Prime Minister and Minister of Finance Dr. Ralph Gonsalves. (File photo)

ST. VINCENT (Jan. 24):- Preliminary data for 2010 indicate that the economy declined by two per cent even as the national debt at the end of December 2009, stood at EC$1.17 billion, a seven per cent increase over the same period in 2008.

Prime Minister and Minister of Finance Dr. Ralph Gonsalves, in presenting the 2011 national budget on Monday, Jan. 24, said all major sectors recorded low or negative growth in 2010 while the rate of inflation was 2 per cent, compared with 0.5 per cent in 2009.

“This rate of inflation was mainly on account of an 11.3 per cent rise in the cost of electricity and increases in the prices of petroleum products,” he said.

Gonsalves further said that last year, the government recorded a current account surplus of EC$1.3 million, a slight improvement over the deficit of EC$3.3 million in 2009.

The overall balance registered a surplus of EC$12.6 million compared with a deficit of EC$55 million in 2009.

Meanwhile, the 2010 Balance of Payments recorded an overall surplus of EC$27.9 million associated with increased inflows on the capital and financial accounts.

Legislators in Kingstown are debating an EC$785.5 million budget for 2011, which Gonsalves said “has been crafted in an external economic environment shaped by the global financial and economic meltdown of September 2008, and continuing”.

The budget, which was presented under the Rubric “Fiscal and Financial Stabilisation, Job Creation, Wealth Creation, and Social Safety at the Tail-End of the Recession”, includes several proposals for stimulations of the productive sectors as well as increases in some licences.

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“My Government’s overall fiscal strategy for 2011 will focus primarily on stimulation of the productive sectors in order to return the economy to its growth trajectory,” Gonsalves told Parliament.

He said his Unity Labour Party administration, which was returned to office last month, is “looking to the private sector to play a more dynamic role in this process” and has devised several “new measures to provide the necessary incentives”.

Gonsalves further said “strengthening our fiscal and financial stability” will be “an equally important focus” this year and his government has formulated and will implement a Fiscal Stabilisation Plan.

The plan includes a Debt Management Strategy, “in order to stabilise the fiscal accounts of the Government through the transparent and prudent management of public finances”.

“Numerous studies have shown that a country’s macroeconomic conditions are among the most important determinants for both domestic and foreign investment. We have therefore proposed new expenditure and revenue proposals as part of this process,” Gonsalves said.

National debt

Of the EC$1.17 billion national debt, EC$580.8 million is owed to external sources while EC$588.6 million in domestic debt.

The central government accounted for EC$885.0 million (77 per cent) while the remaining $270.1 million (23 per cent) was held by public enterprises.

Of the total debt, EC$635.4 million or 55 per cent, was represented by loans, with bonds of EC$356.5 million (30.9 per cent), overdrafts EC$84.1 million (7.3 per cent), Treasury Bills EC$60 million (5.2 per cent), and other EC$19.2 million (1.6 per cent)

2009 economic performance

Gonsalves said that in 2009, economic activity slowed marginally because of the global economic downturn.

The gross domestic product (GDP) contracted by 0.6 per cent, compared to 0.2 per cent in 2008 because of weak performances in mining and quarrying, wholesale and retail trade, manufacturing, construction, and hotels and restaurants.

While manufacturing, construction, and hotels and restaurants recorded a decline in 2009, for a second consecutive year, the agriculture sector registered a 6.4 per cent increase following a decline of 4.3 per cent in 2008.

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In 2009, the average annual “point to point” inflation rate was 0.5 per cent compared with 10 per cent for 2008.

This was due largely to a 2.2 per cent decrease in the group “Food” during 2009, notwithstanding a 17.1 per cent increase in “Medical care and Expenses” that same year.

For the 2009 fiscal year, the central government fiscal position deteriorated, moving from a current surplus of $58.7 million in 2008 to a deficit of $3.3 million, Gonsalves said.

The primary balance recorded a deficit of EC$2.2 million in contrast to a surplus of $21.2 million in 2008 and the overall balance also deteriorated.

Meanwhile, Capital Expenditure for 2009, amounted to EC$130 million, a marginal decline relative to 2008.

“There was a concentration of expenditure on the further development of the social sector such as education and the improvement of the transport sector including rehabilitation of the Windward Highway,” Gonsalves said.