The cash-strapped Grenada government of new Prime Minister Dr. Keith Mitchell has admitted that the island finances are in dire straits.
In presenting the 2013 budget at the Grenada Trade Centre on Tuesday, Dr. Mitchell who previously ruled the island from June 1995 to July 2008 admitted that government’s expenditure over the years had over-run the earning capacity of the country.
“Mr. Speaker, successive Governments including the previous NNP Administrations have lived beyond their means. As a Country, we have spent more than we can afford on current operations”, Dr. Mitchell who was voted back into office in the February 19 general elections told Parliament.
“…We have tried to cushion the effects of major external shocks such as loss of trade preferences and hurricanes by borrowing. Above all, the size of government has grown beyond our capacity to sustain,” Dr. Mitchell said.
Prime Minister Mitchell who is also the Minister for Finance presented a
$1,102,243,994 tax-free Budget of Revenue and Expenditure to guide the country for the next eight months.
“The 2013 Estimates of Revenue and Expenditure provides for total expenditure (including principal repayments) of one billion, one hundred and two million, two hundred and forty three thousand, nine hundred and ninety four (1,102,243,994),” Mitchell announced.
The 2012 Budget presented by former Finance Minister Nazim Burke was $ 1.023 billion.
Faced with a severe financial situation, the Mitchell government was forced in March to default on a payment of EC$19 million to its creditors and to announce that it will have to engage in talks with creditors to restructure the island’s staggering debt of EC$2.3 billion.
It will be the second time in eight years that Grenada has been forced to negotiate with its overseas creditors to take a “hair cut” in the island’s debt obligations to them.
In his address lasting just over two hours, Prime Minister Mitchell who is also the Minister of Finance said that the NNP administration is seeking to address the financial woes facing the nation through the building of a “New Economy” that requires that “Government put its fiscal house in order”.
“This process must commence now. With laser-like focus, I have led a determined effort to cut recurrent expenditure in the preparation of this Budget”, he said.
The Prime Minister added that there will be a cap on hiring in the public sector as government is determined to keep tight controls on its expenditure.
The overall budget projects a Recurrent Revenue of $477.0 million, Recurrent Expenditure: $441.1 million, Current Account Surplus or Transfer to the Capital Budget: $32.9 million, Primary Deficit (before Grants): $169.2 million, Capital Expenditure: $262.4 million, Principal Repayments/Amortization: $395.8 million, and Overall Deficit (including Grants): $154.4 million.
Dr. Mitchell said the Overall Deficit of $154.4 million or 6.9 percent of GDP will be financed from domestic and external sources and is necessary at this time to get the economy growing again.
He did not identify the specific financial sources that the government is looking to tap into for the 2013 budget.
The five largest allocations of the Budget are: Debt – $456.0 million (41.4% of total expenditure); Ministry of Education and Human Resources – $110.6 million (10.0% of total expenditure); Ministry of Works – $72.6 million (6.6% of total
expenditure); Ministry of Finance and Energy – $69.9 million (6.4% of total expenditure; and Ministry of Health – $62.6 million (5.7% of total expenditure).
Current revenues for 2013 are projected at $448.2 million, approximately 3.6 % more than current receipts in 2012 and Government anticipates a recurrent surplus of $32.9 million that will be used as counterpart financing for some key projects.
Total capital expenditure for 2013 is projected at $262.4 million. Of this amount $112.9 million will be from local sources, $66.5 million from grant sources and $82.9 million from loan sources.
Outlining the country’s plans before a packed Grenada Trade Centre, PM Mitchell informed the country that the Budget should be seen as a “holding budget aimed at securing authorisation for expenditure for the remaining eight months of this year while facilitating the implementation of some of Government’s key priorities.”
Presenting the Budget seven weeks after being elected into office, Dr. Mitchell announced that his administration intends to return to the Grenada Trade Centre in December of this year to present the 2014 Budget.
“This early announcement signals the intention of this Government to present our Budgets before the commencement of the fiscal year in stark contrast to the practice of the previous Administration. We believe such an approach, is better governance, both in legal but especially managerial terms,” he said
“Beyond better planning and faster implementation of Government plans, it also sends early signals to the private sector of what they can expect thereby enabling them to better plan their own businesses”, he added.
The 2013 Budget was presented under the theme, “Restoring Hope, Building the New Economy and Empowering our People”, a theme Dr. Mitchell said is premised on the fact that people voted in overwhelming numbers for his New National Party (NNP) in the recent general elections because they needed to have their confidence renewed and their hope restored.
“Though constrained in our preparation, the 2013 Budget makes some bold moves as our Government begins to deliver on our promises of restoring hope, jobs and opportunity”, Dr. Mitchell told Parliament.
“This Budget will immediately begin to lay the foundation for the New Economy with significant cuts in recurrent expenditure, debt restructuring, stimulus in Agriculture, Construction and Manufacturing and a more cost effective approach to marketing our Country as a tourist destination”, the Finance Minister said.
The Grenadian leader stressed that the 2013 budget puts people first as they have listened to the needs and cries of the people and have put “our people especially the youth at the centre of all policies and programmes”.
Dr. Mitchell told Parliament that government’s major challenge is managing the payroll going forward, which now accounts for close to 65 percent of current expenditure including Pensions and Gratuities.
He said the government has already begun to engage the Trades Union Council on the shared sacrifices required at this time.
Dr. Mitchell admitted that both his administration and the previous National Democratic Congress (NDC) administrations are guilty of living beyond their means in managing the island’s affairs.
Recently, Permanent Secretary in the Ministry of Finance, Timothy Antoine told trade union leaders at a session that the island’s inability to service its debts is due to borrowing by the State of some loans at commercial interest rates in the region of 9%.
The high interest paying loans were said to be borrowed by Dr. Mitchell and his previous government before it lost power in July 2008.