Fiscal policy, which is the main instrument of economic management, is implemented through the execution of the annual national budget; and hence the importance of monitoring its implementation.
To facilitate the monitoring of the National Budget, the Government publishes monthly data on the fiscal performance on the Ministry of Finance website www.finance.gd/index.php/fiscal-reports; and the monthly fiscal summary reports for January to March 2022 have been published.
The review of the Governments’ finances, based on the monthly fiscal reports, showed that the fiscal performance for the first three months of 2022 was favourable. The budget outturn was better than what the Government targeted to achieve.
This was influenced by higher revenue and grants associated with the ‘one off receipt in the form of dividends’ of $17.5 M in January, the receipt of budgetary support in grants of $81M in March and the increases in tax revenue during the quarter; combined with less than targeted current expenditure.
Therefore, the outturn on the current or operational account was stronger than projected, and capital expenditure was higher than the planned spending.
Specifically, Government recorded:-
(i) a current account surplus, before budgetary support in ‘grants’, of $74.1M;
(ii)a current account surplus, after budgetary support in ‘grants’, of $155.1M; (iii) a primary surplus, after ‘grants’, of $117.9M;
(iv) an overall deficit, before ‘grants’, of $3.9 M; and
(v) an overall surplus, after ‘grants’, of $109.1M.
On the current account, current or operational revenue of $224.8M in the first quarter of 2022 was 19.4 percent or $36.5M more than the $188.3M government projected to collect for that period.
The components of revenue that contributed to the higher outturn compared with the targeted amount were not provided in the report. However, with the ‘one off receipt in the form of dividends’ of $17.5M, non-tax sources of revenue were higher than targeted.
Dividends are the receipts from the distribution of profits to shareholders in companies, so this implies that the Government received such funds from its ownership of shares in a company which was not disclosed in the report.
The Government received budgetary support, in the form of grants, of $81M which boosted the financial resources available to the Government during the first quarter.
In comparing developments in 2022 with 2021, the revenue performance for the first quarter of 2022 was stronger than the first quarter of 2021.
The current revenue of $224.8M collected in the first quarter of 2022 was $47.2M or 26.6 percent more than that collected in the first quarter of 2021, due to higher revenue from both tax and non-tax sources.
The growth in tax revenue was more pronounced for the expenditure related taxes, that is, taxes on goods and services and taxes on international trade. This was influenced by the higher value of the tax base due to the impact of inflation, and an expansion in economic activity during the first quarter.
Although there were some constraints on activities during the quarter as a result of the Omicron virus, these were less restrictive and the economic and social impacts were less severe than in the first quarter of 2021. Also, in the first quarter of 2022, increased economic activity was fueled by higher Government capital spending.
With the ‘one off receipt in the form of dividends’, non-tax revenue was significantly higher in the first quarter of 2022, and the receipt of budgetary support strengthened the Government fiscal position.
Current expenditure was contained below the amount the Government planned to spend during the first quarter. Current or operational expenditure of $150.7M for the first quarter of 2022, was $10.1M or 6.3 percent less than the Government planned spending of $160.8M for that quarter.
Except for a marginal increase in transfers and subsidies, all the other components of current expenditure that is, employee compensation, expenditure on goods and services and interest payment, were less than the amount the Government planned to spend during the quarter.
When compared with 2021, current or operational expenditure in the first quarter of 2022 was $1.4M more than the expenditure of $149.3M incurred in the first quarter of 2021.
With these developments, the Government realised the current account surplus of $74.1M [before budgetary support] and $155.1M [after budgetary support] for the first quarter of 2022. This surplus was higher than the $27.5M that the Government planned to achieve for the quarter. It was also higher than the current account surplus of $28.3M achieved in 2021.
On the capital account, capital expenditure of $78M, during the first quarter of 2022, was higher than the planned expenditure of $65.2M.
The surplus on the current account and/or reserves contributed to the financing of the capital expenditure as ‘grants’ and loans, which together was $34.2M, could not finance the total capital spending.
The ‘grants’ financing was $32M, which was less than the $ 34.3M in ‘grants’ that the Government planned to spend; and the government received loan financing of $2.2M.
The capital spending of $78M in the first quarter of 2022 was higher than the $35.3M spent in the same period in 2021. At the end of the first quarter, capital expenditure was 23.4 percent of the budgeted $333.8M. If this rate of spending is sustained throughout the year, the government would spend the budgeted amount for capital expenditure of $333.8M.
With the favourable developments on the current account, with a current account surplus of $74.1M before budgetary support and $105M after budgetary support, the fiscal performance in the first quarter of 2022 was better than targeted.
The government achieved an overall deficit, before ‘grants’, of $3.9M and an overall surplus, after ‘grants’, of $109.1M for the first quarter of 2022. In contrast, the Government targeted an overall deficit, before grants, of $37.7M and an overall deficit, after grants, of $3.4M.
The following table is a summary of the Government’s finances for the first quarter of 2022 as derived from the monthly Fiscal Reports:
Source: Derived from the monthly fiscal report of the Ministry of Finance for January, February, and March 2022.
The financial resources must be carefully managed. The Court ruling on the payment of pension and gratuity to public officers would increase Government obligations, requiring additional financial resources. With the increased public obligations, fiscal transparency becomes more critical.
The presentation of the financing component of the fiscal account in the Estimates of Revenue and Expenditure for 2022 was a good start to improving fiscal transparency.
However, its omission from the reports on actual fiscal performance makes its inclusion in the budget null and void.
The inclusion of the financing component of the fiscal account in the published fiscal reports, and the operational account of the National Transformation Fund would allow for a more comprehensive analysis of the government finances.
The following relating to fiscal transparency, which was reported in previous articles, still needs to be addressed:
“However, there is a fundamental deviation from the standard practice for fiscal reports. Each monthly report needs to include a summary of the year-to-date financial position of the government as at the date of the published report. Currently, to assess the state of the government finances over a period, the data in each of the individually published monthly fiscal report must be aggregated. This practice inhibits persons who do not have the time, energy, and technical knowledge to consolidate the monthly reports from assessing the state of the government finances.”
In summary, the Government finances were favorable during the first quarter of 2022. This was due to higher revenue associated with ‘one off receipt in the form of dividends’, budgetary support, and a general increase in tax revenue; combined with less than targeted current expenditure.
Prudent financial management is critical as the Court ruling on pension and gratuity has increased the public debt and the cost of Government current operations. The scrutiny of the public finances would become even more critical.
The systems for fiscal management and providing information to the public should be implemented including the submission of the annual report of the Director of Audit to Parliament in accordance with Section 82 of the Constitution, and sections 66 and 67 of the Public Finance Management Act .
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