THE HAGUE--The Committee for Financial Supervision CFT on November 5 advised the Saba government to adjust the US $1.3-million deficit of the 2021 draft budget, as it did not comply with the financial supervision regulations.
In a letter to the public entity Saba, one week before the Island Council approved the budget, the CFT pointed out that the 2021 budget insufficiently complied with the financial supervision legislation, which requires budgets to be balanced.
The 2021 budget showed a deficit of US $1.3 million and the budgets of the subsequent years 2022 to 2024 will have an estimated deficit of US $1.1 million. According to the CFT, there are ways to lower the 2021 budget deficit.
The expenditures on the 2021 budget show an amount of US $0.36 million for the repayment of loans. In CFT’s opinion, the repayments are expenditures, not liabilities. The CFT advised Saba to take the repayment out of the budget which would reduce the deficit from US $1.3 million to US $0.9 million.
US $0.35 million of the deficit is caused by the lower revenues from local levies as a result of the COVID-19 crisis. Saba anticipated a decrease in revenues from local levies of about 56 per cent, mainly in lower harbour fees, rental taxes, stay-over taxes, airport fees and permit fees from the hospitality sector.
The CFT stated that the decrease in revenues from local levies can be qualified as an unexpected setback, and as such it can be deducted from the general reserves, which are sufficient to carry this. Deducting the amount from the general reserves would reduce to budget deficit to US $0.6 million.
The remaining part of the deficit, US $0.6 million is caused by higher liabilities for which no additional income is available. The CFT advised the public entity Saba to reduce these liabilities in order to balance the budget.
The CFT further advised to intensify the talks with the Ministry of Home Affairs and Kingdom Relations BZK to discuss a greater contribution to execute the Saba Package, a mutual arrangement that was signed in July 2019 for Saba’s multi-annual development. In that agreement, it was stated that Saba and the Netherlands would work on a solution for the increasing pressure on Saba’s budget.
A contributing factor to the deficit is the US $0.2 million that has been allocated in the budget for waste management, costs that previously were covered by special allowances. In this case too, the CFT advised Saba to intensify the talks with the BZK Ministry to find a solution for the increasing pressure on the budget.
The CFT did note that Saba, again, had an approved auditor’s report of the 2019 annual report, which indicated that financial management remained of a sufficient level.
The public entity Saba decided not to follow the CFT advice, and last week the Island Council adopted 2021 budget with its deficit. During the budget handling, Finance Commissioner Bruce Zagers gave an explanation why it was decided to put aside the CFT advice.
Zagers advised against booking the loss of income to the general reserve in order to reduce the deficit. He pointed out that booking these losses would further weaken the liquidity position of the public entity, especially seeing that the deficit of 2019 was already booked to the general reserve. He noted that the general reserve did not represent cash in hand, but that it was in fixed assets which cannot be transferred into cash on short notice.
In a reply letter to the CFT dated November 10, Zagers explained that executing the advice to cut expenses by US $0.6 million was not possible either. “The expenses included in the budget are based on the bare minimum, which is necessary for the execution of government’s legal responsibilities. Not wanting to cut US $0.6 million has nothing to do with unwillingness from our side. However, further cuts would lead to neglecting duties.”
https://www.thedailyherald.sx/islands/cft-advised-saba-to-cut-to-prevent-budget-deficit-2
