Three things stood out during the Estimates Debate of 2012: (1) the ongoing discomfort of Minister of Finance Chris Sinckler with the critical issues in the budget; (2) the explanation given for the shortage of funding to the University of the West Indies (UWI); and (3) the allocation of $25 million of investment income from the Barbados National Oil Company (BNOC).
Apart from the politicking that will accompany any Estimates Debate, it is essential that the Minister of Finance states clearly the broad programming intent of the Government for the coming fiscal year.
It is also important for the minister to present the outcome for the pending fiscal year and to make the clear connection with the financing requirements of the Government.
The numbers in the budget are directly linked to the economy through the provision for financing by the various agencies such as the Central Bank, commercial banks, the National Insurance Scheme and the availability of foreign financing.
Apart from this direct linkage, inferences can be drawn with respect to the budget’s effect on economic growth, employment and prices, for example, but they are only inferences.
To be able to make the link with the financing requirements, it is necessary to identify three vital budgetary allocations – depreciation expense, bad debt expense and amortization.
The first two are not treated as current expenditure for the purposes of financing. The last, amortization, is typically treated as being capable of rolling-over.
In this year’s debate, there was no clarity with respect to the gap that has to be financed on the current account, simply because the minister confused the numbers. This propensity to confuse the numbers comes from a lack of preparation.
In properly preparing for the debate, Sinckler would have recognized that the Government intends to spend $297 million more in the coming year 2012/2013 than it spent this fiscal year. This observation makes it clear that the Government is betraying the remark: “Government will continue its fiscal consolidation as guided by its revised Medium Term Fiscal Strategy 2010-2014”.
Once the minister was found out with respect to the allocation of $71 million for 2012/2013 for economic costs at the UWI, he delayed his reaction by three days.
He then suggested that a further $28 million had been allocated to the UWI, but it was not said that the allocation was grants for individuals. This includes money for scholarships, exhibitions, bursaries, development grants, students at Codrington College, 4-H awards, financial assistance to Barbadian students studying in Cuba and, finally, tuition fees of Barbadian students at UWI.
The mere citing of “UWI” in sub-programme 0287 on page 306 of the Estimates was enough to excite the minister of finance when it is known that financial assistance for UWI students with tuition fees is not the entire allocation for higher education awards.
The sum is still far short of UWI’s production cost.
It has been effectively argued that BNOC should not have been allowed to rake in excess profits off the backs of Barbadians from unnecessarily higher prices for gasoline, diesel and other fuel products. The debt should have been reduced more prudently, with consideration for the consumers of fuel and electricity.
In January, 2010, an agreement was reached between BNOC and BNB to raise $160 million to finance the company’s short- and medium-term obligations. Bonds were issued for a period of three to nine years in five series at fixed and floating interest rates.
The three-year bond of $25 million, which matures on December 31, was taken up by the Government and this is what explains the income investment allocation in the Estimates for the coming fiscal year. The other bonds will mature in five, seven and nine years.
BNOC’s debt is now just over $100 million. This is very manageable for a company that has made over $100 million in net profits for the last two financial years and is expected to earn more than $50 million in profit for the financial year ending March, 2012.
It is time for Minister of Finance Sinckler to let the public know the truth and nothing but the truth about the company’s finances. Please ease the prices of refined fuel products and, by extension, the electricity bills on the public now, when it matters most.