Hope in uncertainty

Finance Minister Colm Imbert took us through the realities of the times as he dealt with everything from fiscal matters to a legislative agenda, covering such items as a revenue authority, insurance bill, procurement legislation, curbs on the gambling industry, the country’s debt profile, public expenditure review, changes to the Heritage and Stabilisation Fund, FATCA, and so much more. It is the type of presentation that facilitates greater understanding of our state of affairs and calms fears that usually arise through lack of information, especially in difficult times.

For instance, the minister pointed to increased oil production in 2016 from its lowest level in 50 years at 66,000 to almost 76,000 barrels a day. He also noted that gas production has picked up in the first six months of fiscal 2017.

Although the oil price is hovering around US$47 a barrel, oil prices have averaged US$50.45 a barrel for the first six months of the fiscal year. Additionally, over the last six months, Henry Hub natural gas spot price has reached as high as US$3.75 per MMBtu, last December, averaging well over US$3. What this means is that we have collected $3.6 billion in taxes from the energy sector so far for 2017, compared with the original budget projection of $2.6 billion, an increase of $1 billion.

The Government spent $23.5 billion, or $3.8 billion less than projected.

The increased revenues and less expenditure still did not prevent an interim deficit of approximately $5.40 billion, compared with a budget projection of $3.85 billion. This was due to temporary shortfalls in capital revenues and lower than projected tax collections in respect of goods and services, mainly VAT and transfers of State enterprise profits.

The minister said we had to borrow a $1 billion, five-year, 3.8 percent fixed-rate bond issued on December 15, 2016; a $1.0 billion, eightyear, 4.10 percent fixed-rate bond, issued on February 14, and a $1.5 billion, short-term (six-month), 1.70 percent fixed-rate bond, issued on March 16, all for budgetary support.

This saw our debt-to-GDP ratio move from 60.1 percent to 61.1 percent between October 2016 and last March. The lower spending has seen core inflation subdued. Food inflation has trended downwards, from a high of 18.2 percent in October 2014 to 7.7 percent in January.

The expansion of the VAT base, the gradual seven percent depreciation of the currency over the last year, increases in fuel prices, and other tax adjustments have resulted in lowering aggregate demand and thus dampening price increases.

Our net international reserves moved from US$10.4 billion in May 2014 to US$9.1 billion in April, remaining at 10 months import cover.

We should all note that the minister confirmed that the Central Bank has been asked to give priority to manufacturing and trade whenever it intervenes in the disbursement of foreign exchange to the commercial banks. We can expect to bear the full price of fuel by 2018 when subsidies will be removed.

The Government is placing emphasis on strengthening revenue collection instead of imposing new taxes or tariff adjustments and to address leakage and avoidance. The focus on tax evasion and avoidance is laudable since this will go a long way in boosting confidence in the Government’s efforts and will help remove the feeling that some “smartmen” are getting away while the majority carries the tax burden.

Property tax is being operationalised with the Ministry of Finance in the final stages of recruiting 248 members of staff for the Valuation Division. Finally, we see a mission from the World Bank is expected to visit the country next month, to commence the public expenditure review programme. Imbert was not a harbinger of doom and gloom on Wednesday, but with more information provided grounds for hope in this uncertain environment.