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Government is exploring other measures to curb public debt since an increase by 1.5 percent over the past two years.
During a press briefing today, May 9, Permanent Secretary in the Ministry of Finance Reginald Darius, in a PowerPoint presentation, demonstrated what the current state of the economy looked like as it relates to government spending and fiscal deficit.
Friday’s meeting was specifically organised by Prime Minister Dr Kenny Anthony and a team from the Ministry of Finance, Economic Affairs & Social Security to discuss the financial situation of the state with media practitioners.
Darius’ presentation dubbed “Budget 2014/2015 Fiscal Consolidation,” highlighted some of the “scenarios” the administration is looking at toward addressing the ongoing financial crisis.
Statistics indicated a slowdown in public debt, however, he stressed on the need for more effort to address the situation. In 2012, public debt was 72.1 percent and rose in 2013 to 73.6 percent.
The island’s fiscal deficit once stood at 9.2 percent and was considered one of the highest in the world.
Darius noted that this figure has been significantly reduced and plans are being made to reduce this even further. However, one of the major concerns highlighted during his presentation was that “current spending remains sticky due to salaries and interest payments.”
According to the permanent secretary, salaries and wages increased by two percent, while interest payments currently stands at 11 percent, goods and services at minus five percent and transfers at minus nine per cent. While noting that there was a slowdown in the growth of public debt, Darius said a greater effort is required to reverse the trend.
During the 2014/2015 financial year, government plans to enhance its debt service profile, and in doing so is expected to stabilise $227 million in treasury bills and $197 million in bonds.
Darius explained that in the 2013/2014 financial year, the government was able to increase revenue by broadening the tax base with the Value Added Tax (VAT), while improving the collection of property taxes. In addition to that, government was able to reduce current expenditure.
Spending on goods and services was reduced by eight percent, supplies four percent, communications 28 percent, transfer-subsidies by 56 percent and private sector 45 percent. Capital expenditure was also reduced and an adjustment of $26.8 per cent was made in that area.
Darius stressed that in order for the administration to address the current financial burden it is faced with it must seek to meet non-loan financing requirements of $205 million, with recurrent expenditure making up $ 76 million and the remaining $129 million in capital expenditure.
The strategy to rectify fiscal sustainability should entail “enhancing revenue collection, without additional taxation measures,” Darius recommended, in addition to performance budgeting by reducing funding for poor performing programmes.
The government is also aspiring to increase current revenue/Gross Domestic Product (GDP) to above 23 percent, and further plans to reduce the overall deficit to five percent by having lower capital expenditure.
In pointing to the possible salary cut, the permanent secretary said statistics reflect that a 10 percent adjustment in public servants’ salaries will amount to savings of over $37 million, which is equivalent to retrenchment of 990 workers and a recurrent financing gap of some $39 million. With a seven percent cut, government could save $26 million and with a five percent cut they can afford to save $18.5 million, with a recurrent financing gap of $57.5 million.
“Without wage adjustments, capital is under risk of being eliminated, which is not feasible too given the fact that remaining capital is at fixed cost. However, without a wage adjustment, the deficit will rise and the gains from last year will be lost,” he added.
Darius noted because of the present situation the country will have no proper track record to present to the market for future prospective investors.
The dialogue was that of a similar exercise held between government officials and trade unionists last Friday.