Davies By Balford Henry, Senior Reporter
MINISTER OF Finance and Planning Dr. Omar Davies has indicated a $185 billion 2001/2002 Budget, aimed primarily at containing domestic debts and with no indication of tax increases.
Critical areas like national security, education, health, roads, water and social welfare would continue to operate within tight constraints, he said.
The major objective of the Budget and the medium term would be the containment of growth in domestic debt and a substantial reduction in debt servicing.
Dr. Davies was briefing the Standing Finance Committee (SFC), a committee of the House of Representatives comprised of all 60 MPs at Gordon House, yesterday. It was his first such briefing and also marked the first time the media and the public were allowed into an SFC meeting.
The Minister, who gave no indication of new taxation, said the expenditure programme would be supported by aggressive tax administration; prioritisation/rationalisation of existing projects and programmes; elimination of waste and reduction of inefficiencies.
He said given the challenges, 2001/2002 non-interest expenditure must be contained, while a programme to improve revenue collection by widening the tax base and plugging loopholes was implemented.
The Minister said the major challenges facing the Government were the cost of rehabilitating the financial sector; further reduction in the fiscal deficit; the management of the overall debt, given the cost of stabilisation; and, satisfying the reasonable expectations of the various segments of the economy without putting the macro targets at risk.
He said these challenges imposed certain constraints on the realisation of the reasonable expectations of the population. In dealing with these challenges, he proposed to look simultaneously at the FINSAC debt and the overall domestic debt burden and the implications for managing the Budget.
At the end of December 2000, the stock domestic debt was estimated at 55.1 per cent of GDP. With the assumption of all FINSAC liabilities effective April 1, 2001, the stock of domestic debt is projected to increase to an estimated 84 per cent of GDP. For 2001/2002, interest cost as a percentage of tax revenue is projected at 58 per cent and 49.3 per cent of recurrent expenditure.
"This level of debt and consequential debt servicing needs have implications for desirable growth in critical non-debt expenditure, particularly in social and physical infrastructures. The cost of servicing this debt therefore limits the flexibility of the Budget," he said.
According to Dr. Davies, by April 1, the cost of rehabilitating the financial sector would add $112.8 billion to the debt stock. Cost of servicing this during the financial year is estimated at $13.4 billion, declining to $9.6 billion in 2004/2005.
He said if the debt was not prudently managed, the fiscal accounts would be thrown into chaos, the gains of stabilisation reversed and the prospects for growth jeopardised.
"Therefore, the major objective of the 2001/2002 Budget and the medium term must be containment of growth in the domestic debt and a substantial reduction in debt servicing," he said.
