STEADYING THE SHIP: MOVING CAUTIOUSLY AHEAD

Chief Minister Hughes' Budget Address to the House of Assembly.

Madam Speaker, it is that time of the year when the Ministry of Finance under my leadership is obliged to present its annual budget to the House of Assembly on account of the Government of Anguilla.  Madam Speaker, members of this honourable house, ladies and gentlemen good morning. I am honoured to have the opportunity to deliver this important budget address but Madam Speaker I will do so with great humility
 
My theme for this year’s budget address is “Steadying the Ship: Moving Cautiously Ahead.”  I am fully aware, Madam Speaker, that this theme is very challenging and it represents a far cry from last year’s theme which, if you can recall, was influenced by the dismal poor state of Anguilla’s fiscal situation that my AUM Government inherited from the out-going AUF Administration.
 
This theme brings back memories.  These are memories when in this honourable house; unflattering remarks were made about my ability as a seaman.  For the record Madam Speaker any old timer will tell you that the Hughes’ were more accomplished seamen than the Flemings and I am a Hughes.
 
In all seriousness Madam Speaker, the theme has a dual message.  First of all the economy and fiscal position of the Government of Anguilla needed to be stabilized hence “Steadying the Ship.”
 
Now that we have achieved a measure of stability it is time to progressively pursue prosperity through economic initiatives.  I am very passionate about this pursuit Madam Speaker, because it the engine that is going to drive every aspect of Anguilla’s economic, financial and social development as we proceed into the second decade of the twenty-first century.  If we are going to take a holistic approach to Anguilla’s development, we must always and I emphasize always examine the adverse factors that have impeded us in the past and those factors that impede us as we speak.
 
Madam Speaker, while I am known to be incredibly prudent in my every day private affairs, my record in public life has always been characterized by prudent fiscal management as was the case when I unexpectedly assumed the Finance portfolio from Mr. Banks in May 1999 just two months after the AUM/ADP Coalition went back in power for its second term. From January 1999 until May the same financial year, the then Minister of Finance in the Coalition Government had already built up a debt state of Anguilla’s financial status.
Madam Speaker, in my private affairs I have learnt to be incredibly careful in the management of my personal finances, my record in public life has been characteristically prudent.
 
Forgive me Madam speaker if in any way or form my budget address resembles that of a Throne Speech, for in past years, like most Westminster systems of Government at a particular period the House would be prorogued and after such period allowed, there would be a new opening of Parliament, and in Anguilla’s case – the House of Assembly with a Throne Speech setting out the Government’s plans and programs for the new session.  But over the last fifteen or more years the annual budget address had been presented in the form of a Throne Speech.
 
But getting back to my record of sound financial management I was accused of playing the role of Opposition by an ANA elected member because as Chief Minister in the ADP/AUM Coalition Government from 1994 to 1999 I constantly differed with my own Minister of Finance, Mr. Victor Banks over his callous approach in dealing with the public finances.
This approach was echoed by him many a time in his speeches touting the idea of deficit financing, even though all the economists were saying deficit financing will prove disastrous for small island states.
 
When the coalition was returned to office in the general elections of March 1999, those fundamental differences between Mr. Banks and me were publicly expressed in both of our speeches before a large gathering assembled in the yard of the Caribbean Commercial Complex.  I promised then not to tolerate much of what I tolerated in the first term.
 
From January 1999 until May when the Minister of Finance had resigned he had already put the island in an EC $4.5 Million debt.  After Mr. Banks resigned, I went on to run the finances although being officially shut out of the House of Assembly, for the next ten months, and not only paid all government bills, I also left a healthy surplus, and a stable economy which the newly created AUF government benefitted immensely from, and soon after squandered.
 
Returning to Government on the 16th of February 2010, exactly ten years after I was savagely removed from office, was uniquely historic in that for the first time I ended up with my own AUM winning enough seats to form a Government.  Of course, the politics would change with Hubert Hughes the anti-colonialist back in government. 
 
The constant song that was echoed by the leading members of the ANA dominated AUF Government that we are favoured by HMG in London would now be reversed.  From the first day, the people knew that their AUM administration was going to be seriously destabilized and undermined as it first was when I became Chief Minister in 1994.
 
And as predicted, sadly enough, every effort was made to undermine and destabilize my AUM Government, while the AUF, the defeated party, now in opposition was encouraged to continue the campaign being guaranteed that Hubert Hughes and his Government would be sacked at some point in time.  There was a two prong attack on my government. Firstly to force burdensome taxation on a dead, non-performing economy, and the other would be to stall any new private foreign investment projects, thus ensuring no jobs for our people, and very little additional revenue going into the Treasury.
 
 
 
 
This is nothing new Madam Speak. Let us not forget that it was the issue of the closure of the House of Assembly orchestrated by the then Governor Malcolm Harris to prevent my government from passing a budget which resulted in me being removed from office in 1999/2000.
 
Madam Speaker, the AUF Government boasted of official support in continuing to function in 2010 on a budget passed in the House for 2009.  There is clear evidence from written correspondence sent to Mr. Victor Banks on the 18th January 2010, less than a month before the 15 February 2010 general elections of actually supporting the AUF to hold back the passing of the budget until after that party had gotten over the elections.  That letter also revealed that there were a number of taxes to be implemented following those elections.
 
So my government, Madam Speaker encountered hostility from the word go.   My first budget was immediately worked upon and the technical staff whom I found to be most professional and conscientious produced that budget within two months.
The Speaker was given written permission by His Excellency the Governor to have the budget processed in the House, and although it was unanimously passed it was not assented to by the FCO, so the governor could not sign it.
 
Two months later, we went back to the House with a second budget.  By that time the Treasury had lost some $8 Million.  My government now was only left with six months in the year to repair damage. Our technocrats worked like beasts to significantly reduce the massive deficit left by the AUF Government.
 
In the continuing hostility that my Government was facing and although the staff in the Ministry of Finance produce the 2011 Budget in time, and though the expenditure was cut down to the bone and the large deficit was drastically reduced, lo and behold that Budget too did not receive its approval and was not signed.    Instead the FCO decided to send two experienced budgetary consultants to analyze the Anguilla budget.
 
When I read the correspondence from the FCO which suggested drastic cuts to the numbers in the Civil Service while imposing more taxation, I personally appealed to the three financial institutions from which Anguilla receive assistance to send to Anguilla representatives to observe the work to be done by the FCO/DFID budgetary team.
 
Before the budget consultants arrive in Anguilla to analyze our budget I took the entire staff of the Ministry of Finance to a leading hotel to treat them to a Christmas dinner and on that night I complemented and thanked them for the hard work and long hours they had put in producing the 2011 budget.  I also made them a promise that I will not put them through the agony of producing this budget a second time whatever the FCO does.
 
Madam Speaker, I would never have assured the technical staff in the Ministry of Finance that I would not burden them with trying to produce the 2011 budget a second time if I did not know that they had taken all due caution in reducing Expenditure to the bone while maximizing Revenue.
The facts and figures Madam Speaker were approved before the Governor and members of the EXCO and HE the Governor had given his consent to the Speaker in writing for the budget debate in the House of Assembly.  Even though, Madam Speaker, the finance staff had done all the correct measures I know that the budget would not be signed as this was the third budget my newly elected government had produced in nine months. Compare that to the fact that the AUF government had never had a problem with its budgets the last of which was done in 2008.
 
At this juncture, Madam Speaker, something needs to be said in respect of the Interim Stabilization Levy.  On the day that the budget consultants made the announcement that the 2011 budget was approved by them after proper examination and evaluation we were told that the Secretary of State had given his consent, but strangely enough we had to wait for another month to get it signed because we had to wait until the Interim Stabilization Levy bill was passed in the House of Assembly.  In fact, the proposal was that Government of Anguilla collect a 5 % tax across the board from each individual void of a floor and a ceiling of $7,000 to reflect that of Social Security but the Ministry of Finance, recognizing that Anguilla has no social safety net and the cost of medical care in particular was so high endeavoured to identify a real benefit from the fees collected as a result of the interim stabilization levy.
 
As a consequence there was a counter proposal that instead of simply taxing the entire population another 5% tax Government of  Anguilla should introduce a contributory National Health Insurance Scheme whereby the employer will contribute a 3% of the wage bill and matching 3% to be paid by the employee.
 
In the meantime, since it would take some time to properly set up the system, the money would go in the Consolidated Fund up to December 31st 2012.  So Madam Speaker, from the 1st January 2013 the National Health Scheme would kick in place.  The idea that the Social Security system should collect the money was to minimize administrative costs.  Early in the New Year a delegation led by the National Health Insurance Board should be visiting the Turks and Caicos Islands to see the health system there.
 
What was most disturbing is that the AUF Administration which passed that legislation and spent a lot of money in consultancies to establish the National Health Insurance Scheme, so ridiculously desperate to be back in power, that their most important political topic was on the Interim Stabilization Levy. Though, it is widely admitted by them that the 2011 budget would not have been signed if the Interim Stabilization Levy was not approved in the House of Assembly.
Still trading on their favoured status with the FCO they even wrote the Minister in England begging him to repeal the Bill.
 
In my argument with London over the fiscal measures proposed by the FCO which included reducing the cost of running the Public Service by dismissing civil servants while imposing more taxes, could not work in a small economy like Anguilla’s. The response was that they were making tough decisions, so we must as well.
 
 
In 1994 when I first became Chief Minister and Minister of Lands and Tourism I encountered a similar situation.  Then as in February 2010 there was no economic activity that a single construction in the private sector was allowed.  So my quarrel with Governor Shave then was over his objection to my insistence in creating jobs in the construction sector.  I argued with the Governor at the time that housewives in the United Kingdom could do their lavish shopping every week while Anguillian housewives refrigerators were empty.
 
Mr. Shave and his Deputy Governor Mr. Harry MacCoury did their best to turn away foreign investors and they even accused me together with the local ANA friends of being a shareholder in the Cuisinart Hotel Project which I insisted must come to Anguilla.  I also went on to re-direct any houses proposed on our shoreline as Tourism projects thus creating many jobs and generating money in the economy.
 
This economic activity had a profound positive impact on the Social Security Fund, the local banks and local private business ventures such as rentals of locally owned apartments, more rental cars, more heavy equipment businesses, bigger and better ferry boats, and government was in so strong a financial position that we were able to give a large number of university scholarships and road upgrades.
 
Madam Speaker, so vibrant was Anguilla’s economy that the Minister for the Dependent Territories wrote to congratulate me on my robust economy while the Caribbean Development Bank reported that Anguilla had the fastest growing economy in the region.  When therefore I was thrown out of office finally in March 2000 I decided that it was very important for me to give the new Chief Minister a proper handover.
 
This had never been done before, but knowing how important it was for an Anguilla Government to stick to a particular course of development, learning from what it took me to fight Governors over foreign investments into Anguilla, I was dedicated to continuity, for direction and for economic and political stability.  I therefore committed myself to the opposition while supporting the Chief Minister.
 
Two days after Mr. Osbourne Fleming sat in office as Chief Minister I went in and told him that he can count on me although in opposition to support the new government when it’s in the best interest of Anguilla.  I promised to do whatever it took to facilitate a stable and sustained economy.  In particular the projects like the airport at Bremigen, the seaport development project, the water and electricity projects all of which involved the French.
 
Madam Speaker, the then Governor and the FCO were opposed to the French investing in Anguilla.  But up to the last year when I went to the EU meeting in Brussels there was much emphasis on the question of functional co-operation between the OTs. I shall return to that later.
 
But in the meantime madam Speaker, I want highlight the other economic development projects I asked Mr. Fleming to continue.  I had recently approved the granting of an Alien Land Holding License for Mr. Rizzuto for four additional acres of beach land to expand Cuisinart hotel.
 
However, being denied access to the House by the Speaker I could not table the MOU and therefore the Government of Anguilla could not grant the hotel’s the concessions for expansion.  Unfortunately, by the time it was approved the global financial situation was deteriorating so that project was put on hold.
 
Another project we had approved for Mr. Rizzuto was for him to use the unused 24 acres of land in Cinnamon Reef to develop a yacht marina.  That project would have hired hundreds of workers on a continuous basis.
Again Madam Speaker, even though Chief Minister Fleming had accepted it, it was not supported by the hierarchy.  The Governor and the FCO were happy that these projects were rejected by ANA/ADP United Front.  Madam Speaker, for the next four years the banks took so much homes and vehicles from our people due to the lack of jobs to service their loans.  The auctioneers did well.
 
Additionally, Madam Speaker, the AUF Government also lost a Domain project which an Australian Company that was owned by the Donahue family had proposed to my Government, all because some persons in the AUF party that are now writing weekly articles, had demanded shares.  After this project was already killed by creating bad taste, the Ministry of Finance still arranged a large expensive delegation which went to Australia but nobody would talk to them.
 
 
As a matter of fact Madam Speaker, the 2001 budget speech was already written on that domain project being a principal contributor.
 
In a general way the hotel industry and lands with vast potential for tourism development were being squandered thus creating the conditions for economic decline.
 
Additionally, Madam Speaker, under that AUF Government Anguilla rums was lost, Dolphin Discovery, Cinnamon Reef Hotel project was destroyed in a strange design; valture Cocoloba was closed; Mariners was closed; Sonesta was destroyed. Madam Speaker, an Alien Land Holding License was granted for 275 acres of prime coastal tourism land to Robert FX Sillerman to create what could amount to a gated community. The Barnes Bay Development – KOR Group was allowed to buy up lands from Savannah Bay and Sile Bay to Meads Bay and Barnes Bay in contravention of the Alien Land Holding and the Labour Policies. So much so, workers with serious communicable diseases were allowed to enter the island unchecked and in the end, the KOR group ended up losing all of their property on island with exception to a slither of land in Meads Bay.
 
Madam Speaker, under the AUF Administration untold irreparable damage was done in the way the Land and Immigration Policies were broken.  Any non-belonger could buy up and trade in lands and real estate in Anguilla; multi-million dollars of taxes were not being collected. Madam Speaker some even in perpetuity. This means Madam Speaker, forever and ever, Amen.
 
Madam Speaker, this means that employment opportunities that should have been reserved for Anguillians were squandered in an economic boom that was merely a bubble, destined to burst.  This in effect meant that very little spin off from that type of development stayed in the Anguilla people’s hands or local business providers.  The money paid to the thousands of Asians, Mexicans and Eastern Europeans went out by Western Union.
 
Unfortunately, this resulted in Anguillians that invested in apartments being impacted negatively because those apartments remained unoccupied, while the two major projects of Temenos and Viceroy housed their labour force in imported trailer houses.  At the end of all this, a record number of Anguillians lost all they ever possessed to the banks. Madam Speaker, the bubble lasted for three years from late 2004 and by 2008, the people and treasury of Anguilla was much worse off than before.
 
At the closing days of the AUF government its leaders were falling out with their friends in the FCO over the borrowing guidelines which the Anguilla Government had breached by borrowing too excessively and unsustainably. So much so, that the leader was for the first time in his long political career, asking the people to consider seriously, the option of independence for Anguilla.
 
While all the above mention squander was going on the supporters of the party were allowed to rake off the Treasury.  Hundreds of thousands of dollars were spent in subsidizing the private school and some of the political assistants were taking money on false projects; the ASSIDCO project was set up by Social Security just as a pretense to buy a property just before the elections.
 
Furthermore, record increases in salaries were approved by the Executive Council just to ensure that politicians retired with big pensions and big gratuities going home.
 
Madam Speaker, from 2009, the Public Servants has experienced what amounts to a temporary reduction in salary due to a decision by the then Executive Council. In that decision, it was agreed that Public Servants and Minister would be given back all the deferred payments at some point in time when the economy improves. This means, that potentially, this liability can linger on indefinitely and put the country in an untenable situation. Madam Speaker, while it may be tough and unpopular, I can assure you. In this age of austerity and fiscal prudence, consideration has to be given to establish a cutoff date, after which, these deferred payments will not apply. Madam Speaker, this is critical because this is the least of all the evils - the better of the options. The option that is being promulgated that we should cut the civil service would be more damaging to families and dependents than this option and we hope it will be supported by both the Opposition and affected persons.
 
Madam Speaker, while my government has steadied the ship, in order to continue the reversal of the damage done to Anguilla’s economy by the AUF administration over their two terms from 2000 to 2010, has to progressively pursue prosperity through economic initiatives. This becomes increasingly important because the application of fiscal measures in this continuing global recession will have minor, short lived fiscal success and total economic collapse.
 
The BVI, Madam Speaker, was smart enough to hold on to the Financial Services/Offshore banking portfolio but Chief Minister Gumbs at the time surrendered the Portfolio to the Governor. As a result while the BVI has some diversification in its finance base while Anguilla is financially restricted and has to rely on Tourism which can be negatively impacted by natural disasters and global economic shocks.
 
Madam Speaker, the British Government is applying more pressure on an already troubled tourism product by doing all it can to prevent British tourist from visiting Anguilla and other Caribbean territories by imposing a burdensome, discriminating tax on her citizens traveling to the Caribbean from the United Kingdom. The CTO Chairman, the Hon. Ricky Skerrit is quoted as saying, “the British Government’s announcement on Tuesday that it will continue to discriminate against the Caribbean in relation to the banding aspect of the Air Passenger Duty (APD) system has been a slap in the face for all Caribbean people.” He went on, “it’s a slap in the face of the Caribbean people because at no point in recent months, has the Caribbean being led to believe that its concerns would not be addressed. As recently as the second week in November, I sat face to face with a senior Minister in the United Kingdom treasury who reassured me that the British Government was sensitive to our concerns and would be announcing shortly a decision that would have addressed the issue of parity.”
 
If Anguilla is to survive our people will need to consider serious constitutional advancement so that our Government can interact with other friendly governments without hindrance.
 
Madam Speaker, we are paying our own way, thus the barriers which now retard our ability to do so must be removed immediately.
          
 
 
Madam Speaker, ladies and gentlemen the theme, “Steadying the Ship: Moving Cautiously Ahead” is a recognition of the critical and uncompromising role that economic growth and development will play in Anguilla’s immediate, medium and long term future.  It is recognition that my Government did not allow the ship to sink, but pursued initiatives which are ongoing and were always under review so that we do not marginalize the people of this country.
 
All of our goals, individually and as a nation will depend on the ability of the economy to rebound and return to a robust state.  Yes, we have all intentions of paying our own way but we cannot embrace policies that are counter to the achievement of that objective.  The issue of taxation immediately comes to mind and I must use this opportunity to clear the air.  It is wrong to say that my Government is opposed to taxation.
 
However, it is correct to say that at this juncture given all the revenue raising measures that have been implemented over the two last years and the sluggish nature of the economy that my Government is extremely apprehensive.  The impact of further taxation will prohibit the Anguillian economy from rebounding.  Madam Speaker I will return to the issue of taxation later in the speech when I present the revenue estimates for fiscal year 2012.
 
This government has been engaged in a balancing act in terms of revenue and expenditure from the time it came to office and it is no secret that at the end of 2009, there was a recurrent deficit of approximately 70 million dollars and an overall deficit of 66.4 million dollars plus 20 million dollars in unpaid invoices. Madam Speaker, we have steadied the ship because at the end of 2010 the recurrent deficit was reduced to 41.7 million dollars and the overall deficit to 12.2 million dollars. The capital grant from the European Development Fund EDF and the Caribbean Catastrophe Risk Insurance Fund CCRIF contributed significantly to the overall decrease in the deficit. At the end of 2011 a recurrent account surplus of 28.9 million dollars is projected and an overall surplus of 20.4 million.  Stamp duty played a pivotal role in achieving the surplus position.  Now that we have steadied the ship we can continue the pursuit of prosperity through economic initiatives.  Much has been made in certain quarters about the source of some of our revenue that has helped us on our way to fiscal recovery.
 
I am referring to Stamp Duty and the impression I get from some quarters is that we must discount this revenue source because of its unpredictability.  I say today Madam Speaker, that we are who we are, our economy is what it is, our revenue sources are what they are and we must embrace who we are and until structural changes are made to our revenue sources, we must be pleased with the Stamp duty generated revenue which has come the government’s way from the back drop of our sluggish economy.
 
Our research has indicated that in every jurisdiction where stamp duty is a source of revenue, it is classified under recurrent revenue and I can find no plausible reason why it should be otherwise in Anguilla as it was, prior to February 15th 2010.  The bigger issue Madam Speaker is not only how do we treat revenue from Stamp Duty but also how do we treat revenue in general and how do we balance our revenue intake with our expenditure outlays.
 
Madam Speaker, as one of AUM’s campaign slogans said, “We are on the Move”.  We are on the move and seeking to improve our approach to fiscal management going forward. Since February 15th 2010, there have been expenditure and revenue studies as well as initiatives to improve our budget process.  We preached openness, transparency and accountability and indeed my government is practicing it.  We recognize the need to improve our administrative capabilities when it comes to fiscal management and this is a key element as it relates to self-reliance as we forge ahead.
Madam Speaker, the establishment of the Public Accounts Committee which this Government has approved with the Leader of the Opposition as Chair will force us politicians to be totally objective and accountable when it comes to fiscal matters because that Committee will provide a forum for the truth to be told and if necessary found out.  Madam Speaker, it is widely believed that I am in the autumn of my political life and if that is true, I certainly want to leave knowing that my beloved country is back on a firm footing.  The record will show that I did that before and when I do depart, I will leave Anguilla in the hands of fiscally responsible, open, transparent and honest persons who will put God and Anguilla first, above all.
 
Madam Speaker, let us look at the performance of the economy and the fiscal performance for 2011.
 
ECONOMIC AND FISCAL REVIEW 2010/2011
 
Madame Speaker, it is important that I give a brief review of Anguilla’s economic and fiscal situation.
 
Preliminary estimates from the Anguilla Statistics Department indicate that in 2010 the economy contracted by 5.59 per cent, representing the third consecutive year of economic decline. Gross Value Added (GVA) in real terms totaled EC $575.73. GVA is the measure of the contributions to the economy of each individual producer, industry or sector in Anguilla.
 
Madame Speaker, the main contributors to the economy in 2010 were Hotel & Restaurant Sector, Real Estate, Renting and Business Activities, Financial Intermediation, Public Administration, Defense & Compulsory Social Security and Transport, Storage and Communication.
 
In 2010 the Hotel and Restaurant sector was the number one contributor to the economy accounting for 21.03 per cent or EC $121.08 million of total GVA. The sector also grew by 5.74 per cent following two years of successive decline in 2008 and 2009.
 
Real Estate, Renting and Business Activities totaled EC $81.07 million and represented 14.08 per cent of total GVA.
 
Financial Intermediation was the third largest contributor to the economy. It accounted for 12.08 per cent or EC $69.52 of GVA. The sector recorded minimal growth 1.02 per cent.
 
Public Administration, Defense & Compulsory Social Security and Transport, Storage and Communication accounted for 11.05 per cent and 10.01 per cent of GVA respectively. While Public Administration, Defense & Compulsory Social Security grew by 1.45 per cent, Transport, Storage and Communication declined by 7.05 per cent.
 
Fiscal Performance
 
Madame Speaker, fiscal performance looks in combination at recurrent revenue relative to recurrent expenditure, and combining this with capital revenue and expenditure to give a picture of Government’s overall fiscal balance
 
Recurrent revenue
 
Recurrent Revenue collections are expected to total EC $194.23 million in 2011. This would represent an over collection of EC $16.54 million of the original estimate of EC $177.69 million.
 
The main contributors to recurrent revenue in 2011 are Stamp duty, Import duty other, Accommodation tax, the Custom Surcharge and Import Duty -Fuel and Gas.
Stamp Duty collections are expected to total EC $54.00 million, making it the top earning revenue head in 2011. This represent an over collection in excess of EC$ 30 million. The superb performance of this revenue head is directly attributable to the activities related to the sale of Viceroy this year. This level of activity is not expected to take place in 2012.
 
Import Duty- Other collections for 2011 are projected to total EC $40.33. This represents an under collection of EC $1.91 million. Though import duty other continues to be a leading revenue head the actual are moving in line with the declining economy and consumption.
 
Accommodation Tax collections are expected to total EC $19.79 million making it the third largest contributor in 2011. This represents an over collection of EC $5.22 million over the budget estimate of EC $14.57 million. The performance of this revenue head is attributable to increased tourism activity in 2011 and payment of arrears.
 
The Customs Surcharge and Import Duty Fuel and Gas are expected to total EC $10.83 million and EC $10.62 million respectively, rounding out the top 5 revenue collecting head. Both heads are performing below expectations.
 
Recurrent Expenditure
Madame Speaker, recurrent expenditure at year end is projected to total EC $172.72 million. This is EC $15.28 million less than the budget estimate of EC $188.00. Due to the fiscal constraints and the commitment with the British, expenditure has to be kept at a minimum. Civil servants must be commended for their efforts in this regard.
 
Recurrent Balance
 
The recurrent balance, the difference between recurrent revenue and recurrent expenditure, is anticipated to be EC $21.51 million.
 
Contribution to Fiscal Reserves
 
 Madam Speaker, Government will be able to contribute to reserves for the first time since 2007. EC $15.0 million has been placed in reserves to be used to meet government obligations in the event there is a cash flow problem.
 
Capital Expenditure
 
Capital expenditure for 2011 is expected to total EC $10.81 million, far less than the budget estimate of EC $23.31. Madame Speaker, capital expenditure continues to be one of the areas affected by the current fiscal situation, as government is unable to invest in that area. In 2011 a greater portion of capital expenditure was funded by the EC $11.5million CRRIF insurance payment that was received in 2010 following the passage of Hurricane Earl.
 
Madam Speaker, the projects that have been completed to date or in progress under this programme include the Queen Elizabeth Avenue, the purchase of backup power supplies for several government premises, air conditions for the Royal Anguilla Police Force Head Quarters, the upgrade of the Roaches Hill- Limestone Bay Road and repairs to navigational aids.
 
Madam Speaker, other capital investment though minimal took place in several key areas. The Anguilla Population and Housing Census, currently being under taken is one such area. Monies were spent on Health Services Development which aids in the purchase of equipment and supplies for the Health Authority of Anguilla. Under the Tourism Sector Development Project, the Sustainable Tourism Master Plan has been completed by the Halcrow /CHL consulting team, with the support of the Special Resources Fund of the Caribbean Development Bank. The plan contains very specific recommendations for the development and management of the tourism sector over a ten year period to 2020. The plan is available to the general public.
 
Madam speaker, the private sector has been most generous to Education and related services in the area of capital projects.  In 2011, the Kindergarten Class at the Valley Primary School was the envy of all with a brand new Kindergarten Block, through the contributions of the Windsong Anguilla Foundation. We also saw the start of the Literacy Development Project, the Ministry’s response to its number one priority, Literacy Development. The entire community has embraced this project and contributions were many and varied with The Windsong Anguilla foundation and the Social Security Board again coming forward and making significant contributions.
 
Digicel was also prominent with the adoption of the two special needs centers at the Adrian T. Hazell Primary School and the Orealia Kelly Primary School to the tune of  EC$90,000.00. The funds were used to renovate and upgrade the two special needs units and to purchase needed furniture and educational resources including 6 new computers.  The Library also benefited from contributions towards the development of a new Library ICT Centre soon to be made available to serve the general public. The community support component of Alwyn A. Richardson Primary School is finally being completed through a contribution of some US$100.000.00 from the Anguilla Children’s Fund resulting from the efforts of Bob and Melinda Blanchard. Funds towards the completion of the Auditorium were also contributed by the West End Community Committee chaired by Mr. Valentine Davis a past parent of the school.
 
To our private sector partners I say a heartfelt thank you for your contribution to the development of our children and Anguilla.
 
At this time Madam Speaker let me also take this opportunity to thank our development partners, The EU, The Eastern Caribbean Central Bank, The Caribbean Development and CARTAC, for their continuous support and efforts to help Anguilla come through and come out on top at the end of this financial crisis we currently face. We look forward to your continued commitment and support in the years to come.
 
Overall Balance
 
Madam Speaker, Government’s overall fiscal position is determined by the sum of the recurrent balance and the capital balance. The recurrent balance for 2011 is expected to be a surplus of EC $21.51 million. Projected capital expenditure totaled $10.81 million.  Therefore, the overall balance for 2011 is expected to be a surplus of approximately EC $ 10.70 million.
 
It is time now Madam Speaker for me to unveil our plans for fiscal year 2012 but before doing so I want to make an important point.  Budget preparation is part of the budget cycle and this cycle is part of the overall planning process.  As the system continues to evolve, we are now at a stage where continuity is very important and as a result, the proposals articulated in the 2012 budget estimates in many cases would only potentially represent the partial achievement of objectives which could be finally realized in let us say 2014. We are integrating multi-year planning into the budget process and while the document produced for public perusal would not reflect this, the internal budget documents would contain where necessary details which reflect the multi-year planning just mentioned.
 
 
Madam Speaker no adversity whatever the cause removes the responsibility of the government to deliver services to the people.  As we look at the recurrent expenditure outlays for 2012, let us be cognizant of the fact that the numbers are simply the representation in money terms of plans that the government has for the delivery of services during the fiscal year.  We must also bear in mind that it is a time of tremendous financial constraint.
 
FISCAL BALANCE
 
Recurrent Expenditure by the Government of Anguilla for 2012 is estimated at EC 183.51 million dollars while the Recurrent Revenue is estimated at EC 187.65 million dollars. The government continues to embark on a policy of fiscal restraint which has resulted in expenditure being severely curtailed since my government came to office.  At the same time, revenue sources continue to be explored but the options are very limited because of the sluggish economy.  Capital expenditure for 2012 is estimated at EC 28.21 million dollars I will now look at these three important fiscal phenomena individually.
 
RECURRENT EXPENDITURE
 
Madam Speaker, the Government of Anguilla has been seeking to do more with less in order to reverse the adverse fiscal situation we inherited.  Over the last two years there have been significant decreases in many areas of recurrent expenditure.   I am convinced that we have all embraced the notion that recovery from the economic and financial crisis will not happen overnight and we must therefore be in it for the long haul.  More importantly we cannot misinterpret pockets of recovery as total recovery and then make decisions that are based on inaccurate information and allow history to repeat itself.  Recurrent expenditure restraint must continue Madam Speaker because it is this restraint that enabled this government to reduce the overall deficit which stood at 66.42 million dollars at the end of 2009 to EC 12.23 million dollars and the end of 2010 and now, to a surplus position.   We must continue to prioritize and this is always a difficult task when we have to choose between desirable and desirable rather than between good and bad.  This is the reality that we now face at all levels of government and Madam Speaker I learned about opportunity cost many years ago and I can tell you that today I really see it in action.  The highest valued alternative that must be forgone because a specific choice was made has certainly become a reality when it comes to recurrent expenditure.
 
Madam Speaker as I examine the various ministries and departments, I want everyone to realize that although some departments are larger than others and interface more with the public, the importance of the smaller departments must not be underestimated because it is all about the ability of each department to perform functions for which it exists.  At the end of the day, it is how successful we are collectively and as a result we must be our brother and sister’s keeper.
 
The management of departments depends on the dedication and competence of its staff and there are limitations as to how far streamlining staff can take place without a consequent decline in the quality of service rendered.  There has been and continues to be debate about the size of the civil service and the need to down size it.  It is important that we proceed very carefully with matters relating to the civil service and the recently concluded Civil Service Review is an attempt to put some structure in to civil service reform.
 
 
MINISTRIES AND DEPARTMENTS: RECURRENT EXPENDITURE
 
Madam Speaker, an extensive analysis of the recurrent expenditure of all the departments within the ministries would be a very long process but I will attempt to make a presentation which is fairly short in terms of length but high in quality.
 
PUBLIC ADMINISTRATION
 
The allocation in the 2012 budget for Public Administration is EC 7.01 million dollars.  It must be noted that the training of our citizens has also been affected by the expenditure constraints with a decrease in excess of one million dollars between the 2011 and 2012 budgets.  I will now examine some of the initiatives pursed by that department.
 
Customer Service Training
 
The Department of Public Administration believes that good customer service adds value and there's no way around it.  There is a need in the Anguilla Public Service to improve the level of customer service offered.  Public Administration took the initiative to carry out training in this area with the expectation that one day the APS will be in the league of extraordinary customer service providers.
 
Review of Training Policy
 
The Government of Anguilla Training Policy needed revision to keep up with the growing trends of training worldwide.  The New policy offers a more comprehensive view of each stakeholder’s role.  It hopes to bring about a more coordinated effort for all concerned.
 
3.            Cost-Sharing Financial Assistance
 
Cost-sharing is a new element to the training of persons by distance at the two local institutions.  In these difficult economic times it underscores the Government of Anguilla’s commitment to educating its people, but also ensures that these students are stakeholders financially in their education.  It is believed that the 30% that students are now expected to pay will make them more accountable and committed to the process.
 
 
The Department of Public Administration is committed to the implementation of a Performance Management System (PMS) at the beginning of 2012.  It is a system that has been designed to improve overall performance and productivity of the public service by actively linking individual work performance to department/ministry, organizational and national goals.
 
Some of the main objectives are to:-
 
Ensure the optimum utilization of human and other resources
Improve efficiency, effectiveness and economy within the Anguilla Public Service
Create a culture of continuous performance improvement
 
In an effort to ensure proper ‘buy in’, Public Administration, throughout the year, (2011) engaged in a system wide consultation (first with managers then with all officers in the Anguilla Public Service).    The consultations aimed, among other things, to sensitize managers and officers and to gain their commitment to the process, while at the same time allowing them the opportunity to influence the process.
 
Training for all officers was conducted throughout the year. The aims of the training were to strengthen the confidence of managers/supervisors and officers, while at the same time to help them to understand performance management principles and to equip them to carry out the processes of the performance review.
 
Used constructively, the Performance Management System could prove to be a valuable organizational tool and result in increased productivity throughout all areas of the Anguilla Public Service.
 
MINISTRY OF FINANCE AND CHIEF MINISTER’S OFFICE
 
Madam Speaker during these times of financial restraint, the Ministry of Finance and Chief Minister’s office is attempting to lead by example.  The allocation for my twin department is EC 24.10 million dollars which represents a reduction of minimal increase of less than half a percent compared to 2011.
 
These are critical times for my ministry in terms of plotting a recovery path, both economic and financial and then in keeping with our policy on public consultation, taking these initiatives into the public domain.  To their credit my staff is virtually immune to the negativity that often emanates from sectors of our society when they pursue difficult projects.  They attempt to rise above this negativity and do their best ultimately for the government and people of Anguilla.  My department will continue to forge ahead.
 
My opposition to leadership changes in my ministry have been well documented elsewhere and I will use this opportunity to indicate to all and sundry that my views have not changed.
 
It is now time to take a look at the public debt situation because my aversion to debt is well known and debt management is one of my ministry’s most important functions.
 
Public Debt
 
Since coming to office in February 2010, Madam Speaker, my AUM Government took the decision that public debt must be controlled and carefully managed and monitored in order to ensure a sustainable debt level.  As a responsible Government, we have continued our stabilization efforts in 2011 through our reform programme and will continue to do so for the remainder of our term of office.
 
During the fiscal year 2011 no new debt was contracted.  However, there were varying levels of the usage of the ECCB Cash Advance Facility and the Overdraft Facility with the Caribbean Commercial Bank.   Madam Speaker, while we have been prudently managing these two facilities, Government has also restarted rebuilding reserves, in spite of the challenging economic times.  Presently reserves stand at EC 16.55 million.  Madam Speaker, these are some of the measures that demonstrates this Government’s commitment to, “Steadying the Ship: Moving Cautiously Ahead” and  you will see further indications as I will outline under the Capital Budget and Financing section as to how the 2012 financing gap will be sourced.
 
Madam Speaker, total public debt which comprise of Central Government and Government Guaranteed debt is expected to decline from the 2010 stock of EC 235.08 million (Central Government EC 217.35 million and Government Guaranteed EC 17.73 million) to a preliminary estimate of EC 229.80 million (Central Government EC 213.42 million and Government Guaranteed EC 16.38 million) by the end of 2011, a decrease of 2.25 per cent.  While this may be considered a marginal decrease, Madam Speaker, it is notable in light of the historical growth path of debt with an average increase of 17.70 per cent over the period 2008 to 2010.  Another factor to note is there would have been a more substantial decrease in the debt level were it not for the five year moratorium on principal repayments on the Caribbean Development Bank Policy-Based Loan (CDB PBL) of EC 148.50 million which was used to refinance debt in 2010, a loan accounting for over 64 per cent of the current public debt portfolio.
 
The nexus is that while debt levels will have decline marginally in 2011, Central Government debt servicing cost is projected to decline eleven fold topping out just over EC 10 million when compared to the 2008-2010 three year average of EC 114.19 million owed largely to debt refinancing activities.  Madam Speaker, it would also mean a debt service to recurrent revenue ratio of under 6 per cent, thus Government will be in compliance with the stipulated UK Borrowing Guidelines ratio of 8 per cent.   At this point I would like to make mention that the Government of Anguilla is still negotiating with the UKG the proposed Framework for Fiscal Responsibility to replace the Borrowing Guidelines and it is anticipated that these discussions will be completed in 2012.
 
Madam Speaker, Government is aware that there are still some inherent risks in the debt portfolio, and in particular that debt servicing could be an issue when the moratorium on the CDB PBL expires.   To this end, we will continue to explore other options in managing public debt, such as utilizing the Regional Governments Securities Market which is an avenue for lowing borrowing cost.
 
Sound debt management practices must continue to persist, Madam Speaker. Through our debt portfolio reviews and debt sustainability analysis, conducted in conjunction with the Debt Management Advisory Service (DMAS) Unit of the ECCB, Government will continue to use these as some of the tools to monitor the debt situation and take the appropriate action to ensure that the debt level is consistent with fiscal sustainability, one that will not create a debt burden for future generations.
 
TOURISM
 
Madam Speaker Tourism also falls under my portfolio and I will state what has become the obvious that tourism is the mainstay of Anguilla’s economy and all efforts must be made to keep this industry buoyant.  The allocation for the Department of Tourism is 8 million dollars.  This is the same allocation as in 2011 and again is an indication of trying to do more without the corresponding increases in available funds.
 
 
This Government recognizes that the future development of Tourism in Anguilla must be guided by sound policies and strategies, to ensure long term sustainability of the sector and to meet the aspirations of the people of Anguilla.
 
A Sustainable Tourism Master Plan was completed in October of 2011 with funding support from the Caribbean Development Bank. The objectives of the plan were to elaborate:
-          A formal long-term 10-year plan to serve as a reference for informed, strategic decision making by Government of Anguilla as it relates to tourism management and development in general.
-          A vision of the future direction and content of the sector which could guide the actions of the various stakeholders towards a shared goal.
-          Strategies for the development of tourism products and facilities ,with environmental and cultural preservation and conservation in mind.
-          To provide a comprehensive planning framework for the sustainable             development of the tourism sector.
-          To develop action plans and timeframes to meet the vision, and Secure long term benefits at both the macro-economic and      community levels.
-          To recommend the appropriate structures, strategies and systems required at both the policy and operational levels, for the implementation of the master plan.
 
The Executive Council was convened in retreat to deliberate over the recommendations of The Master Planning team. Recommendations that were developed after an extensive stakeholder consultation process lasting some seven months, and supported by research at the local and international levels.  We believe that the Master Plan met its objectives.
 
 During the consultation process, a Vision was formulated by the people of Anguilla for Anguillas Tourism in the future. It states:
 ‘We are a premier Caribbean destination  known for our world class beaches; pristine azure waters; top class resorts and restaurants; relaxed ambience; sense of place, peace and tranquility in a safe setting among a friendly and hospitable people that take pride in their identity, cultural heritage and environment’.
 
“Tranquility wrapped in Blue “the positioning statement which  we previously used in marketing Anguilla  and which research shows is widely preferred  by the travel trade and visitors alike , encapsulates this Vision for Anguillas tourism.
 
Three (3)  Tourism Development Scenarios were outlined in the plan and upon close examination of the implications of these , the Government of Anguilla accepted  that the  medium growth rate scenario, ( which was based on the restoring  Anguillian standards of living to 2008  levels  by the year 2020) , was both achievable and sensible.
 
This Scenario calls for several targets to be met  by 2020, including an average growth rate of  7.5% per year  and a target of stay over visitors reaching 196,500.
 
There is a fundamental mechanism to achieve the wider objective ,of obtaining sustainable benefits for the people of Anguilla by generating additional economic activity. That mechanism is by increasing tourism revenue. Without an increase in revenue there can be no growth in income; no improvement in employment; no addition to foreign exchange earnings or Government tax revenues; and no possibility
of improving community benefits from tourism.
 
In order to secure an increase in tourism there must either be:
More visitors, increased per capita spending by visitors, longer stays or some combination of the above. To increase the number of visitors, encourage them to stay longer and to spend more money will require the implementation of several strategic action programmes.
 
These  include Increasing and  marketing our tourism more efficiently , Improving air & sea access,  managing the tourism sector more efficiently,  reorganizing the institutional arrangements for the sector, upgrading our standards of service , enhancing  and diversifying  our tourism product, improving physical and environmental planning , and improving integration between tourism , the environment and the community.
 
The achievement of the optimum growth path will also require the development of a number of projects, sites and attractions which have the potential for further enhancing the Anguillian tourism product .These include economic infrastructure projects, visitor attractions projects which are primarily public sector/community projects, and tourism facilities projects which are planned private sector projects involving hotel, villa, condominium, golf course and marina projects.
          
The GOA is actively pursuing the mobilization of resources to embark upon an aggressive approach to implementing the strategic action programmes.
 
INLAND REVENUE DEPARTMENT
 
The importance of this department is growing by leaps and bounds and will have to perform a pivotal role as the government’s fiscal regime becomes more sophisticated.  It has continually been hampered by a shortage of staff and this cannot be ignored because an upgrade in the administration of the Inland Revenue Department has been highlighted as an area for improvement in revenue studies.
 
Steps are being made in the right direction and there is a developing relationship between the department and the tax payer which in the end would encourage voluntary compliance by the tax payers.
 
Fiscal year 2012 will be a busy one for the Inland Revenue Department.  It is important that the department begins the process to be  in a position to hold its own when structural changes are made to the tax regime.  The department must be an agent and leader in the change process when it comes to placing Anguilla’s tax regime on a sound footing.  Therefore over the medium term the department will continue to experience growth and increased functions and must prepare well for the future.
 
Anguilla Development Board
 
Madam Speaker, the Development Board too is constrained by the Government of Anguilla’s inability to make contributions to its development fund.  The Board however continues to play a critical role in providing financing for selected projects for people from all walks of life in Anguilla.
 
Over the past 32 years of operations, ADB has been an active partner in developing the fishing, agriculture, tourism, housing, education and industry sectors in Anguilla by providing financial and technical assistance.
 
ADB’s gross loan portfolio of $34m as at December 31, 2010 was dominated by loans to Housing which accounted for 43%, student loans comprised 29%, tourism related projects were at 14% with the remaining 14% of the portfolio comprising loans for fishing, agriculture and light manufacturing.
 
The Anguilla Development Board continues to be a viable entity with a record of being profitable despite its limited access to concessionary funds. For the year ending December 31, 2010 ADB recorded profit of just under $100,000 with an Asset base of $37m.  The ADB’s debt to equity ratio continues to be favourable at a level of 2:1 (the acceptable rate for Development Banks is 4:1)
 Long term loans from the Caribbean Development Bank remain the primary source of funds for ADB. At year end the outstanding balance for CDB loans totaled $15 million, whilst the other source of funding, The Anguilla Social Security Board loan had an outstanding balance of $1.2 million.
 
In 2010-11:
 
ADB and the Anguilla Community College have partnered in ensuring the best use of resources available from the student loan financing so as to maximize the benefits to the wider community.
 
ADB engaged in assessments with the Caribbean Development Bank (CDB) and other local and regional stakeholders in determining the way forward for future involvement with Small and Medium Enterprises.
 
ADB was involved with identifying and benefited from a number of training programs specifically geared to the Development Finance Institutions of the Eastern Caribbean. A number of regional training attachments for businesses were also undertaken during the year.
 
The success of ADB is largely attributed to the continued level of dedication and commitment of the staff and the Board of Directors.
 
Whilst ADB is ever mindful of its mandate as well as future sustainability and impact on national development it remains without doubt that a consistent flow of adequate funding is essential.
 
Some of the immediate goals of ADB include;
The acquisition of funding
Greater diversification in the loan portfolio composition
The marketing of ADB as a significant player in national development.
 
MINISTRY OF SOCIAL DEVELOPMENT
 
The overall allocation for the Ministry of Social Development is EC 69.69 million dollars.  The increase in the allocation over 2011 is less than 1% again showing that even in this area has tremendous social responsibility, sacrifices are also being made.
 
The Ministry of Health & Social Development continues work toward their vision that all residents of Anguilla will enjoy a high standard of living and universal access to quality social services.
The Government of Anguilla (GoA) agreed to a package of budget measures aimed at ensuring that we achieve a budget surplus by the beginning of 2013. One of the central budget measures accepted by GoA was the need for a preliminary programme of health service reorganization. A consultant was commissioned to carry out a Health Sector Review with a view to:
 
-          assess the current state of health care systems and their cost to government;
-          assess options for the future delivery and financing of health care based on their likely relative costs and effectiveness; and
-          prepare a timetable for executing the recommended options.
 
Now that the review has been completed, the GoA is in the process of reviewing the recommendations and consulting with relevant stakeholders.
 
The Ministry also undertook a project to cost the implementation of the National Strategic Plan for Health which was funded by DFID. This project was important for several reasons.  We have spent considerable time and energy in developing our national strategic plan for health, but we have never analyzed the financial resources necessary to meet our targets. In all times, but in these difficult economic times in particular, it is critical that we understand the cost implications of healthcare delivery, as achieving value for money is central to the appropriate use of public funds. Understanding the cost implications helps us to make strategic decisions about how to best use limited resources and meet our targets.  This may be scaling projects back if they are cost prohibitive or focusing on a small number of very urgent health priorities.  It may mean shifting priorities or strategizing as to how targets can be achieved in areas where resources are limited.  This costing exercise is important in helping us all to plan, to reform our health services and to negotiate with regard to the provision of health services.
 
Chronic non-communicable diseases continue to plague Anguilla and nations around the world. The launch of the Chronic Care Passport, a pilot project to monitor, educate, and manage the care of diabetic patients will go a long way toward enhancing treatment for those who struggle with this disease. The Ministry is currently developing the terms of reference for a Commission on Chronic Non-communicable Diseases which will serve to broker effective involvement of all relevant sectors in programme implementation including the private sector, non-governmental organizations, faith based organiz