I hope that many Virgin Islanders, belongers and other residents have taken the opportunity to access the government’s recently released and much improved Budget Report. It lays out developments in the economy over recent years and presents a coherent framework for the analysis of fiscal developments in the future, including steps to be taken to ensure good governance and accountability. It also indicates that a three-year medium-term budgetary plan in the works will form the basis for future budgetary reports.
The most worrying fact that emerges from the Budget Report is that from 2002 until 2012, the national debt of the Virgin Islands has risen from $ 40 million to $112 million. Handling this debt requires debt servicing (i.e., interest payments) and the amortisation (i.e., the repayment of the sum borrowed). As such, it is a claim on future revenues of the government (taxes and other fees levied on VI companies and residents). The debt liability thus amounts to about $4,000 per capita or about $8,000 per registered voter.
Government revenues for the servicing and repayment of debt (among other needs, such as providing education) are heavily dependent on the financial services sector, which provides nearly two-thirds of the total. What if the financial sector were to suffer a setback and revenues from this source stagnated or even declined? Then, taxes, fees and licences would have to rise elsewhere to pay for government expenditures (including wages and salaries and debt service and debt repayments). If so, then payroll taxes might have to be raised, and the possible introduction of a VAT or sales tax considered.
If government debt incurred were to finance productive investments, then VIslanders, belongers and other residents should probably assuage their concerns about incurring further debt in the period ahead. But the record is not particularly encouraging. The new hospital has been much delayed, is way over budget, and only now is the BVI Health Services Authority starting to consider the longer-term implications for staffing and costs. Any shortfalls in the accounts will require increased transfers from the government, another claim on government revenues. And the BVIHSA apparently has a staggering $28 million in bills to be collected for services rendered in the past. The greenhouse project is another prime example of a failure to do serious economic analysis while a debt obligation was incurred for which interest payments and repayment are now being incurred.
So, any VIslander, belonger or other resident should justifiably be concerned about the implications of government plans to expand and extend the airport, to extend the cruise pier, to redevelop the West End ferry terminal, to build a golf course and solar farm on Anegada and so on. Thus, the government needs to demonstrate to voters and residents that it has done its homework in the form of a serious and “robust” cost-benefit analysis on each of these projects. After all, the objective of such an analysis is to provide reasonable assurance that the economic and societal benefits of the project will provide the wherewithal to service the debt incurred and repay the principal amount without recourse to increased tax rates, licences and fees elsewhere in the economy.
The government’s present attitude (which is consistent with that of previous administrations) is to say, “Trust us, we know what we are doing.” But do they? A shroud of mystery seems to surround the projects being touted with much “spin doctoring” in the House of Assembly and elsewhere in the media, but precious little information is being furnished of any substance. For example, the Berger Group report on the airport only became available because it was leaked to The BVI Beacon and it did not even analyse Option 6, the government’s preferred option. It is difficult to see how the outdated Berger report can be presented as a serious and “robust” cost-benefit analysis of the project. But this line of argument seems to receive short shrift from the government.
So, I, for one, remain apprehensive about the way fiscal and development policy is being conducted in the territory and the future tax burden for VIslanders, belongers and other residents that may be involved if projects are not subject to due diligence.
Mr. Wickham worked as an economist for the International Monetary Fund for 30 years, principally in the Research Department, where among other issues he worked in collaboration with the World Bank on sovereign debt problems of developing countries. He and his wife retired to the VI eight years ago after holidaying here for many years.