ST. CHRISTOPHER AND NEVIS
2016
BUDGET ADDRESS
Mr. Speaker, I beg leave to move the second reading of the Bill shortly entitled the Appropriation Act (2016), 2015.
INTRODUCTION
Mr. Speaker, on the 16th day of February, 2015 the people of St. Kitts and Nevis made it clear that they were eager to embrace change in the interest of moving this country forward and upward under the leadership of a Team Unity Government. Although I had the privilege to present the budget in 2009, I must admit that on this occasion I am deeply humbled that I can now rise in this Honourable House as Prime Minister and Minister of Finance to present a budget specifically designed to usher in a new era of positive change and transformation in the lives of our people. For this I say thanks and to God be the glory. This is indeed an awesome responsibility. Coming from the back lands of the country village of Tabernacle, my upbringing has predisposed me to ensure that the decisions of the Government are targeted at empowering the vast majority of our people who have been previously left out. As I canvassed the country, there were far too many people who were of the view that they were living a life of hardship; too many persons were crying out for help. The Team Unity Government takes very seriously its mandate to bring those people into the mainstream of the economic life of the country as productive actors.
The policies of my new Government will instil in our people, particularly those who are marginalised, a new sense of hope and confidence that they too can move from very humble circumstances to achieve great things. They too can rise from a life of poverty to one where they are the creators of and partners in enterprises. There are sufficient examples of persons who have accomplished this through industry and hard work. I speak about the man who from even further back in the country started out as a small mechanic and rose to become a leading entrepreneur in this our beloved Federation; the woman who left St. Kitts as a young lady trained as a nurse in the UK and now owns and operates a world class facility providing health care services for the elderly and employment for others; and the list goes on. These people have demonstrated that the possibilities are endless and I encourage all of our people to emulate such good examples in our society, to take inspiration from these successes and create their own space, their own opportunities. We hope that this first budget of the Team Unity Government would help to enable and empower many of our Nationals to improve their lot and elevate themselves to a higher position to contribute to building this great Nation of St. Kitts and Nevis.
Mr. Speaker, it was the support of the ordinary citizens and the citizenry in general that propelled Team Unity to a well-deserved victory at the polls. We can confidently affirm the pledge of the new Cabinet of Ministers that Team Unity will put the needs of the people of this Nation first, above all other competing interests. From the date we took office we have been working assiduously. It is a pleasure to report that we have covered much ground and are now in a position to lay the foundation in this 2016 Budget to deliver on some of the remaining elements of the Team Unity’s commitments to the people of this great Nation. The firm resolve of the Team Unity Administration has already been tangibly demonstrated when we moved quickly and decisively to remove VAT from all food, medicine and funeral expenses. We recognised that this action was implemented with downside risks for Government’s revenue, but considering that the alternative was to continue to inflict a heavy tax burden on the poor ordinary man, the working class family, the female head of households, the vulnerable and indigent, we chose to give the masses of the people a fresh start towards improving their lot. This decision was based on the determination that the lives of our people can be changed and must be changed for the better. In the end, there was only one right decision and that is why within two months of taking office, we took the bold decision to remove VAT from all food items intended for human consumption. We brought relief to the poor who struggled to bury their loved ones, burdened with an additional 17% VAT. We are offering better policies to improve and change the lives of our people for the better.
A top priority for my Administration is to ensure that this VAT reduction initiative of the Government is not squandered and that the people are the true beneficiaries of the tax relief measures. Some callers to radio programmes have claimed that some businesses are attempting to profit from the VAT initiative at the expense of consumers. I want to encourage all those who are tempted to try to cheat consumers, to resist the temptation and give our people a chance to realize the benefits of a reduced tax burden. During the coming months, the Government, working through the Department of Consumer Affairs, will develop and implement a strategy to address the issue of price gouging by businesses, to enhance consumer protection and ensure that persons receive their fair share in the market place. In 2016, the appropriate Ministry and the Office of the Attorney General will review existing policies and legislation and make proposals for the strengthening of the Consumer Affairs Act (2003) and supporting regulations.
Mr. Speaker, as a new Government it was important for us to immediately make good on our commitment to pay a gratuity to former sugar workers. We were compelled to find a workable solution in favour of the many former sugar workers who were aggrieved over the arrangements made for compensation in 2005 when the sugar industry was precipitously closed. In this regard, the Sugar Workers Restoration Fund (SWRF) was established with a grant from the Government of the Bolivarian Republic of Venezuela in the amount of EC$16 million. The Fund was ably managed by the Sugar Workers Restoration Fund Committee, a special Committee commissioned by the Government. This Committee comprised of seventeen members drawn from the Public and Private Sectors and Civil Society. The beneficiaries of this initiative have laboured long and hard in the single most important industry which was responsible for building the foundation of the now thriving modern country, St. Kitts and Nevis.
It is expected that 2,311 applicants will benefit from this initiative. This more than doubles the 968 persons who benefitted from the compensation package offered in 2005 and therefore provides a fair share for those who were previously left out. As at 3rd December 2015, the Sugar Workers Restoration Fund Secretariat settled a total of 1,813 claims and disbursed approximately $12 million to qualifying applicants. There are still a number of claims remaining to be settled and these consist primarily of applications on behalf of deceased persons. In the interest of transparency and fairness, the Secretariat is supported by four legal professionals who are ensuring that persons claiming on behalf of the deceased are legally entitled to do so. Further, the recent amendment to the Administration of Small Estates Act would also greatly assist with expediting the processing of claims related to the estate of the deceased. Therefore, payment of the outstanding amounts will be done expeditiously after the required documentation is received verifying the legitimacy of the persons claiming benefits under the programme. The Team Unity Government has delivered on its promise to the people and it makes no apologies to those who oppose this action. We are proud of this initiative and the efficiency of our delivery. I take this opportunity to thank all those who worked with my Government to make this commitment a reality. In particular, our Cabinet records our enduring gratitude to President Nicolas Maduro, the Government and the People of the Bolivarian Republic of Venezuela, Maria Colmenares of PDVSA St. Kitts and Nevis, the SWRF Committee and Secretariat and the Accountant General’s Department of the Ministry of Finance.
Mr. Speaker, we are proud of the legacy that is being created with the new sense of unity between the Federal Government and the Nevis Island Administration (NIA). Advancing the development of both islands makes good sense and would redound to the benefit of the people of our twin island Federation. The Federal Government will therefore continue to work closely with the NIA in a spirit of mutual respect and cooperation. In keeping with the new spirit of responsible cooperation, neither entity should become a financial burden on the other. It is important for the Nation to understand that under past Concerned Citizens Movement (CCM) led Administration, Nevis had a proud history of responsible fiscal management and demonstrated the capacity for self-sufficiency in financing the operations of its local Government. Since coming into office, very tangible assistance in the amount of $20 million has been provided to the NIA in support of its budgetary operations for 2015. It is therefore anticipated that the Federal Government will continue to work with the NIA to strengthen the foundation for self-financing. To this end, we will continue to share expertise across both islands and ensure that we adopt a harmonised approach to the development of fiscal policies and the administration of the tax regime, revenue collection and expenditure control.
Mr. Speaker, the choice of the theme for this 2016 Budget was inspired by the strong belief of Team Unity that our Nation must begin to chart a new course of direction in order to achieve sustainable development, people-centred growth and prosperity for all. Simply put, we need a fresh start that brings a new focus on people. Consequently, we must change our approach and the existing mind-set that attaining high rate of growth in Gross Domestic Product (GDP) is sufficient. People must be placed squarely at the centre of our efforts to grow and develop this blessed land that is the dearest and the best. This is why, Mr. Speaker, we maintain that there is need for a Fresh Start. In order to change the lives of our people for the better, we need fresh approaches to the challenges that continue to confront us, a fresh start towards sustainable development, growth and prosperity.
The Team Unity Government is humbled by the fact that we have been chosen to lead the way over the next five years, to move this Nation to new heights of human development, and to create new opportunities for a better standard of living for all citizens of the Federation. Our Prosperity Agenda has been developed on the premise that our people should be able to derive maximum benefit from the implementation of public policy, public sector investments, and their individual efforts. Our message to the people is that we have come to Government at this time to work on your behalf to make things better. We are encouraged that our people understand that the damage done over 20 years of maladministration cannot be undone in 20 months. We are also encouraged that a recent poll by Don Anderson revealed a 68% favourable rating of this Government’s exceptional performance. We pledge to our people that we shall continue “Working for You”.
Mr. Speaker, we operate in an economic system that is influenced by developments around the world. Therefore, recognizing that reality, I will now present a snapshot of the recent economic developments on the international and regional scenes which could affect our own development thrust.
INTERNATIONAL AND REGIONAL ECONOMIC DEVELOPMENTS
Mr. Speaker, we have observed for some time the impacts that war, civil unrest, volatility of money markets and depreciating commodity prices have had on the larger members of the global community. We have also seen the negative implications of these events on Emerging and Developing countries across the world. The International Monetary Fund (IMF), in its October 2015 edition of the World Economic Outlook (WEO), reported that the prospects across countries and regions remain uneven with respect to economic performance. Relative to the performance in 2014, growth in advanced economies is expected to increase slightly while declining in emerging and developing economies. In light of these performances, global output for 2015 is projected at 3.1%, a decline of 0.3 percentage points when compared to 2014. The emerging and developing economies are projected to expand by 4.0% in 2015, 0.6 percentage points lower than 2014. The advanced economies continue to record slow but steady growth with economic output projected to expand by 2.0% in 2015 after recording a growth rate of 1.8% in 2014.
Economic activity in the United States economy is projected to expand by 2.6% in 2015, a slight improvement when compared to 2.4% in 2014. The recovery has been supported by lower energy prices, supportive monetary conditions and improvements in the labour market. This was evidenced by increased job numbers and a declining unemployment rate which was reported at 5.0% in October 2015. Economic activity in the United Kingdom is projected to expand by 2.5%, a falloff of 0.5 percentage points. Notwithstanding a slight dip in output, the positive performance was supported by capital gains from low oil prices and continued recovery in wages. The Euro Zone is also expected to experience an increase in growth in the region of 1.5% in 2015 compared to 0.9% in 2014. Even though this appears to be a small gain in terms of growth, it is a welcome outturn in light of the negative developments in some parts of the Euro Zone. Further, the Greek financial situation and the recent influx of refugees and economic migrants present new challenges for a number of Euro Zone countries. Like many other nations around the world, we look on from a distance and entertain hope for rapid resolutions to these problems because, if left unchecked, they could trigger a trickledown effect and quite possibly affect economic performance here in the Caribbean.
Closer to home, the wider Caribbean Community continues to struggle with the difficulties in achieving a strong recovery as individual countries try to implement policy changes intended to address a variety of challenges brought about by internal and external factors. The economy of Trinidad and Tobago expanded by 0.9% in 2014, a slowdown when compared to 2.1% recorded in 2013. Economic output in Jamaica expanded by 0.4%, a very small increase when compared to growth of 0.2% in 2013. The Barbados economy recorded weak but positive growth as real output remained flat in 2014 when compared to a contraction of 0.2% in 2013.
The economies of the Eastern Caribbean Currency Union (ECCU) recorded an expansion in economic output of 2.9% in 2014 when compared to 1.7% in 2013. This performance can be attributed primarily to improved output in the Tourism, Wholesale and Retail Trade, Transport, Storage and Communication, and Agriculture Sectors. Value added in the Tourism Sector expanded by 5.3% in 2014 when compared to economic output of 2.6% during 2013. The Wholesale and Retail Sector rebounded when both periods were compared recording a growth rate of 3.9% after having contracted by 1.0% in 2013. Economic activity in the Transport, Storage and Communications Sector increased by 4.2% in 2014 when compared to 3.1% in the comparative period. The Agriculture Sector continued to show a strong performance recording an expansion of 7.2% in 2014 when compared to 5.3% in 2013. Preliminary data for the period January to June 2015 indicated that economic output within the ECCU expanded by 2.0%.
Mr. Speaker, we will continue to keep abreast of the developments in the regional and international communities and hope for better results in 2016. Permit me now to give due attention to the Domestic Economy.
THE DOMESTIC ECONOMY
Output and Prices
Mr. Speaker, notwithstanding the mixed performance of the global economy, we are pleased with the good news that St. Kitts and Nevis is on a positive growth path with strong performances in a number of key sectors. In 2014, the Gross Domestic Product (GDP) of St. Kitts and Nevis grew by 6.1%. More importantly, over the period January to June 2015 GDP expanded by 7.1%. The increase was attributed to the buoyancy of the Construction Sector, fuelled by the Citizenship by Investment (CBI) Programme, as well as the recovery of the Tourism Sector. As at the end of June 2015, growth in the Construction Sector was estimated at 12.3%. The performance of the sector was attributed to the ongoing construction work on two major private sector hotel and condominium developments coupled with public sector related projects such as the Upgrade of the Dr. Kennedy Simmonds Highway and the construction of roads in new residential areas. There was also a continued drive in residential construction.
Economic activity in the Tourism Sector was estimated to have increased by 8.4% in the first six months of 2015. This development reflected a significant increase of 11.5% in the number of stay-over visitor arrivals in the first quarter of 2015 as a result of Nationals returning to the Federation to exercise their franchise during that period. Visitor arrivals also increased by 4.4% in the second quarter relative to the comparable period in 2014. Stay-over visitor arrivals from all of the major source markets recorded increases, primarily Canada (8.1%), the United States of America (6.5%) and the United Kingdom (6.2%). The number of cruise passengers increased considerably by 82.9% to 506,768 passengers consistent with a 25.2% increase in the number of cruise ship calls.
Additionally, growth in the Transport, Storage and Communications Sector was estimated to have increased by 16.7%, mainly as a result of the positive impacts from the increase in tourism and construction activities. Improvements were also recorded in value added from a number of other sectors including Wholesale and Retail Trade (10.9%), Financial Intermediation (4.8%) and Real Estate, Renting and Business activities (3.5%). Developments in the real sector were partially moderated by a decline of 1.7% in the Manufacturing Sector. Beverage production declined by 15.0% in the first half of the year as the short term contract to export alcoholic beverages expired. We are heartened that during this quarter the Carib Brewery has regained a contract to supply the foreign market. This has resulted in increased employment at that plant. Exports of electronic components increased slightly by 0.2% relative to the comparable period of 2014. In connection with this, it is worthy to note that the foreign trade statistics from the United States Census Bureau indicates that St. Kitts and Nevis remains the leading exporter of goods to the United States from the Organization of Eastern Caribbean States (OECS) recording a total value of US$33.3 million as at June 2015. During the first six (6) months of 2015 the Agriculture Sector recorded a 27.9% decline in crop production as a result of the prolonged period of drought that has continued to impact our Federation. This outward manifestation of the effects of climate change provides a clear indication of the vulnerability of the sector and the need for a change in the development strategy. My Government will provide a number of special incentives to the Agriculture Sector. These will be announced after our consultations with the stakeholders is complete.
The outlook is for the economy to continue to achieve positive growth with a projected growth rate of 6.7% for 2015. According to a recent IMF publication in October 2015 entitled “Jobs, Wages and Latin American Slowdown”, this outturn can possibly be recorded as the highest in the Caribbean and second in the Latin American region only to Panama. The prospects for further expansion of the national economy are contingent on accelerated growth in advanced economies, especially the Federation’s major trading partners and progress of the existing CBI related real estate projects.
Our surveillance of movements in prices in the Federation has revealed that we experienced deflation of 2% over the first six (6) months of 2015. This is the remarkable effect of our VAT initiative mentioned earlier. Most notable is the 9.5% decline in prices under the Food and Non-Alcoholic Beverages category of the index during the first half of the year. This means that the Team Unity Government has increased the purchasing power of our citizens, increased the capacity for the most vulnerable persons to meet their basic food requirements and reduced the operating costs of businesses that operate in the food and beverage industry. We are walking the walk – we are putting our people first.
The External Account
Mr. Speaker, preliminary estimates for 2015 indicate that the transaction balance in the Capital and Financial Account was equal when compared to that on the Current Account. Therefore, there was no surplus or deficit on the Balance of Payments Account. This outturn can be attributed to the inflows of Foreign Direct Investment (FDI) for equity development and land sales under the Citizenship by Investment (CBI) Programme. The Goods and Services Account recorded a narrowing of the net import position by 2.7% to $221.4 million or 9.7% of GDP as a result of an expansion in the merchandise trade deficit of 8.1% to $632.6 million or 27.8% of GDP. The surplus on the Services Account is expected to increase by 14.9% to $408.3 million or 17.9% of GDP in 2015. This outturn can be attributed to an expansion in travel receipts directly associated with the increase of stay-over arrivals to the Federation. The domestic economy continues to perform in a manner which makes it possible to cover external purchases. This demonstrates additional evidence of the economic viability with the ability to provide resources to cover about 7 months of imports of goods and services. This Team Unity Government will not be complacent but will continue to maintain this position to ensure an accumulation of a surplus on a routine basis.
Performance Review 2014 Fiscal Operations
Mr. Speaker, for the 2014 fiscal year, the Government’s Recurrent Revenue was $767.9 million. Of this amount, $383.7 million (50.0%) was derived from taxes while $384.2 million was generated from non-tax revenue. Most of the non-tax revenue was derived from fees from the Citizenship by Investment (CBI) Programme which heavily influenced the fiscal performance for 2014. Revenue from Taxes on International Trade and Transactions, however, fell below the budgeted amount by 3.1%.
Recurrent Expenditure for 2014 amounted to $482.6 million, 7.9% over the approved budget and 8.0% more than expenditure in 2013. The overages were reflected in Personal Emoluments, Wages and Allowances which surpassed the budget and expenditure in 2013 by 6.0% and 9.4% respectively mainly on account of the bonus salary that was paid in December 2014 and Transfers which were over the estimated amount and the previous year’s expenditure by 7.3% and 57.1% respectively. The amount that was spent on Goods and Services also exceeded the estimates by 17.4%. This included $82.3 million in over expenditure in 2014 that we had to bring to account by Appropriation Warrants in 2015.
Mr. Speaker, with respect to Grants, an amount of $67.6 million was received in 2014 which was 22.7% below the estimate and 51.4% less than the amount received in 2013. Budgetary Grants were derived mainly from the European Union and represented 47.8% of the total Grants received. Capital Grants, on the other hand, accounted for 52.2% of Total Grants. The main source of funding for the Capital Grants was the Sugar Industry Diversification Foundation (SIDF) which provided support for several capital projects such as the Dr. Kennedy Simmonds Highway and other road improvements.
The combined effect of the Government’s Recurrent and Capital activities resulted in an Overall Surplus of $235.2 million and a Primary Surplus of $280.8 million. The Overall Surplus in 2014 was 6.9% below the Surplus that was achieved in 2013. Similarly, the Primary Surplus in 2014 was lower than the 2013 Primary Surplus by 11.4%.
CONFRONTING THE CHALLENGES – MAXIMISING THE OPPORTUNITIES
Stimulating Economic Growth
Mr. Speaker, there are numerous threats to the survival and economic progress of our small Nation operating in a global environment that is constantly changing. Admittedly, our challenges include small size, openness of our economy, low productivity and low job creation. In addition to these are the ever pressing need for structural adjustment emanating from external shocks, vulnerability to natural disasters and climate change. The forecast for low growth and continued volatility within the economies of our main trading partners over the medium term makes it imperative that we keep our fiscal house in order. We are also fortunate to be in a position where we have built a fairly good understanding of the vulnerabilities of our Federation and have garnered a strong foundation to support our progress to the next stage of our development. We therefore can continue to develop and implement the right mix of policies, programmes and projects to mitigate any foreseeable negative effects of the forces that may come against us. Our unwavering point of view is that our strategy for stimulating growth must be guided by the objective of making positive changes in the lives of the citizens and residents of the Federation. This will be our focus as we make a fresh start to plan and devise strategies that will achieve our goal of stimulating a sustainable people centered growth and prosperity for all citizens and residents.
Over the last several years, the Citizenship by Investment Programme has been an important pillar supporting growth and development in the Federation. We are all aware that even though the CBI Programme is a major contributor to the national economy, it was allowed to fall into disrepute and earned itself and the Federation much negative publicity. The angst of the US Treasury Department was felt in the FinCEN Advisory of May 2014 in which the most powerful nation on the earth, USA, warned the world that the former administration had allowed illicit actors into the Programme. Further, we were told that the Government of the USA no longer trusted the former administration. Those familiar with diplomacy know that such outright condemnation, public and strong as it was, only come after quiet diplomacy has failed. We saw, too, the quick and firm rebuttal from Mark Bysfield, US Consul General in a press release issued on 16th July 2014 to the then Press Secretary’s false statement that the US Government had approved the removal of the country of birth field from our passports. The existence of the FinCEN Advisory represents a dark and bothersome stain on our country and our financial space and has elevated our risk profile. Our Government pledges to do all in its power to correct this serious problem which we inherited. We wish we could have solved it overnight but it will take dedicated and concerted action. We are pleased to announce that the Cabinet has approved the retention of the professional service of Lanny J Davis and Assoicates to assist us in more effective engagement with the US Government. More information will be provided on this in the new year. Suffice it to report that this engagement of Mr. Davis comes at no cost to our Government.
We promise to leave no stone unturned to undo the reputational damage to our country by the callous actions of our predecessors. We are off to a fresh start. A promise made; a promise kept. Our CBI Programme lost much but our people lost even more when the Government of Canada withdrew our visa free access to that country in November 2014, again over identity management issues. Another friendly government publicly told the world it could not endure a relationship that had become risky to its national security interests. This is the story of dry bones which we inherited. Every thinking citizen knew by November 2014 that it was only a matter of time before the CBI would have breathed its last breath under the former regime. But to God be the glory; on 16th February 2015 the people voted to redeem our country and with it, the CBI Programme.
The reform work we have completed to date and improvements to the operations at the Citizenship by Investment Unit (CIU) holds much promise to give our CBI Programme a Fresh Start. To date, my new Government has worked assiduously to restore the integrity and reputation of the Programme by rebuilding the relationship and confidence of all at home and abroad. We are a Government that listens to our industry partners and have progressed from simply talking about reforms to the implementation of concrete initiatives. Staffing at the Unit has been upgraded to include qualified and well trained personnel with years of experience in Immigration, Financial Services operations and Anti-Money Laundering principles and procedures. I am also happy to report that we have expanded access to the CIU, through the introduction of a new Case Management System, which gives 24/7 access to Service Providers. This new system was unveiled in October 2015 after months of careful planning. It is expected that the system would, in future, add much value to the functioning of the Unit by expediting the processing of applications and improving the responsiveness to applicants. Local Service Providers who once were so negative about the CIU are now singing its praises for the quality of work and efficiency in its delivery.
The implementation of the recommendations of the well-respected firm, IPSA, has also given much comfort to our international partners and dispelled some of the serious concerns about the operation of the St. Kitts and Nevis CBI Programme. These actions would help to enhance our due diligence process, greatly improve risk management and thereby boost our continuing efforts at recalibrating and repositioning the Programme in the global market. We are closely monitoring global events and occurrences and we would be nimble in our response to protect our Programme and Federation from the fall outs occasioned by such events.
Over the past year, the Programme continued to show great resilience in responding to the tough times. During the course of 2016, we will continue to be vigilant in ensuring that the programme can take advantage of its inherent strengths so that it can continue to yield benefits to the country well into the future. My Government also intends to continue its advocacy for a more collaborative regional approach to development and management of CBI Programmes in the region. We believe that there is more to be gained from regional countries working together rather than blindly competing against each other and running the very high risk of winning the race to the bottom. Our patrimony is worth more than to be traded in a market for lemons or like black pudding on a weekend day.
Mr. Speaker, in reviewing the CBI Programme we are left with the conviction that we must do a better job of ensuring that the continued operation of this Programme delivers full benefits to our people. The Team Unity Fresh Start and Prosperity Agenda emphasizes growth that is job rich and ensures that our people are given first preference for filling the jobs that are created as a result of the CBI Programme and other investment programmes that are supported by the healthy concessions regime offered by the Government. We want only the best for St. Kitts and Nevis. A discerning investor with an enduring interest in working with us to make our St. Kitts and Nevis the best.
Mr Speaker, one of the Team Unity Government’s manifesto promises was the replacement of the Sugar Industry Diversification Foundation (SIDF) by a new entity that complies with the provisions of Section 69 of our Constitution. Such compliance is inclusive of full transparency, with its revenue being deposited into the Consolidated Fund. Early in 2016, our Team Unity Government intends to fully transform the SIDF in keeping with our unequivocal manifesto commitment to bring accountability, bold public scrutiny, and financially prudent investment of the SIDF’s resources in the interests of national development and sustainable human development endeavours. These initiatives will auger well for the good governance agenda that is a hallmark of our Administration’s approach to national transformation and public sector management.
We concur with the Chamber of Industry and Commerce that it is time to diversify away from CBI. We cannot place our focus for the growth and development of our country on a single industry over which we have restricted control. We cannot return to the sugar plantation model of over dependence on a monocrop. We make it clear, we will actively participate in the CBI Programme for the foreseeable future. We will continue to strengthen it and nurture it. While we appreciate the large investments in the accommodation segment of the Tourism Sector, we would also place emphasis on other areas of development that can contribute to the diversification of the economy. In particular, renewable energy, agriculture and manufacturing would be critical for driving Private Sector led growth over the medium term. Equally, we need to promote our arts, culture and history and thereby promote greater opportunities and resources for our talented youths to make a success of their lives. We will therefore emphasise awareness of these types of investments to encourage local and foreign investment in these and other areas.
Building Competitiveness
Energy and Water
Mr. Speaker, at a time when the effects of climate change continue to have serious impacts on Small Island Developing States (SIDS) it is important for us to be more proactive in the development of the Energy and Water Sectors. More specifically, we must accelerate the pace of integrating renewable energy sources and securing sustainable supplies of water within our Federation.
My Team Unity Government has evaluated the progress made in regard to renewable energy. We are still some distance away from creating the energy self-sufficiency needed to make a notable reduction in our dependence on fossil fuel consumption and the high cost of electricity. Therefore, after careful consideration, we have decided to expand the exploration of geothermal energy to include the island of St. Kitts. This approach is not designed to slow or compete with developments on the island of Nevis but rather to complement and, quite possibly, expand the overall renewable energy resources of the Federation. It is in this context that the Federal Government signed a Memorandum of Understanding (MOU) with Teranov, a Guadeloupe based engineering group. Teranov has a sterling reputation which builds confidence that we can achieve success in establishing a public-private partnership in renewable energy development with the ultimate goal of establishing a geothermal power plant in St. Kitts. The current plans anticipate that the work will be done using a phased approach and the process will take about five years to complete. Exploration activities would take place in the Sandy Point area as part of the first phase. Based on the success of Phase One, the process will progress to the next phase in 2017 with the launch of a commercial size demonstration well, followed by the final geothermal assessment, the construction of a power plant in 2018 and the operationalization and commissioning of the plant by 2020.
In order to step up the pace of diversifying the renewable energy sector, my Government has taken the decision to move ahead with development of wind energy exploration on St. Kitts. A review of the proposal presented by North Star (St. Kitts) Ltd. has been undertaken and significant changes have been made to ensure that there is room for competition in the market. These changes were necessary as we are a Government that believes that there should be a level playing field allowing for a fair share to all desiring to participate in the wind energy business. I am pleased to report that the negotiations are in the final stages and it is anticipated that during the coming year work will commence on this important initiative to advance the sector.
Mr. Speaker, water is a vital element to the sustenance of life. Although roughly 71% of the earth’s surface is covered with water, unfortunately approximately 96% of that coverage consists of oceans and seas making it unavailable for immediate consumption. This year the challenge of access to clean potable water became more apparent to residents in the Federation, particularly those living on St. Kitts. We have been experiencing the effects of a prolonged drought that has resulted in a rainfall deficit of 50% and significant depletion of our freshwater reserves. The initial response of the Water Department was to initiate a water rationing programme and outreach to consumers to encourage water conservation at the household level.
My Team Unity Government has no intention of allowing this issue to continue unaddressed as it has serious implications for health and hygiene, productivity and sustainable growth and development. In this regard, the Ministry of Public Infrastructure has examined the situation and has determined that, in conjunction with the rationing and conservation approaches, a number of additional measures and critical investments would be necessary in order to protect this precious resource. The short, medium and long term plans would be further developed in 2016 to provide welcome relief from the water shortage situation and to ensure continued reliable access to households and businesses. Going forward, the strategy will include (i) the ongoing well drilling programme; (ii) consideration for the repositioning of a number of existing wells closer to the source of the supply of water for the Basseterre Valley Aquifer; (iii) stricter enforcement of the protection of aquifer and watershed resources; and (iv) construction of new reservoirs in water stressed areas and new communities. We would also explore the possibilities of introducing desalinization in the public water supply and encourage major developers to include water supply as an important aspect of their design of new development projects. Only on Friday, the Honourable Minister with responsibility for utilities, the Honourable Premier of Nevis and the Honourable Foreign Minister expounded and elucidated on our alternative energy programmes for St. Kitts and Nevis; therefore, I will not get into a more detailed exposition.
Doing Business
Mr. Speaker, the Ministry of International Trade, Industry and Commerce plays a vital role in terms of providing oversight for the trade and business environment in the Federation. We are keenly aware of the challenges faced by small economies such as ours as we strive to be taken seriously in an evolving global business environment. In this regard, this Team Unity Government has taken steps to strengthen its operations through changes in organizational structures and improved human resource capacity. These changes were found to be necessary as we take steps to advance the coordination and implementation of several trade agreements including (i) the World Trade Organization (WTO) Trade Facilitation Agreement which we hope to ratify in January 2016; (ii) the obligations under the CARIFORUM-EU Economic Partnership Agreement (EPA); (iii) the Free Circulation of Goods within the Organization of Eastern Caribbean States (OECS) Economic Union; and (iv) the Brazil-Guyana-St. Kitts and Nevis Partial Scope Agreement (PSA). As the number of trade agreements continue to expand, it is important that the Ministry is placed in a position to ensure that maximum benefits can accrue to our manufacturers, businesses and consumers. The end result should be increased positive economic growth, a steady rise in the creation of jobs and greater earning power of workers.
As we pursue these opportunities, we must also address what may hinder us in 2016. The World Bank Doing Business Report ranked St. Kitts and Nevis one hundred and twenty-four (124) out of one hundred and eighty-nine (189) economies assessed. This is clearly unacceptable to my Team Unity Government. It is time for decisive action and therefore this Government, through the Ministry of International Trade, Industry and Commerce, will coordinate the implementation of the recommendations outlined in the “Strategic Plan to Improve St. Kitts and Nevis Doing Business Ranking”. The Strategic Plan includes a framework and action plan for improving our performance in areas that remain a challenge namely; Registering Property, Getting Credit, Enforcing Contracts and Resolving Solvency. I call on our partners in socioeconomic development, particularly the Chamber of Industry and Commerce, to work with us to bring well needed positive changes to our doing business environment.
In our attempts to address the issues related to property registration, steps will be taken in 2016 to modernize the Land Registry. It is proposed that this Budget would provide the necessary resources to facilitate the establishment of a dedicated Land Registry that would greatly improve the efficiency of processing property registration documents and other land related matters. We are actively involved in the Eastern Caribbean Currency Union (ECCU) efforts to develop a harmonized approach to addressing the issues of access to credit, contract enforcement and foreclosure. Additional support will be sought from regional and international agencies to enable our country to meet its obligations and derive maximum benefits from the various agreements and so improve the ease of doing business in the Federation.
Micro, Small and Medium Sized Enterprise Development
Mr. Speaker, Team Unity is committed to supporting the Private Sector as the engine of growth in the St. Kitts and Nevis economy. According to statistics from the Social Security Board (SSB), the number of registered businesses is on the rise. During the first six months of 2015, a total of 304 new businesses were registered with the majority comprising of small entrepreneurs. Undoubtedly, the promotion of micro, small and medium sized businesses would remain an important element for the development of our economy and our society. Collectively, these types of businesses are known to be very powerful players in the creation of employment and steady income generation for both the business owners and employees. Over the medium-term, my Government therefore will focus its attention on facilitating entrepreneurship and development of small businesses. In particular, emphasis will be placed on areas such as manufacturing and services.
The work in building entrepreneurship and small business development has already started as the Team Unity Government, under the umbrella of the Development Bank of St. Kitts and Nevis, recently launched the Fresh Start Project for Small and Medium-Sized Enterprises (SMEs)-From Poverty To Entrepreneurship. This was made possible through assistance provided by the Government of the Bolivarian Republic of Venezuela’s joint venture company through its Petróleos de Venezuela S.A. (PDVSA) St. Kitts-Nevis Limited in the form of a US$5 million loan. These funds have already provided just under 200 persons a fresh start at developing enterprise and entrepreneurship. We are building a new entrepreneurial class through the disbursement of concessionary loans to operators of micro, small and medium sized businesses operating in the Federation. The initiative has already benefited young and industrious persons from both St. Kitts and Nevis who have started businesses in a range of areas including tourism, law, public transportation, fisheries, agriculture, retail and wholesale. This initiative of the Team Unity Government is positively impacting persons who may otherwise be marginalized in terms of their ability to secure the necessary capital from the commercial banking system. We are negotiating a further support from the Government of Venezuela to meet the overwhelming response of our young people to our Fresh Start Programme.
In March 2015, the Ministry of International Trade, Industry and Commerce recruited a consultant to advance the formulation of the regulations to facilitate the seamless implementation of the Small Business Development Act (2009) which is intended to support small businesses and entrepreneurial development. This was made a priority in our Prosperity Agenda as we strongly believe that the full activation of the provisions of the Act would make available numerous opportunities and protections for the benefit of existing and new entrepreneurs. I am pleased to report to this Honourable House that the draft regulations have been completed and just a few weeks ago were submitted for review by the Ministry of International Trade, Industry and Commerce and the Attorney General’s Chambers. This document will be submitted to the Cabinet shortly and upon approval the provisions would be subsequently brought into effect in 2016. In the interim, over the last nine months, my Government has re-affirmed its commitment to our micro, small and medium-sized enterprises (MSMEs) with the approval of fiscal incentives to many qualified businesses. The duty-free concessions were to beneficiary enterprises which have demonstrated strong potential for expansion and employment generation.
Public Sector Efficiency
Mr. Speaker, Woodrow Wilson in his article entitled ‘The Study of Administration’ stated that, “..the object of administrative study to discover, first, what government can properly and successfully do….secondly, how it can do these proper things with the utmost possible efficiency and at the least possible cost either of money or of energy.” This captures the objective of the partnership of the Government of St. Kitts and Nevis with the World Bank in the Enhanced Public Sector Governance and Efficiency Project. The project is intended to increase the quality of expenditures and public efficiency, and promote a fiscally sustainable and more equitable system of pay and employment which would generate the right incentives to improve Public Sector performance. The Team Unity Government is pleased to report that the modernization of the Public Service will be guided by the documents produced from this important initiative which include the findings of the functional reviews of three (3) Line Ministries namely; the Ministry of Health, the Ministry of Public Infrastructure, Posts, Urban Development and Transport, and the Ministry of Education as well as the Human Resource Management Department (HRMD). The related document has highlighted the strengths as well as areas that require improvement to enhance efficacy in service delivery. It will serve to inform similar assessments and reform actions in other Ministries, Departments and Public Agencies over the medium to long term.
Complementary work was undertaken to facilitate the formulation of a new Policy Framework for Public Sector Modernization and Human Resource Management and Action Plan. Work was also done with respect to the conduct of a Payroll Audit, the formulation of a related Action Plan which outlines activities to further improve the payroll system, the development of a Payroll Tool and Remuneration Strategy and Action Plan. In order to provide practical experience in the execution of important skills and competencies that would facilitate effective management, fifteen (15) public officers from the Line Ministries and Departments in which the functional reviews were conducted received training in the development of job descriptions. In addition, a total of eighteen (18) public officers from the Ministry of Finance, specifically the Budget Division and the Accountant General’s Department, the HRMD, the Ministry of Health, the Ministry of Public Infrastructure, Posts, Urban Development and Transport, and the Ministry of Sustainable Development were trained in the operability of the Payroll Tool by the Red Centre Consulting Limited consultancy team. In 2016, steps will be taken to commence the pilot phase of the decentralization of the human resource management function in order to enhance efficacy in the system. We will continue to explore opportunities for increased investment in the modernization of the Service ensuring improvements in both human and technological capacity. In 2016, the Communications arm of the Ministry which is responsible for Information and Communication Technology (ICT) will aggressively continue various initiatives aimed at placing St. Kitts and Nevis on the cutting edge of technology. We are a small Nation with limited resources; however, the deployment of appropriate ICT would enable us to compete globally in the provision of various digital products and services. It would also enable Government as a whole to provide more efficient services to the populace and to make these services more accessible.
Mr. Speaker, as my Government seeks to turn the page from excessive reliance on Government and the damaging effects of record-high Current Account deficits and cumulative Public Sector debt, attention must now be directed to living within our means. This can best be achieved by improving efficiencies through enhanced productivity and work effort. Performance-based incentives and rewards, or what has come to be known as “Pay-For-Performance” have become the driving force in influencing productivity and work effort across organizations both in the Private and Public Sectors. What was once a well-entrenched practice in profit-maximizing Private Sector entities is increasingly being adopted in modified form among many Public Sector organizations. These enhanced efficiencies are critically important for achieving the desired performance levels that are required for fulfilling the strategic vision of my Government’s Prosperity Agenda.
Recognizing and rewarding the outstanding performance of individuals or groups who play a leading role in achieving pre-established goals and mission objectives of their Ministries can serve as a powerful incentive that fosters the creation of new ideas and superior work effort. These incentives seek to enhance an individual’s self-worth, leading to a more productive work force and may also serve as an important tool for attracting and retaining top talent. The benefits may take varied forms. They may include pre-established performance-based cash awards, time-off from duty and other forms of recognition. The intent is to motivate individuals to perform at their optimal levels with the expectation that commensurate rewards will result from their work effort. At the outset, a pilot programme will be considered that carves out a modest allocation of funds from existing programmes to finance an incentive-based programme that rewards outstanding work effort.
Challenges and Opportunities
Banking and Finance
Mr. Speaker, this Government recognizes the importance of a strong financial system that performs a vital role in driving economic development. We are therefore pleased with the strong position of the domestic banking system. As at December 2014, Total Assets held by the commercial banks was $6.7 billion, an increase of 11.7% when compared to the same period in 2013. Deposits also increased totaling $4.8 billion, an increase of 12.5% when compared to the previous period. However, Loans and Advances decreased by 6.4% to $1.7 billion when compared to 2013.
We are aware that while our domestic Banking Sector remains in very good standing, there are challenges facing the wider banking system of the Eastern Caribbean Currency Union (ECCU). The Government is committed to ensuring that the banking system remains stable and financing is available for transacting various forms of legitimate business. In this regard, we have been proactive in ensuring that the new Banking Act (2015) was passed as a matter of priority soon after taking office. The new Banking Act seeks to mitigate the major threats to the ECCU financial system and to ensure that the system remains strong and resilient. I am pleased to report that all sovereign States in the ECCU have passed the new Banking Act. In the aftermath of the global financial crisis, we now operate in a different world especially in terms of finance and banking. The Eastern Caribbean Central Bank (ECCB) has therefore devised a comprehensive strategy to address the structural deficiencies in the ECCU financial system. This strategy includes: (i) measures to stabilise intervened banks in Anguilla and Antigua and Barbuda; (ii) legislative reforms; (iii) enhancing financial safety nets; and (iv) considerations for amalgamation of the national banking sector in the Currency Union. The Government will therefore remain engaged with the ECCB and help to guide the deliberations of the Monetary Council on these very important reforms in the Financial Sector.
International Standard for Automatic Exchange of Information
Mr. Speaker, based on a mandate from G20 members, the new thrust of the Organization for Economic Cooperation and Development’s (OECD’s) Global Forum on Transparency and Exchange of Information for Tax Purposes is automatic exchange of financial account information. The United States of America (USA) led the way with its requirement to exchange information automatically through the implementation of its Foreign Account Tax Compliance Act (FATCA), albeit that the USA has not agreed to reciprocal exchanges with all jurisdictions with which it has an Inter-Governmental Agreement. As of October 2015, 97 jurisdictions, including St. Kitts and Nevis, have committed to implementing the new international standard for automatic exchange of information. The new standard is called the Common Reporting Standard (CRS) but, unlike FATCA, is reciprocal in all cases. A group of 56 countries, referred to as the Early Adopters, will implement the CRS by 2017 while 41 other jur