It is the sixth month of the 2021 fiscal year and the financing for the repurchase of the WRB shares in GRENLEC by the Government of Grenada remains a mystery. The lack of comprehensive fiscal reports inhibits assessment of government’s financial operations, and in this case, the financing of the WRB transaction.
The Government informed, on various occasions, that the sources of financing the WRB repurchase transaction were savings, grants and concessionary loans. The Fiscal Summary Report for December 2020 and the Debt Reports for 2020 and the first quarter of 2021, as published by the Ministry of Finance, did not provide any information that would allow for the identification of the sources of financing for the WRB financial transaction.
In the previous article on this subject, the conclusion was that the WRB transaction was not financed by ‘grants’. With ‘grants’ eliminated as a source of financing, there are two other options for the financing of the WRB transaction: borrowings, and/or the utilisation of accumulated savings as stated by the Government. An assessment of whether the repurchase was financed by loan is now undertaken, by an examination of the use of loans to finance the 2020 budget gap.
The financing gap arose as grants ($103.1M) and the surplus on the current or operational account ($38.8M) were insufficient to finance the abnormally high capital expenditure of $269.9M. Specifically, there was an overall budget deficit of $128M for 2020. This deficit does not take into account principal debt repayment of $190.9M for 2020. The principal debt repayment taken together with the overall budget deficit resulted in an estimated overall financing gap (budget gap) of approximately $319M for 2020. This meant new resources had to be found to cover this financing gap.
In general, a financing gap can be closed through additional borrowings (from domestic and/or external sources), use of reserves or through the accumulation of arrears. The omission of the financing component in the Fiscal Summary Report meant that no information was provided on the source(s) of financing to close the budget gap.
However, based on the information in the quarterly Debt Reports, it was estimated that new loan disbursements totaled $176.1M in 2020 which partially closed the financing (budget) gap leaving the sum of $142.5M still to be financed (See Table). In the absence of the financing component in the Fiscal Summary Report, the additional source(s) of funds for financing the 2020 budget cannot be determined.
Financing for the 2020 Budget
Calculated from Fiscal Summary December 2020 and Debt Reports for 2020 published by Ministry of Finance.
Although money is fungible, the Debt Reports from the Ministry of Finance did not indicate whether any of the loans received by the Government of Grenada in 2020 was used to repurchase the GRENLEC shares. In fact, these loan funds were mainly (78%) from multilateral institutions for managing the Covid-19 Pandemic. Specifically, the Government received approximately $60.5M from the International Monetary Fund (IMF), $54.3M from the International Development Association (IDA) and $29.9M from the Caribbean Development Bank (CDB).
The Debt Report for the fourth quarter of 2020, the period during which the WRB transaction occurred, showed loan disbursements to the Central Government of only $13.7M. Clearly, this was far less than the amount required for the financing of the WRB transaction.
Similarly, the Debt Report for the first quarter of 2021 did not attribute any of the $127.9M in new loan disbursements to the WRB financial transaction. This debt was associated with disbursements for emergencies arising from the Covid-19 Pandemic and for the St. George’s Road and Airport Upgrade Rehabilitation project.
As at the end of March 2021, the various publicly available Debt Reports from the Ministry of Finance have not attributed any new loan disbursements to the repurchase of the WRB shares in GRENLEC by the Government of Grenada. This provides another partial insight to the financing of the WRB transaction. If the Debt Reports from the Ministry of Finance comprehensively capture Central Government’s debt transactions, the repurchase of the WRB shares in GRENLEC by the Government of Grenada was not financed by loans.
The reports published by the Ministry of Finance are incomplete to allow for a thorough analysis of the state of the government finances. As indicated, the inclusion of the financing component in the Fiscal Summary Report is necessary to determine how the budget gap for 2020 was closed.
The sources of financing need to be explicitly stated in the reports. It is only through the publication of comprehensive public sector accounts that the financing of the 2020 Budget, and by extension, the repurchase of the WRB shares in GRENLEC by the Government of Grenada would be unraveled.
In keeping with the legislative and administrative requirements for the publication of the public accounts, comprehensive information for 2020 should be available by October 2021. The Accountant General is required to submit the public accounts for 2020 to the Director of Audit by June 30, 2021, and the Director of Audit is then obligated to submit the public accounts to Parliament for review, through the Minister of Finance in October 2021. Fiscal reports should include information on the source of financing for the budget gap for 2020.
Until timely, accurate and comprehensive reports on Government finances are presented to the public, fiscal transparency is compromised, and the WRB financial transaction would remain an unsolved mystery.
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