“Financial State of BVI is far worse than we anticipated” – Premier

Premier and Minister for Finance, Dr. The Honourable Orlando Smith.

Newly elected Premier and Minister for Finance, Dr. The Honourable Orlando Smith has reported to the people of the British Virgin Islands (BVI) that the financial situation in the Territory is grim and is much worse than they anticipated.

During his state address to the Territory on this evening (December 6), the Premier said, “The financial state of the Territory, to put it bluntly, is not good. Fellow citizens it is far worse than we anticipated.”

According to the Premier, when the National Democratic Party took up office on November 9, they met a running deficit of some $51 million that had been incurred by the previous Virgin Islands Party (VIP) Government.

Premier Smith said that this was the case, despite the VIP’s full knowledge that revenue collections were down during the same period.

“Of this running deficit, our findings are that there are unpaid bills for capital projects to the tune of some 19.8 million dollars. As we peeled away the layers on this commitment we have to date identified some 14.8 million dollars in individual contracts signed, a large portion of which were petty contracts signed by my predecessor in the waning hours of the last administration. Coupled with this, are numerous project overruns and variation orders that made a mockery of budgetary allocations, compromised the execution of other projects and severely weakened the fiscal position of the Government of the Virgin Islands and by extension, the prospects for the immediate future for you the people of these islands,” Premier Smith revealed.

He explained that cash balances as of November 4, 2011 were slightly over $40 million, but when this is taken in the context of the running deficit of $51 million, it presents a picture that is worthy of serious concern.

It was noted that current projections by the Ministry of Finance indicates that based on the spending patterns thus far for the year, the total revenue will be in the region of $268 million.

“This is a shortfall of 18 million dollars compared to what was budgeted and approved by the House of Assembly for the 2011 fiscal year. Recurrent, that is operational expenditure, is anticipated to be in the region of $264 million with capital expenditure at some $46 million.”

According to the Premier, these figures represent a three percent increase over last year’s recurrent expenditure and a 50 percent increase on last year’s capital expenditure.

He noted that this compromising fiscal position has resulted in the Virgin Islands breaching the liquidity requirements of the borrowing guidelines agreement signed between Her Majesty’s Government and the Government of the Virgin Islands in 2005, and thus preventing any additional debt or in this case, borrowing, from being placed on the books of Central Government without the express permission of the Foreign and Commonwealth Office (FCO).

“Ladies and Gentlemen, it is important to note that according to the Auditor General’s report 2007, when my Government left office in 2007, we left healthy cash balances of $82 Million and that we were compliant with all the provisions of the borrowing guidelines. Indeed this same report showed that there was a surplus of close to $407,535 in that year. The current breach of the borrowing guidelines potentially has very serious implications for our Territory as it suggests that we are on a path of un-sustainability,” the Premier explained.

Budget for the New Year

Meanwhile, the Premier promised that his administration will complete the preparation of the 2012 budget in the New Year. He also noted that after consultation with his colleagues and with Her Majesty’s Government, he will present the NDP’s strategies, plans and programs detailing how they intend to proceed with fixing the economy.

“On 7th November 2011, you entrusted this Government with the responsibility to lead this country and to be in your service for the next four years. This is a distinct honor and trust and we do not underestimate the gravity of this responsibility I therefore reiterate my solemn promise to do all in our power to rebuild an economy that is vibrant, where fairness and justice prevail, and where the future of our children promises to be better than it is today,” the Premier said.

According to Dr. Smith, his Government has many many challenges ahead due to the lack of any financial resources. The Premier also pointed out that his Government met a high stack of financial commitments and bills waiting to be paid.

“Recognising that Government is a ‘trust’ and an institution with obligations to its citizens; in the time honored traditions of this Territory, as Minister of Finance and Premier I have a responsibility to honor the debts legally incurred by the previous Administration.”

He reiterated that his administration will continue with an independent and in-depth review of the current fiscal position of the Territory.

Dr. Smith also pointed out that even though the BVI has had an average economic growth rate of some six percent, before 2009, they country experienced a negative economic growth in the double digits (around 11 percent) with the arrival of the global recession.

He said that Government’s revenue decreased by some four percent in 2009 from the previous year 2008.

“Despite the contraction in the economy and the subsequent decrease in revenue realised by the Government of the Virgin Islands, we experienced an average increase of some 10 percent in operating expenditure, with wages, salaries, and the cost of goods and services to the public accounting for some eighty percent (80 percent) of this expenditure. This is an untenable situation. In simple words this cannot continue.”

The Premier noted that he is very troubled by the manner in which the previous Government effected its policy as he noted that public infrastructure investment cannot be defined by the personal favors that are granted to individuals at the expense of the taxpayer; the circumvention of checks and balances in the system created to promote transparency and value for money under the guise of expediency; nor does it involve pork barrel projects that are in effect conceived to promote the political life span of individual members in the House of Assembly.

Tourism and Financial Services Suffered

The Premier pointed out that the two industries that sustain the BVI - tourism and financial services were not managed properly by the previous government.  

“We should have ensured that those sectors were being managed in a way that allowed revenues to flow into the Territory rather than trying to create an economy out of the finite resources of the Treasury.”

These two industries he said suffered significantly in recent years with tourist arrivals falling consistently each year from 948,425 in 2007 to 842,497 in 2010. It was noted that company incorporations fell from 77,033 in 2007 to 47,477 in 2009 and then began to improve, coming in at 59,624 in 2010.

“The figures which I have just quoted to you illustrate quite clearly that either through neglect, insufficient work or investment on our part or overwhelming competition, we have been losing ground in the two main industries of this Territory.”

According to the Premier, he is immediately putting in place initiatives to get the economy going again, to get the tourism moving and to get the people fully employed.