Anguilla's Deficit Is 'Unsustainable'

by Phillip Morton, Investors Offshore.com

19 March 2010

The Anguilla government has admitted 'serious measures' will need to be urgently introduced in a budget next month to prevent the country's fiscal position from further deterioration. Tax revenues amounted to just XCD146m (USD56m) for the full year to December 31, 2009; a shortfall of more than XCD100m on that budgeted at the start of 2009.

In a statement on March 11, the government said: “Anguillan revenues have fallen 30% over the last two years, consequently it is no exaggeration to say that the revenue situation in Anguilla has been set back five years."

The government explained that during the last two years key revenue sources for the government, Customs Duty, Stamp Duty and Accommodations Tax, declined by 33%, 54% and 25%, respectively.

While expenditure was reduced partially by retrenchment in public sector salaries and wages and a partial freeze on hiring, the government in 2009 reported an estimated budget deficit of XCD69.1m. “This is an average recurring deficit of XCD5.75m (USD2.2m) a month; this is clearly unsustainable," warned the government.

According to the government, the deficit was partially financed by fiscal reserves worth XCD39m, with the remainder financed by domestic banks.

As a result of the deficit on government accounts Central Government Debt increased to approximately XCD172.1m in 2009, up from XCD149.7m at the end of 2008. “The government has found itself in a position where it has been borrowing money each month since October 2009 to fund civil servants' salaries and other obligations. This practice is unsustainable and cannot be continued indefinitely,” the fiscal statement explained.

“This will even prove to be more difficult because of the financial crunch where banks and other lending institutions are finding it difficult to lend to government because of liquidity issues and the borrowing guidelines that the British government has agreed with the government of Anguilla,” the statement continued.

The outlook for government revenues continues to look bleak. Analysis suggests that revenues will amount to approximately XCD148m in 2010, while expenditure will amount to around XCD237m – a deficit of over XCD89m.

The government's statement continues:

“We will therefore have to limit capital expenditure significantly which is normally funded by a recurrent surplus. With this revelation Anguilla will have to find ways and means to narrow the gap between expenditure and revenue as the Ministry of Finance puts together the budget for 2010.”

“The government of Anguilla has been operating on a Provisional Budget in the absence of an Approved Budget for 2010. This arrangement cannot continue beyond April 31, 2010. However, the Ministry is confident that a budget will be finalized before the deadline.”

“The gloomy position that the government has found itself in means that serious measures will have to be implemented in order to stabilize the deteriorating financial position."

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