Willemstad – Curaçao:— Aruba and Sint Maarten succeeded in meeting the standards of financial supervision in 2016 in the face economic adversity. Likewise, Bonaire, Sint Eustatius, and Saba were successful in 2016 in getting their budgets at least balanced. However, all countries and public entities still confront enough challenges in the area of public finances, especially with regard to budgetary sustainability and financial management. These topics are thoroughly addressed in the Cft Annual Report over 2016.
Supervision during economic adversity
In 2016 the Board of financial supervision advised for the first time all countries and public entities in the Caribbean part of the Kingdom on a full annual cycle of budget preparation, implementation, and accountability, since Aruba as well introduced financial supervision in 2015. Due to a less favorable economic climate with lingering economic growth and deflation, it was difficult to realize the budgeted tax revenues.
Budgetary standards met
Despite the economic downturn, the three countries and public entities have succeeded in achieving the financial supervision standards in 2016. Curaçao and Sint Maarten managed to achieve budget surpluses on their ordinary service, whereas Aruba realized a budget deficit of 2.0% GDP, which is in accordance with the standard. Bonaire and Saba concluded the year with a balanced budget, whilst Sint Eustatius realized a surplus, which was largely utilized to compensate for previously incurred deficits.
Sustainable public finances
Balanced budgets are not always sufficient to ensure sustainable public finances. For Aruba and Sint Maarten, the budget results are strongly correlated with incidental revenues. Particularly for Aruba, it is important to start taking the necessary steps to make the public finances more sustainable, now that the debt ratio has increased further to 86% of GDP as a result of the budget deficit and a decreasing GDP. For Curaçao and Sint Maarten, the debt ratio is respectively 42% and 33%. In order to achieve sustainable public finances, an important contribution may be the introduction of a 40% debt quota standard into the national legislation, thus following an IMF advice.
Because of the financial supervision, Curaçao and Sint Maarten are allowed to borrow at very favorable interest rates. The financial benefit is 1.5% of GDP on an annual basis. For Aruba, the interest rates have now dropped, whilst the spread that the country has to pay on international capital markets was reduced by 1.5% since the introduction of financial supervision. Nevertheless, interest rates of 17% of Aruba’s income are too heavy for the budget. As a result of low economic growth, low inflation, and a relatively high-interest rate, Aruba is subject to a perverse ‘debt dynamics’. These three factors ensure that primary budget surpluses are not sufficient to reduce the debt ratio within the foreseeable future. Higher economic growth and lower interest rates are necessary to break the vicious circle. The Annual Report contains a separate chapter focusing on how to achieve sustainable public finances.
Financial management remains an improvement point
The improvement of financial management is not making any progress yet. Financial statements are adopted too late and accountants are not able to submit unqualified audit opinions on the basis of the information that is provided to them. For Curaçao, the objective is to obtain an accountant’s statement of reliability in 2018, while for Sint Maarten and Aruba the deadline is set by 2020. After that, steps will be taken to obtain accountant’s certifying statements of legitimacy. Strengthening of the tax department is required in all countries in order to improve compliance of tax payments.
In 2016, the Board of financial supervision also took notice of various government entities of which the government is the shareholder. A sound financial position of government entities, after all, is important for sustainable public finances and monitoring these entities is one of the aspects of sound financial management. Corporate governance, including a transparent dividend policy, needs to better structured in all countries.
Age Bakker: “The Board looks back on a year in which – in good cooperation with the countries and public entities – significant steps have been taken towards reaching more sustainability of the public finances.” The Parliaments play an important role in accounting for the execution of policies and for the public finance. The Parliaments are supported with sound advice of the advisory councils and the general audit chambers. For the year 2017, the countries and public entities again face major challenges. In cooperation with the Boards of financial supervision, the pursuit will be to meet budget standards, as well as an improvement in financial management and reforms that will lead to long-term sustainable public finances.
Source: St. Martin News Network
Cft Annual Report 2016: Budget standards met despite economic stagnation