Finance Minister Ardwell Irion.
~ NAf. 108.4 million less income predicted ~
PHILIPSBURG--Finance Minister Ardwell Irion painted a grim picture facing the country as a result of the coronavirus COVID-19 pandemic and the “new reality”, while presenting the draft 2020 budget to Members of Parliament (MPs) in a meeting of the Central Committee of Parliament on Saturday.
Irion said the draft 2020 budget has not been without its obstacles. A first version came into existence in 2019 under the previous Minister of Finance, but was not submitted to parliament at that time. The new government made adjustments to the draft, but while awaiting the advice of the Council of Advice, the world was plunged into an economic tailspin with COVID-19.
“This meant that, once again the budget needed the necessary attention to comply with a situation where huge economic and social shifts occur and major uncertainties exist,” Irion said. These uncertainties included how much damage would occur to public health and the economy; when recovery can be expected to start; what will be the course and speed of the recovery; and the amount and conditions connected to the support given by the Netherlands in the pandemic.
“It is certainly not an ideal situation to develop a new budget as a management tool. Nevertheless, government saw it as its primary task to create a plan that aims to mitigate damage in the area of public health as well as in the social-economic field as it relates to layoffs and bankruptcies,” Irion said.
He said the draft St. Maarten Stimulus and Relief Plan had been compiled in conjunction with all ministries, Social and Health Insurances SZV and with external contributions like those from the Central Bank of Curaçao and St. Maarten (CBCS), the International Monetary Fund (IMF) and the World Bank.
The plan revealed a substantial decline of the country’s economy leading to layoffs, bankruptcies, and projected implosion of government income as well as an increase in expenditure.
“To put it bluntly, the total picture, given the fact that St. Maarten was already in a state of recovery after Hurricanes Irma and Maria, is not a rosy one. The 2017 hurricanes already stretched resilience of the population to the max and depleted reserves, so with this new economic and health shock with COVID-19, the urgent execution of the Stimulus and Relief Plan is slated to contribute to the rescuing of businesses and the reduction of potential unemployment.”
Less income
Irion said government’s income is expected to fall short of original estimates. It is expected to drop this year by about NAf. 108.4 million, of which NAf. 67.5 million is projected for the second quarter. Government had originally projected an income of NAf. 455.7 million. Income from civil services is expected to drop by 54.8 per cent; taxes by 21.5 per cent; permits and fines by 18.4 per cent; economic licences by 43.3 per cent; and fees from permits and spatial planning by 51.8 per cent.
Increased expenditures
As it relates to expenditures, Irion said the increase in cost caused by the COVID-19 crisis is striking. An initial gross estimate indicated that large sums are needed to mitigate the effects, but also to keep public services operational and ensure public safety.
Of the estimated damage of NAf. 258.3 million projected in the Stimulus Plan, approximately NAf. 67 million is caused by the decline in revenue in the first three months in addition to the deficit of NAf. 31 million already included in the pre-COVID-19 budget. The remaining NAf. 186 million is needed to cover medical and social cost for three months.
Netherlands support
According to Irion, the Netherlands promised support at the start of the COVID-19 crisis. In an attempt to alleviate the first need, priority was given to arranging liquidity in the fastest possible way.
At that time, St. Maarten received a positive advice from CFT regarding its compliance with the conditions that had been set for the liquidity support of 2018 and 2019, to an amount of NAf. 50.2 million. The Kingdom Council of Ministers supplied this tranche of money in the shortest conceivable time, enabling government to actively start supporting society, and St. Maarten is grateful for this.
“We all understand that the NAf. 50.2 million will not be sufficient to cover the necessary aid that has been projected in the SSRP. Therefore, it is imperative that additional funds become available. To this end we submitted our SSRP to CFT and the Netherlands government to enable negotiations.
“At this time, it is unclear when that discussion or negotiations will take place and what outcome regarding the volume of the support can be expected. The consequence of the situation we are in is that we will have to move forward cautiously and not overspend from our liquidity reserves.
“This puts an uncomfortable burden on government as well as on society that needs to be alleviated as soon as possible. As a government, we are in the process of bringing this issue to the attention of the Kingdom Council of Ministers,” Irion said.
Council of Advice
Following the COVID-19 pandemic, the Council of Advice advised that government not send the pre-COVID-19 budget to parliament, as it was no longer realistic.
“While the effects of the coronavirus are nearly impossible to predict at present, the council nevertheless advised to proceed with the budget to parliament including an educated guess of the COVID-19 –effects,” Irion explained.
Following the council’s advice, the budget was adjusted to include the effects of COVID-19 as stipulated in the Stimulus Plan. The needed revisions were made. In addition, the amended COVID-19 figures were added in a new column.
The section of the budget which reflects the numbers now includes the 2020 budget column pre-COVID-19 as well as a column for the presented budget with the COVID-19 effects. This also meant that the explanatory notes, which reflects the elucidation of the budget amount needing to be updated.
“While all of this leads to a substantial amendment of the budget, all changes were in line with the advice to government.”
Irion said that all in all, government has done “its best” to take the very uncertain situation as it relates to COVID-19 into account in the budget.
“How quickly we are able to bounce back and return to normal is also highly dependent on a number of external factors as they relate to the world market and our tourism product. This means that should our estimates turn out to be unrealistic, that the budget would have to be amended to reflect the new reality at that time.
We do, however, feel that the presented budget gives the best outlook that we can provide at present. The importance of having an approved budget at this time of the year cannot be stressed enough,” he said.
