comes from the fact that the government will have to continue hiring to ensure the level of service given to the people of the country is raised and that there will be a loss of development aid from the Dutch government. This stiff balancing act is likely to mean that government will not be handing out lots of nice goodies like raises in the coming year, and departments will have to continue down a path of sustaining the operation, instead of getting into the new policy that may be needed.
In any or all of these interesting things bad? On one hand it is, but on another we believe that St. Maarten continues to go through the learning curve of learning that priorities are going to have to be set. The problem with that is: In a country where so much needs to be prioritized what gets pushed to the front and what get’s left for another day. The choices are many and each have interesting outcomes. The one thing required to make them is collective wisdom, and the one thing required to sustain them is collective commitment and patience.