The Virgin Islands has responded possibly to the final report prepared by Michael Foot who was asked by Her Majesty’s Treasury in November 2008 to conduct a review of the British Offshore Financial Centres. For the most part, the report makes sweeping recommendations in relation to diversifying the tax base, taking control of public spending and improving financial forecasting and data collection. Premier Ralph T. O’Neal, who bears responsibility for matters of Government’s finance, appears pleased with the findings and has signaled his Government’s intention to implement the recommendations suggested in the report. Residents of the Territory should feel enchanted by the confidence expressed by Governor David Pearey who seemed certain that the Government will make the necessary changes to stay ahead of the increasing requirements placed on financial jurisdictions. 

In the same breath, residents should also be mindful of Foot’s recommendations on taxes especially since discussions have started locally to address this issue. Tax discussions also draw measured opinions and legislators are always going to painstaking lengths to explain the necessity of taxes. With the Foot recommendations, the Government will be forced to act sooner rather than later. Government will have to act not only on taxes, but on the current arrangement on the pension scheme. Premier O’Neal has stated that the pension bill is something that is looming as a monstrosity, noting that very soon the Government will have to “cross the bridge” to address the non-contributory set up of the current pension plan.

The fact that Foot sought to sound a warning that parties in the review process must not become complacent is advice which may have also been directed to Her Majesty’s Government.

Foot reviewed the three Crown Dependencies and six Overseas Territories, including the Virgin Islands. He noted that the jurisdictions are facing the worst global economic downturn for over 60 years and intense international focus on the operation of their respective financial centres.

Foot seems to suggest that he may have anticipated a financial nightmare in the countries under review, but what he found for the most part were resilient economies and may have thought it best to encourage the states.

There are states such as Anguilla, the Cayman Islands and the Turks and Caicos Islands which are of great concern to Her Majesty’s Government as public sector cash reserves are disappearing. According to the report, Bermuda and the Virgin Islands have also experienced a decline in Government income, but the impact has been less severe.

According to the final report, decisions taken by some of the Overseas Territories to use increased revenues to raise current and capital public spending, sometimes combined with insufficient attention to data quality and the absence of robust medium-term planning, has left local governments facing difficult short-term choices to restore the public finances.

However, there are areas which are not usually under public scrutiny that will ensure that the Territory does not become complacent.

The VI has been found wanting in relation to data collection. A few weeks ago, Financial Secretary Neil Smith said the Territory need to have a strong group of economists with empirical or quantitative type background who can properly analyse the statistical data of the Virgin Islands.

This is a critical recommendation that must be followed if the Virgin Islands is to remain vigilant and spend wisely.

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