PM Gonsalves has presented a tax free budget. (File photo)

TAIPEI, Taiwan: – The 2010 national budget for St. Vincent and the Grenadines (SVG) contains no tax increases, no plans for commercial borrowing, and the removal of value-added tax (VAT) on wheat and raw chicken imports, and packaging for agro-products.

Prime Minister Dr. Ralph Gonsalves said the EC$913.5M (US$338.3M) budget he detailed on Monday was his “most challenging” since his Unity Labour Party (ULP) came to office in March 2001.

Gonsalves, who is also Minister of Finance, said his administration was focusing on the productive sector with a view to bringing relief during the hard economic times.

He delivered his budget address as his supports and opposition protesters lined the streets outside the House of Assembly, the opposition highlighting the “major issues confronting the nation” while government supporters stood in solidarity with the administration.

Gonsalves announced a 20 percent increase in the fees for citizenship, residency, and work permits respectively, with exemptions for persons who become citizens by marriage.

“These are the only things we are increasing in the budget … and these affect foreigners,” Gonsalves said.

The budget comes at the beginning of the year in which, political pundits believe, the ULP administration will seek a third consecutive term in office and in the wake of a failed constitution referendum last November.

General elections are constitutionally due by next March.

The budget is EC$162.6M (US$60.22) or 21.7% percent higher than the approved estimates for 2009 and the government will run a current account deficit of EC$20.5M (US$7.59).

Gonsalves said this “manageable amount” — 1.3 percent of GDP — was a temporary situation necessitated by the global economic situation.

He said several of the programmes contributing to the deficit were needed to safeguards the gains made in poverty reduction and the “education revolution”. (Follow I Witness-News on Facebook)

“As Minister of Finance, I could have contrived a current accounts surplus… Had I done this, I would have acted contrary to the people’s interest, made matters worse, precipitated a needles crisis and put the country into a tail spin,” he told legislators.

He said the exclusion of some of these programmes, such as social welfare benefits and education, healthcare, and public safety initiatives, would have resulted in a current accounts surplus of over EC$6M (US$2.22).

“I could have balanced the books, but in the process, I would have unbalanced the country,” he said.

Gonsalves however said he was aware of the resulting financial imbalance of such a deficit, adding that his administration was “taking action to return to normalcy as soon as feasible, given the global economic situation”.

Financing & national debt

This combination photo shows opposition protesters (L) and government supporters (R) during the budget presentation.

Gonsalves said among the source of finance for the capital budget are project grants, budgetary support from the European Union and friendly governments, suppliers credit, and US$20M (EC$54) of the Special Drawing Rights at the International Monetary Fund.

He also addressed the increase of the national debt by 10.2 percent to EC$1.19B (US$400M), 75.4 percent of GDP in 2009.

“This is not an unreasonable rate of increase given the tremendous growth in physical, social and human infrastructure which we have achieved and given the global economic situation and the virtual drying up of aid from most of our traditional donors.”

He said SVG had to finance more and more of its own development and had to do so while trying to keep its debt within manageable levels and in keeping with international norms. (Follow I Witness-News on Facebook)

“The situation calls for creativity and innovative policy measure, we are now confronted with the difficult choice of whether to maintain fiscal stimulus, raising issues of debt sustainability of phasing out the fiscal stimulus, raising danger of adverse interaction between real economic activity, the health of the financial sector and the fiscal situation.”

Economy

In 2009, the economy contracted by 0.15 percent compared to the 0.6 percent negative growth in 2008. Gonsalves said this was the best performance among the countries of the Eastern Caribbean Currency Union (ECCU), except for Montserrat.

This came on the heels of real GDP growth of 8 percent and 7.6 percent in 2007 and 2006 respectively.

Last year, average inflation plummeted to 0.5 percent from 10.1 percent in 2008 and Gonsalves attributed this the fall in oil prices on the international market.

Agriculture accounted for 9 percent of last year’s earnings as the country recorded reduction in banana earnings and growth in “non-banana agriculture”.

Banana production in SVG was affected by several diseases and earnings fell from EC$16.2M (US$6M) in 2008 to EC$8M (US$2.96M) in 2009 even as other areas of the agricultural sector struggled with praedial larceny and the killing of ruminants by stray dogs.

In the tourism sector, visitor arrivals increased by 9.1 percent, with a 29.5 percent increase in cruise ship visitors while stay-over visitors fell 10.5 percent. The government has a “modest forecast” of 1 percent increase stay-over visitors and 5 percent increase in yachters. (Follow I Witness-News on Facebook)

‘severely challenged’ budget

In commenting on radio during the formalities before the budget speech, Director of the Agency for Public Information, Jimmy Prince, said the budget was being presented in an election year and in the face of an economic downturn that was particularly affecting SVG.

He also noted that banana in SVG had “gone under”, remittances had decreased and the tourism industry was “under pressure”.

“It would be interesting to see how government would ensure that [in] 2010 the economy would kind of remain afloat… This budget is going to be severely challenged with respect to how we are going to deal with… these new developments,” Prince said.

“It is that kind of critical thinking and those sorts of critical issues that have to be at the fore,” said Corlita Ollivierre, Manager of the National Broadcasting Corporation.

“Because we really are not an island unto ourselves and whereas we have had indications from time to time that the U.S. economy was rebounding, it seems to not be as the projection was and the sort of strength of the rebound had not been as forecast,” she added.

The budget debate continues on Tuesday, when Leader of the Opposition Arnhim Eustace will make a response.