- Finance Administration Act allows Gov’t an overdraft facility at commercial banks
- Parliament caps the overdraft at EC$50m per year
- The overdraft attracts 8% interest and must be repaid by year-end
- Gov’t routinely exceeded overdraft limit, ending one year with $85.4m to be repaid
- Gov’t breaks the law by converting the excess to an ‘Accountant General Loan’, not approved by Parliament
- The law is intended to be a guardrail to keep Gov’t on a ‘road of responsible financial management’
- By flouting the law, ‘the country [is] heading to a financial cliff’
The Unity Labour Party administration has been routinely breaking the law by exceeding the overdraft allowed by the Finance Administration Act, and has unlawfully created an “Accountant General Loan” to cover the wrongdoing.
This was revealed by Leader of the Opposition Godwin Friday last Tuesday as he responded to the Budget presented one day earlier by Minister of Finance Camillo Gonsalves.
Friday said that every year, after the budget is passed, the Minister of Finance asks lawmakers to approve a motion allowing the government to borrow money by way of fluctuating overdraft to meet its current financial needs.
“There is usually no debate,” he said of the motion, adding that it is expected that such a motion would be passed “because of the intended benefit of allowing the government to meet its needs when it is expected revenues that come.”
The opposition leader, however, said this borrowing is expected to be short-term.
To illustrate, he read the motion passed in 2019, authorising the Minister of Finance to borrow by means of fluctuating overdraft or otherwise — from the First Caribbean International Bank or RBTT bank, or Bank of Nova Scotia, or the Bank of St. Vincent and Grenadines — no more than EC$ $50 million in total from Jan. 1, 2019 to Dec. 31, 2019.
The money is to meet recurrent requirements of the government, Friday explained, adding that the borrowing is authorised under sections 44 and 45 of the Financial Administration Act.
Section 44 of the Financial Administration Act says no money should be raised on the credit of government except under the authority of that law or another Act of Parliament or by a resolution of the house of parliament.
“I mean, that is categorical; that is clear. You can’t raise money unless Parliament allows it,” Friday said.
This, “is fundamental to democracy is fundamental to the way our system of financial accountability governs,” the opposition leader added.
He said the principle is international. “Parliament votes the money for the executive to spend, you’ve got to come here and justify it.”
The opposition leader further explains that section 45 of the Finance Administration Act says, the finance minister may in a financial year, when authorised by resolution of this House of Assembly, borrow current requirements from a bank or a financial institution by means of advances to an amount not exceeding in the aggregate.
“Again, that’s an important point,” he said, noting that the resolution sets the amount at EC$50 million.
“So the Act says first, you must do it by law — either a law that was passed by Parliament or by a resolution as the only way. And it says a specified amount. That is what you have to limit yourself to.
“You can’t exceed it. To exceed it would be, as we say, in ultra vires,” said Friday, who is also a lawyer.
“But more simply put it’s illegal. You’re breaking the law,” he said.
“We tend to get very lax and loose with these things because practice seems to take precedence over what the law says” Friday said.
The opposition leader emphasized that the resolution expires at the end of the year in which it is passed.
“In other words, such borrowings are intended to be cleared off by the end of the financial year.”
He, however, said that he has figured, dating back to 2009, it shows that at the end of the year, “there is usually a huge amount left unpaid on the overdraft”.
Reminding lawmakers and media audiences that the overdraft should not exceed EC$50 million in a year, Friday said that at the end of December 2009, it was EC$85.4 million.
“Imagine that you exceed the limits, you know, $85.4 [million] and you don’t have the decency at least bring it under the limit by the year-end when you know that it will be recorded,” Friday commented.
He said that at the end of 2010, the figure was EC$77.8 million, EC$29.1 million at the end of; EC$45.1million at the end of 2012; EC$52.5 million at the end of 2013; EC$52.7 million at the end of 2014; EC$61.9 at the end of 2015; EC$57.5 million at the end of 2016; and EC$57.4 million at the end of 2017.
“And then, in 2018, for some strange reason, they had it at the end of September … By that time is 47.7 million,” Friday said, adding that the overdraft at the Bank of SVG attracts an 8% interest rate.
The opposition leader noted that the annual budget is a framework through which the various aspects of the financial management and control of the government are performed.
“And this will be set out in the Appropriation Act and governed by the Finance Administration Act.
“So these, Mr. Speaker, if you like, these are the guardrails that really keep the minister of finance or the government from careening off the side and doing whatever the hell he likes.
“… They’re supposed to prevent the administration for the time being running the country from running amok with respect to the country’s finances.”
Friday said that “for the time being running the country” is important to note adding that the country “is not a plantation that you own…
“It is clear that when one looks at the performance of this government as set out above, the overdraft provision has been unlawfully used as an additional way to finance its operation beyond what was legally provided.
“So, the guardrails have been breached. The government, essentially, they run off the road of responsible financial management and they have the country heading to a financial cliff.”
He said that by 2017 the overdraft facility stood at EC$72.8 million.
“That’s a lot of money, Friday said.
The opposition leader said that the government, over the course of time, realised that they had to do something about this situation because this overdraft just keeps ballooning every year.
He said that more likely, what happened is that the Bank of St. Vincent and the Grenadines, put some pressure on the government to do something about it, at least to make the bank look good.
“So, beginning in 2011, Mr. Speaker it seems to me that it had started doing something again, Mr. Speaker, that is also illegal,” Friday said.
He said that instead of reducing the overdraft, the government converted the excess into a loan called The Accountant General Overdraft Loan.
“So you say to the bank…, chop off $40 million. Make it a loan. We go pay yo’ interest, the same interest rate, 8%. And your books look a little tidier.”
Friday said the problem with this is the government has no authorisation to take out a loan of that nature during the year.
“You have to come to Parliament to get that authorisation. You can’t just simply say, as a matter of convenience, we go borrow $40 million and put that in the following year’s estimates and Parliament doesn’t know about it until we read the estimates; there was no debate on it.
“Who gives you that authority? Is it just a matter of convenience?” Friday said.