St. Maarten’s deficit over 2017 lower than projected

THE HAGUE/PHILIPSBURG–The St. Maarten Government’s deficit over the year 2017 stands at NAf. 72.2 million, which is much lower than the anticipated NAf. 153.2 million that was incorporated in the amended 2017 budget.

The Committee for Financial Supervision CFT stated this in a letter that was sent to St. Maarten Interim Finance Minister Mike Ferrier on April 26, 2018, in reaction to the Executing Report of the second half of 2017.

The final figure can still change in the 2017 annual account as a result of corrections. The CFT noted that the Executing Report was a preliminary statement. In the Executing Report it was stated that it was based on the “available data and partly based on assumptions.”

The chief reason for the NAf. 81 million lower budget deficit has to do with the fact that the tax revenues did not decrease as sharply as projected in the amended 2017 budget. Also, the expenditures did not increase as much as anticipated because several policy initiatives did not start in 2017 as planned.

Revenues were NAf. 51.1 million higher compared to the 2017 budget, which was mainly because the expected decrease in wage tax revenues (+NAf. 24 million) and turnover tax (+NAf. 12.9 million) was not as bad as expected due to the decreased economic activities since Hurricane Irma.

Expenditures did not increase as was projected: the difference between the budget and the realisations was about NAf. 29.9 million. This difference was caused by lower personnel expenditures (-NAf. 14.5 million) and lower cost of goods and services (-NAf. 16.4 million).

The CFT noted in its letter to Minister Ferrier, which was signed by Chairman Raymond Gradus, that the lower cost of personnel was due to the vacancy stop, but also because recruiting to fill critical vacancies did not sufficiently progress in 2017. Several planned policy initiatives did not get off the ground.

There are some financial risks mentioned in the Executing Report that can lead to additional cost, such as the final Social Health Insurance SZV invoice for the Government’s health cost regulation for the years 2012-2017, the deficits of the health care funds ZV/OV Fund and the FZOG Fund which are managed by the SZV, and the division of assets of the AVBZ Fund with the Curaçao Social Insurance Bank SVB. The CFT advised Government to consult with the SZV regarding the final invoice of the Government health cost regulation.

St. Maarten’s debt position increased in the second half of 2017 due to a new loan of NAf. 21.7 million. This loan, together with a new NAf. 50 million loan, was used as liquidity support to help cover the 2017 deficit. In total the liquidity support provided by the Dutch Government amounted to NAf. 71.7 million.

St. Maarten has received dispensation for its budget deficit. On March 16, 2018, the Kingdom Council of Ministers decided to allow deviation from the norms set in the Financial Supervision Kingdom Law for the budget years 2017 and 2018.

The Kingdom Government also decided to approve an alternative to the regular mandatory compensation of the budget deficit in the subsequent budget year. As a result, St. Maarten may present a deficit on the regular account of the 2017 budget.

Based on the request of the Kingdom Council of Ministers, the CFT will get in touch with the St. Maarten Government regarding how to deal with the deficit compensation and to advise the Kingdom Government on a course of action. The CFT proposed coming to an agreement on this matter in the second half of 2018.

St. Maarten’s liquidity position deteriorated by NAf. 53.4 million in the second half of 2017 because of Hurricane Irma. The Executing Report showed that the payment arrears to the SZV decreased by NAf. 20 million in the second half of 2017.

In the first half of 2017, St. Maarten was able to pay off a lot of its arrears because the country received funds from the division of assets of the Netherlands Antilles and the wrapping up of the transfer of the Government Administration Building to the SZV.

The CFT was less content with Government’s financial management. In the second half of 2017, no improvement of the financial management was achieved, whereas the CFT has been seeking attention for this matter for quite a while. The Government Accountants Bureau SOAB and the General Audit Chamber have also devoted much attention to the matter.

“The CFT concludes that the Financial Management Improvement Project has not been progressing according to the planning. The Executing Report indicates that agreements are in preparation with the Ministry of Home Affairs and Kingdom Relations BZK to improve the capacity at the Finance Department in the short term.”

Due to the continued information technology problems facing the Government and the extraordinary circumstances after Hurricane Irma, St. Maarten has been unable to give adequate content to a properly functioning budgetary and accounting cycle.

“The CFT has been advising for a while to hire technical assistance to increase the capacity of the Finance Department, including the Tax Office. Possibly the technical assistance can be requested and deployed in these areas in the framework of the reconstruction. Adequate financial management and a well-functioning information and communication technology contribute to the completeness, correctness and controllability of the budget information.”

Additional capacity is also needed to draft the annual accounts of 2016 and 2017, as well as the Executing Report of the first quarter of 2018 and the monthly financial statements regarding the execution of the budget.

Source: The Daily Herald