ROADTOWN Tortola BVI,  December 6th, 2011 6:35p.m. --  My fellow citizens of the Virgin Islands: As Minister of Finance I promised to inform you at the earliest possible date of the current status of this Territory’s fiscal position.

Today, I crave your indulgence as I now provide you with this information. In the New Year we will complete the preparation of the 2012 budget and I will deliver our first budget address which will be shaped by these circumstances.

At that time after consultation with my colleagues and with HMG as necessary, I will present our strategies, plans and programs detailing how we intend to proceed with fixing our economy. On 7th November 2011, you entrusted this Government with the responsibility to lead this country and to be in your service for the next four years.

This is a distinct honor and trust and we do not underestimate the gravity of this responsibility I therefore reiterate my solemn promise to do all in our power to rebuild an economy that is vibrant, where fairness and justice prevail, and where the future of our children promises to be better than it is today.

We have many challenges ahead because the reality is that my Government has found hardly any financial resources and a high stack of financial commitments and bills waiting to be paid. Recognising that Government is a ‘trust’ and an institution with obligations to its citizens; in the time honored traditions of this Territory, as Minister of Finance and Premier I have a responsibility to honor the debts legally incurred by the previous Administration.

My Government has started and will continue to press ahead with an independent and in-depth review of the current fiscal position of the Territory. I will report these findings to you at a later date. What I can tell you at this stage is that thus far, we have carried out an initial review of the fiscal status of the Government of the Virgin Islands.

I have reviewed the commitments against the public purse in addition to assessing our liquidity levels, better referred to as the cash we have on hand. My fellow Virgin Islanders, the situation is grim, the financial state of the Territory, to put it bluntly, is not good. Fellow citizens it is far worse than we anticipated.

The grim reality is that on assumption of office we met a running deficit of some fifty one million dollars ($51 million) that had been incurred by the previous administration despite their full knowledge that revenue collections were down during the same period. Of this running deficit, our findings are that there are unpaid bills for capital projects to the tune of some 19.8 million dollars.

As we peeled away the layers on this commitment we have to date identified some 14.8 million dollars in individual contracts signed, a large portion of which were petty contracts signed by my predecessor in the waning hours of the last administration. Coupled with this, are numerous project overruns and variation orders that made a mockery of budgetary allocations, compromised the execution of other projects and severely weakened the fiscal position of the Government of the Virgin Islands and by extension, the prospects for the immediate future for you the people of these islands.

Cash balances as of the 4th November 2011 were slightly over forty million dollars ($40 million) but when taken in the context of the running deficit of fifty one million dollars ($51 million) this presents a picture that is worthy of serious concern.

Current projections by the Ministry of Finance indicate based on the spending patterns thus far for the year that total revenue will be in the region of two hundred sixty eight million dollars ($268 million). This is a shortfall of 18 million dollars compared to what was budgeted and approved by the House of Assembly for the 2011 fiscal year. Recurrent, that is operational expenditure, is anticipated to be in the region of two hundred sixty four million dollars ($264 million) with capital expenditure at some forty six million dollars ($46 million).

These figures represent a three percent increase over last year’s recurrent expenditure and a 50percent increase on last year’s capital expenditure. This compromising fiscal position has resulted in the Virgin Islands breaching the liquidity requirements of the borrowing guidelines agreement signed between Her Majesty’s Government and the Government of the Virgin Islands in 2005, and thus preventing any additional debt or in this case, borrowing, from being placed on the books of Central Government without the express permission of the Foreign and Commonwealth Office (FCO).

Ladies and Gentlemen, it is important to note that according to the Auditor General’s report 2007, when my Government left office in 2007, we left healthy cash balances of $82 Million and that we were compliant with all the provisions of the borrowing guidelines. Indeed this same report showed that there was a surplus of close to four hundred thousand dollars (407,535) in that year.

The current breach of the borrowing guidelines potentially has very serious implications for our Territory as it suggests that we are on a path of un-sustainability. Further, as a result of our current state of play with respect to this, the loan that was approved by the Caribbean Development Bank (CDB) in May of this year for fixing our roads cannot be finalized without approval from HMG. As of today we do not have that permission. But I am confident that my Government’s commitment to prudent financial management as we go forward will help us to address the concerns of the Foreign and Commonwealth Office and secure this approval.

My Government will work tirelessly to ensure that our Virgin Islands, once again, will be brought to the place where responsible and prudent fiscal management and sound economic planning will be the cornerstones of the Territory.

We will also work tirelessly to ensure that we are reinstated to our previous position of liquidity which would allow us to fulfill the promises we have made to our children and to the people of the Virgin Islands. We have already begun that journey. We will continue it over the next four years and trust that our stewardship will allow you to use us as your custodians well into the future.

However, I must be honest and forthright and emphasize again that it will not be easy. Coincidentally even though we have had an average economic growth rate of some six percent, before 2009, with the arrival of the global recession we experienced negative economic growth into the double digits (around 11 percent). Government’s revenue however was surprisingly resilient with revenue decreasing by some four percent in 2009 from the previous year 2008.

Despite the contraction in the economy and the subsequent decrease in revenue realised by the Government of the Virgin Islands, we experienced an average increase of some ten percent (10 percent) in operating expenditure, with wages, salaries, and the cost of goods and services to the public accounting for some eighty percent (80 percent) of this expenditure.

This is an untenable situation. In simple words this cannot continue.
Ladies and gentlemen, we are all aware of the global recession and the effects that it has had on the Virgin Islands.

We are also aware of a conscious decision made by the previous Government to bridge the recessionary period and the effects it would have had on the local economy, by beefing up its public infrastructure investment program. In the case of the former it is a fact of life with which we were all faced, and in the latter it was a policy stance that on the face of it sought to protect the

people of the Virgin Islands. While not criticizing the principle of temporarily bridging the gap during an economic downturn as a way of providing a reprieve for our citizens, I am very troubled by the manner in which the previous Government effected this policy.

Public infrastructure investment cannot be defined by the personal favors that are granted to individuals at the expense of the taxpayer; the circumvention of checks and balances in the system created to promote transparency and value for money under the guise of expediency; nor does it involve pork barrel projects that are in effect conceived to promote the political life span of individual members in the House of Assembly.

Instead, it means investing in the public infrastructure and directly in the productive segments of the economy such that it results in a higher quality of life for all of the citizens of the Territory and includes as well, a more pleasant experience for its visitors.

This kind of investment translates to, for example, good roads throughout the Territory, reliable water and sewerage systems, and well-maintained public buildings. Let us be clear ladies and gentlemen, the industries that sustain BVI are tourism and financial services. We should have ensured that those sectors were being managed in a way that allowed revenues to flow into the Territory rather than trying to create an economy out of the finite resources of the Treasury.

Indeed the primary failure was using the Treasury as if it were an independent printing press for money and ignoring the very industries that have put BVI on its feet. Based on our investigations thus far, overwhelming evidence suggests that we have not been providing for our citizens en masse, but instead have been channeling resources towards special interests and a very small segment of our community.

This has resulted in the Virgin Islands facing as a significant matter of consideration, the escalation of expenditure and a growing debt burden with no appreciable increase in quality of life for the hard working citizens of the Territory.

I cannot therefore, in light of the evidence which we have unearthed, justify to any degree the choices that have resulted in the reckless endangerment of the future of the Virgin Islands and its people during the last administration.

I will, as stated, bring you a full and comprehensive report once we have completed our investigations which should give a more detailed picture where my Government found itself when it assumed office on 9th November 2011.

Our two main industries suffered significantly in recent years with tourist arrivals falling consistently each year from 948,425 in 2007 to 842,497 in 2010. Company incorporations fell from 77,033 in 2007 to 47,477 in 2009 and then began to improve, coming in at 59,624 in 2010.

The figures which I have just quoted to you illustrate quite clearly that either through neglect, insufficient work or investment on our part or overwhelming competition, we have been losing ground in the two main industries of this Territory. The two industries I must add that are responsible for the Virgin islands having one of the highest per capita earnings in the Caribbean.

This slide must be reversed, or other avenues successfully pursued if we are to be reasonably assured of a bright future for the Virgin Islands. This question is being examined thoroughly by my Government; I expect to respond to it in the budget address of 2012 as well.

The thoughts and suggestions of every citizen are welcomed in wrestling with this all important question. Ladies and gentlemen, I have just provided a snapshot of the current state of the central Government’s fiscal situation as I met it, and I am certain you will all agree that it is one which will create significant challenges for us in the coming years.

Sacrifices will have to be made by all of us as we cut back on expenditure and seek to grow our revenues and expand our revenue base. We expect everyone to join us, in the public and private sector to strive more than ever to be efficient, productive and resourceful as we work to rebuild our economy.

Let me be clear: it is important that all of us – the Government, the people and HMG - are all on the same page as our primary goal in the short term must be to control spending and grow our economy. I am immediately putting in place initiatives to get the economy going again, to get our tourism moving, our people fully employed and engaged with me and your other elected servants.

I assure you that the mess we inherited will be cleared up. This too will pass with hard work and an eye on the future. Perhaps the greatest hope is to get small businesses going, our small contractors working and more tourists coming and spending - confident that tourism will bounce back with our hard focused efforts. In this regard, all hands must be on deck and on a mission to restore the BVI to its days of having not only a healthy economic surplus but full employment for our people.

I therefore ask each of you to be patient in these trying times as we seek to bring our Territory back from the brink to an even keel, and restore it back to its rightful place regionally and globally. Thank you all for listening. God bless you all, and may he continue to bless these Virgin Islands.

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