“In my opinion, the focus of the 2021 National Budget should be on stabilising the economy, addressing the issues of the vulnerable groups and economic recovery”.
It is budget time again. It will be the 2021 National Budget. The public eagerly awaits the Budget Speech, as delivered by the Minister for Finance, detailing government’s policies, and programmes for the economic and social transformation of Grenada.
At the pinnacle of the budget presentation would be the strategy for protecting the health of the nation. The Budget Speech will obviously be the most visible. The other important documents would be the Estimates of Revenue and Expenditure and the Appropriation Bill.
On Budget day, the public will be informed of how the government intends to raise revenue to finance its expenditure for 2021. The Budget Speech will provide information on government’s priorities for 2021 and its taxation policy. The action of the government to raise revenue and the direction of its spending will impact on all in the economy, either as individuals, households, businesses, and both government and non-governmental organisations.
The finalisation of the 2021 budget should be at an advanced stage. The Finance Committee of Parliament, based on the Public Finance Management Act, should as of 1st November 2020 be thoroughly examining the Estimates of Revenue and Expenditure for 2021.
The Finance Committee by then should have the Medium-Term Debt Management Strategy (2021–2023), which provides a comprehensive analysis of the public sector debt, the risks inherent in the debt and the Government’s strategy for mitigating the risks.
In this Covid-19 recessionary environment, what are the expectations for the 2021 National Budget? Fundamental to the presentation of the Budget is a comprehensive assessment of the current and forecasted economic and social conditions.
The Covid-19 crisis has resulted in a steep decline in GDP and in serious social dislocation particularly in the areas of employment, education, and many social activities. The result of this assessment will determine the priorities for the 2021 Budget and in the medium term.
In my opinion, the focus of the 2021 National Budget should be on stabilising the economy, addressing the issues of the vulnerable groups and economic recovery. While doing this, government should also be remodelling the pillars for transforming the economy by undertaking a thorough and critical examination of the National Sustainable Development Plan.
In stabilising the economy, a primary focus should be on halting further decline in incomes and by extension GDP. However, while addressing the decline in incomes, the stabilisation of the economy should be extended to the social sectors particularly education and health.
The education sector has been displaced, the health services inadequate and the informal sector has been left in distress. The stabilisation programme must be well integrated with the recovery strategy.
The recovery strategy should immediately focus on increasing employment and reducing imports (which are foreign exchange leakages) by consciously developing the agriculture sector, inclusive of livestock and fishing. This should be combined with supporting and encouraging cottage type agro-processing which could be undertaken in small facilities. However, the objective should be to reduce the import bill while generating employment. This will allow for the informal sector and other vulnerable groups to be integrated in the recovery strategy.
The 2021 National Budget should indicate the technical and financial support, and any incentives that will be provided to facilitate the development of a technologically driven agricultural sector and the accompanying agro-processing. On the marketing side, is there a role for a transformed National Marketing and Importing Board? An output from the budget should therefore be a well-designed development package for agriculture, inclusive of livestock and fishing.
As a small and open economy, there is a need to earn foreign exchange. Therefore, Grenada needs to produce goods and services for export. There could be scope for the export of non-tourism services. Professional services such as legal, medical, accounting, tutoring, culture, web design and data analysis could be exported virtually.
The legislative and administrative requirements to access external markets should be investigated. The government could, through its overseas missions, facilitate the export of these professional services. These could be promoted to reduce the high dependence on tourism.
In stabilising the education and health sectors, structures and systems that would transform the economy should be established. Immediate attention should be given to the students that may be dropping out of the education system due the Covid-19 related approaches to teaching. The issue of equitable access to education outside of a classroom setting must be a priority to avoid worsening the long-term outcomes for already disadvantaged groups.
The budget must also address the need for a remodelling of the community health centres with the objective of reducing the demands on the General Hospital. A blend of telemedicine and physical medical attention along with a widening of the range of services will need to be considered. A pronouncement on the National Health Insurance would need to be included in the budget as the consultative process began in 2020.
The budget will also need to focus on protecting the environment and developing the infrastructure of the country including the electronic infrastructure. It would be an appropriate time to provide information to the public on the impact, economic, environmental, and social, of the large tourism projects in Levera and Mt. Hartman and their consistency with the National Sustainable Development Plan.
The financial resources to facilitate the economic recovery will extend beyond the government. However, along with its direct responsibility for financing the budget, the government should include in the budget any policies of the financial institution for supporting the recovery process.
The financing of the 2021 Budget will need to be presented with clarity. Domestic revenue for 2020 will be substantially reduced when compared with the budgeted amount. Domestic revenue is not expected to increase significantly in 2021. If grants are available these should be readily utilised.
For the 2021 Budget, consideration should be given to renegotiating the alternative use of grants to deserving areas in light of the Covid-19 crisis. However, inflows of grants along with the domestic revenue will not be adequate to finance government’s total fiscal operations in 2021; inclusive of the required repayment of principal on debt. The government will therefore need to seek financing for the 2021 National Budget.
The first area to be tapped for financing is the reserves, that is, savings from previous budgets. Are there such available resources?
Additionally, the budget should state how the resources from the National Transformation Fund will be used to finance the stabilisation and recovery strategy.
Contracting new debt to finance government operations in 2021 should be a last resort; but this will be the ultimate if there are no alternative sources of financing. Contracting debt will most likely be the option available to the government. A resort to debt financing has implications for the debt to GDP ratio, which in this Covid-19 recessionary environment, is already higher than the targeted fifty-five (55) percent of GDP.
In this context, a pronouncement will need to be made on the fiscal policy framework and the Medium-term Fiscal Framework. In addressing the policy framework, the Minister for Finance should provide information on whether the budget for 2021 is guided by the Fiscal Responsibility Act. The fiscal rules and targets were suspended in March 2020 for one fiscal year.
With the suspension of the rules and targets, the Fiscal Responsibility Act makes provision for a Recovery Plan Memorandum to be submitted to Parliament. The Budget will need to outline the content of the Recovery Plan Memorandum and indicate whether the suspension of the rules and targets is extended to 2021.
The Covid-19 crisis has provided opportunities. It is therefore an appropriate time to examine the Fiscal responsibility Act for its consistency and transparency and as a policy instrument to facilitate economic development and transformation. With protecting the health of the nation at the pinnacle, a well-integrated economic stabilisation and recovery strategy should be the focus of the 2021 budget. This strategy must be consistent with plans for developing and transforming the economy.
Knowledge is power and experience is the greatest teacher.
Laurel Bain is a Grenadian-born former economist with the St. Kitts-based Eastern Caribbean Central Bank