The World Bank has forecasted the “deepest global recession in eight decades” because of the Covid-19 pandemic, and the Virgin Islands is not exempt. Estimates show a $22 million dip in anticipated government revenue in 2020 even after a $40 million stimulus grant from the BVI Social Security Board, Premier Andrew Fahie said last Thursday during his annual budget address.
But Mr. Fahie nevertheless offered an optimistic view of a “stable, diverse, competitive economy” as he outlined a $402 million budget for 2021 that includes about $325 million for recurrent spending; nearly $63 million for capital expenditure; about $1.9 million in contributions to statutory funds; and almost $12.5 million towards repayment of the principal on the territory’s debt.
Out of the nearly 21 months since Mr. Fahie’s administration took office, it has spent about half that time contending with the Covid-19 pandemic. Mr. Fahie offered a snapshot of how it all affected the territory’s economy during his address.
“Simply put, this budget is about our competitive economy, our partnerships, and the building and advancement of our people,” he said.
Revenue down
Because of the impact of the pandemic on business, government revenue was substantially lower than anticipated, Mr. Fahie said.
Draft estimates project 2020 revenue at $340 million — $22 million less than initially projected and 6.65 percent lower than the actual revenue in 2019, according to the premier.
The projected 2020 revenue from taxes on goods and services declined by $38.75 million compared to 2019, and income and payroll tax revenue is expected to drop by $7.49 million, he added.
Earnings from the Tourist Arrival Levy also took a hit, falling by $1.8 million compared to initial estimates, and cruise permit revenue fell short by $3.3 million, according to the premier.
Mr. Fahie said these revenue decreases weren’t surprising given the territory’s reliance on tourist arrivals.
“What these numbers are telling us is that we need to move with haste to diversify our economy and build our economic resilience,” Mr. Fahie said.
Spending spike
At the same time revenue dipped, spending was up from what was budgeted.
Mr. Fahie said the estimated recurrent expenditures totalled $366.5 million for 2020, a 12 percent increase over budget and a 19 percent increase over 2019 figures. That spending includes $57.4 million categorised as Covid19 prevention (see sidebar), $40 million of which came in the form of a one-off stimulus grant from the BVI Social Security Board.
The ministry to receive the largest share of the recurrent expenditure budget in 2021 will be the Ministry of Natural Resources, Labour and Immigration, in part because it will take on responsibility for a “National Health Scheme,” Mr. Fahie said, though he did not provide further details about the scheme.
“The reassignment was also done to allow the Ministry of Health and Social Development to increase its focus on health care and public health during this Covid19 era,” he added.
Though the numbers provide a basic understanding of the territory’s economy, the government financial toll doesn’t tell the full story, the premier explained.
“This does not reflect the financial losses and emotional toll Covid-19 has had on individual citizens,” Mr. Fahie noted.
Looking ahead to the 2021 budget, Mr. Fahie said the Ministry of Finance projects an estimated overall revenue of $332.3 million, with $309.9 coming from taxes and the remaining $20.4 million from other sources (see sidebar).
Money management
The premier said government has “no regrets” in how it has responded to the pandemic so far.
“The numbers show prudent fiscal management, because the situation could easily have turned much worse had your government not taken the tough decisions to minimise the level and spread of Covid-19 measures in the territory,” Mr. Fahie said. “Notwithstanding this, the BVI’s economy remains intact and full of promise.”
Central government debt stands at $149.11 million, according to the premier. He said $97 million of that is foreign debt, and $52 million is local.
The Ministry of Finance projected a Consolidated Fund balance of $41.6 million, he said, adding that total cash and investments were at $208.3 million.
Mr. Fahie also said the operating line of credit remains paid in full, and the accounts payable balance was “nil.”
Comparing this year’s budget address to last year’s, Mr. Fahie said, “It goes without saying that the Covid-19 pandemic disrupted and depressed business activity. Revenues shrunk. At the same time, priorities had to be reorganised and funding reassigned to more critical needs.”
He said “sacrifices were made” to help government workers retain their jobs, often while working from home, and government also had to make cuts to most expenditure heads.
However, Mr. Fahie noted that at the BVI Ports Authority, daily-paid workers will have their salaries restored to their pre-pandemic amounts starting next month.
In the future, he added, government plans to modernise internal revenue management systems to more effectively collect revenue.
“This would mitigate the leakage of millions of dollars that have been going uncollected for many years due to the limitations of the existing apparatus,” Mr. Fahie said.
Airport expansion
Though the tourism industry has been struggling without external tourism, the premier promised to get to work on several projects for the industry, including expanding the Terrance B. Lettsome International Airport and the cruise ship pier.
Mr. Fahie said an important element of supporting the airport as the primary gateway for visitors entering the territory amid the pandemic and into the future is a “Capital Improvement Programme” for the facility.
He did not directly say this programme would include the long-promised expansion of the airport runway, but he said it “will permit tourists and investors to fly nonstop to the BVI, not just from San Juan, but from anywhere in North America and Western Europe such as New York, Toronto and London, just to name a few cities.”
He said $158 million allocated through the CIP — which he said would be a top priority in 2021 — would facilitate improvements to the runway, taxiway, aircraft parking, terminal, car park and roadway.
The projects are expected to enter the design phase starting in October 2021, and to be completed by the end of 2025, he said.
“The CIP will require financial support from the central government, but the preliminary economic impact studies show that our investment in the Terrance B. Lettsome International Airport’s CIP would quickly pay off,” Mr. Fahie said.
He added that projections indicate the improvements would create an estimated 14,000 jobs by 2030, compared to the 2,700 positions held there in 2019. Tax revenues driven by the airport under the CIP, he added, are projected to rise from $12.6 million in 2019 to $61.7 million by 2030, meaning the facility wouldn’t need government subsidies by 2028.
Even without that investment, he added, next year government will start paying $5 million annually to the BVI Airports Authority to support its operating budget amid the pandemic, and anticipates paying for technology upgrades and repaving the Virgin Gorda airport runway.
Pier expansion
Mr. Fahie also gave updates on the territory’s marine ports. He said the VI must prepare to accommodate “mega-sized” cruise ships that the existing Tortola cruise pier can’t handle.
“For the BVI to remain competitive and build resiliency in the Caribbean cruise sector, the development of a new pier must be a top priority,” Mr. Fahie said.
The BVI Ports Authority hired cruise industry firm Bermello Ajamil and Partners last month to help with planning the mega-cruise ship pier and ancillary food, beverage and retail facilities at Cyril B. Romney Pier Park, according to the premier.
The new pier, he said, will be able to accommodate luxury ships like the OASIS of the Seas, a Royal Caribbean vessel with a capacity for 6,300 passengers, and Carnival Cruise Line’s “Excellence Class” ships, which can carry 6,500 passengers.
Based on projected growth in the mega-cruise ship and airport capabilities, the BVIPA also issued a call for expressions of interest to develop a new luxury hotel and conference centre on a 27,281- square-foot parcel of land on the waterfront at the pier park. Two companies were shortlisted to submit proposals by Jan. 29: the VI firm Meridian Construction BVI and another company the premier identified only as “GPH.”
Infrastructure projects
The premier also explained some of the other projects expected for the upcoming year, many of which are part of the territory’s ongoing recovery from Hurricane Irma.
He said central government will be responsible for 59 percent, or $30,905,200, of the planned infrastructure development, while the Recovery and Development Agency will handle 41 percent, or $21,437,400.
However, the many recovery projects he listed are projected to cost much more than the $52 million, and it is unclear how they all will be funded. The premier made no mention of the £300 million United Kingdom loan guarantee first offered in November 2017 to assist with the recovery, which the VI still has not accessed even though Mr. Fahie and his predecessors have stated repeatedly that they were in related negotiations with the UK.
The RDA, which the HOA established to guide the recovery, has been underfunded even for the downsized $186.9 million plan the government adopted in June in lieu of a previous $580.8 million version.
Last Thursday, Mr. Fahie said a key project for the coming year is rehabilitating the Ralph T. O’Neal Central Administration Complex to enhance indoor air quality and make the facility more functional, though he didn’t offer a deadline. Government, he added, will also continue with repairs at satellite offices.
Mr. Fahie also promised to pursue several other projects: constructing the Halls of Justice; ensuring customs facilities are properly outfitted; providing new housing for the Department of Disaster Management and the National Emergency Operations Centre; enhancing the Road Town Fire Station; repairing police stations at Anegada, Road Town and the marine base; and building a new facility for the police headquarters and Road Town station.
“This will provide a more resilient facility with all the necessary modern amenities required,” he said.
Additionally, he promised accompanying technological innovation at government facilities, including a review of the National Health Insurance system; negotiations with telecommunication service providers starting in 2021; and improving the stability and sustainability of electricity, water and sewerage services.
In education, government plans to allocate funding to construct a new Jost Van Dyke Primary School and Isabella Morris Primary School with supporting donor funding; repair the Bregado Flax Educational Centre; develop a modern performing arts centre; rehabilitate cultural and historic sites; and improve recreational and community centres.
Government also intends to develop tourism infrastructure, particularly in Cane Garden Bay, Carrot Bay and the Copper Mine ruins on Virgin Gorda. Mr. Fahie also promised upgrades to ferry terminals.
Financial services
Turning to the other pillar of the VI economy, financial services, Mr. Fahie said the industry is not as stable in supporting the territory as in the past. Ongoing issues, he explained, were exacerbated by the 2017 hurricanes.
“The past years, we have seen how external threats have emerged, endangering our financial services industry,” he said. “The reality is that these attacks are slowly chipping away at the features that give our offerings competitive advantage. And the price for these actions is the loss of jobs for Virgin Islanders, loss of business and loss of revenue to the territory. Those whom we expected to protect us from this barrage have not done so.”
Revenue from corporate registrations continued its downward trend of recent years, totalling $168.9 million, $26.5 million less than initially projected or $29.8 million lower than 2019. He did not indicate if that revenue included an estimate for losses between now and January.
Mr. Fahie gave kudos to the “hard-working professionals” in the financial services sector navigating the economic fallout.
“This industry has been constantly bombarded with threats associated with blacklisting, publicly accessible registers of beneficial ownership by 2023, the Brexit deal — or no deal — and other direct and indirect activities,” he said.
He added that industry professionals are exploring ways to make VI financial services more competitive, but cautioned that their efforts won’t “bear fruit overnight.”
In the future, he added, corporate entities will be able to showcase their sustainable business models through environmental, social and governance-focused registers in the VI, among other measures. Mr. Fahie said this plan is part of the industry’s work to promote innovation in the sector and meet the needs of corporate entities that value sustainability in finance.
Companies can also support emerging technologies and services in the territory with the recent introduction of a financial regulatory sandbox, according to the premier.
“This enhanced landscape will be of benefit to both locally and internationally based start-ups and entrepreneurs who are seeking to explore the FinTech arena,” he said. “These services will benefit the local economy and expand digital adoption and the availability of digitally native services.”
He continued, “As our traditional sources of revenue are being challenged by the pandemic and other factors, we must look to innovation in our key sectors and to non-traditional sources of revenue and leadership.”
As did Governor Gus Jaspert in his Speech from the Throne, Mr. Fahie said the VI aims to become a leader in the regional economy by 2025, “through innovation, entrepreneurship, and local and foreign investment.”
Looking back on 2020, the premier also celebrated various projects funded this year.
They included procuring laptops for children to use while schooling from home; hosting the first-ever virtual August Emancipation Festival and other online events; launching a tourism and culture month this November; distributing scholarships; conducting training in marine and solar programmes; and repairing recreational facilities.
He said government has also made progress in bringing audited financial statements up to date and settling outstanding bills due to companies, vendors and individuals.
“In their frustration, a few persons were contemplating taking the government to court to recover that which was rightfully and justly theirs all along,” Mr. Fahie said. “Your government devoted efforts to a proactive approach to resolving as many of these issues as we could.”
The premier highlighted some legislative milestones as well, including the passage of the Trade in Endangered Species (CITES) Act, 2019; the accreditation of BVI Health Services Authority and opening of Nurse Iris O’Neal Medical Complex on Virgin Gorda; passage of the Medical Act, Nurses and Midwives Act, and Red Cross Act; Road Town infrastructure upgrades to address traffic congestion; breaking ground on Market Square; and supporting the First Step Programme for Entrepreneurs.
“We have also done considerable work to prepare for the rebuilding of the Palm Grove Shopping Centre in Road Town,” he added.
He said the government’s budget is poised to support the upcoming legislative agenda outlined in the Speech from the Throne.
Adapting
Given the effects of the pandemic during the past eight months and timelines for the distribution of an effective vaccine to curb the virus’ spread, the premier said the VI will have to find a way to reposition itself “in a world where Covid19 and similar threats are the new regular, and where lives take priority.”
“We have to critically reassess business models that have worked for decades before the emergence of Covid19, but which metrics are incompatible with the present-day realities,” he said. “What may have worked in the past does not necessarily hold true for the future.”
He added that the territory must work to be more resilient against hurricanes, pandemics, changes in international policy and politics, and any other influences, especially when external help isn’t always guaranteed.
The premier said he aims to promote other economic opportunities for community members through the promised Micro-Business Companies Act; investments in fishing and agriculture; a new gambling industry; a new medical marijuana industry, hinging on gubernatorial assent; and other sectors.
Government is also in the midst of developing terms for a “BVI In-Stay Programme,” allowing visitors to stay for longer periods, especially those who can work remotely for their home countries while not taking away jobs from VI residents.
Mr. Fahie expressed hope for how innovations to the territory’s economic structures can help it get ahead amid monumental challenges.
“We will innovate and we will re-emerge stronger,” he concluded.
The Appropriations Act, 2021 now goes to the Standing Finance Committee for review before the House gives its final approval of the new budget.
Opposition Leader Marlon Penn did not respond to a request for comment before the Beacon’s deadline.