Following is the letter to Chief Minister Mr. Victor Banks from Mr. Ben Merrick, Director of the Overseas Territories, now the subject of much discussion in Anguilla.
Mr. Merrick’s letter, dated December 23, 2017, is being published by The Anguillian as part of the national record.
Dear Chief Minister
Anguilla: sustainable recovery and resilient development post Irma
1. Following your meeting with Lord Ahmad and Lord Bates on 30 November I am writing to set out UK ministers’ requirements for the release of the funding which the Prime Minister announced on 28 November and the steps we need to take together to meet these.
2. I’m confident the anticipated £60 million reconstruction grant will help Anguilla to build back – and build back stronger – a significant proportion of the public infrastructure destroyed or damaged by Irma. I am delighted UK ministers have agreed this significant amount, and I am very much looking forward to working with you, your fellow ministers and officials to put the procedures in place which will allow us to quickly start to disburse so you can begin the reconstruction work which I know is so very much needed.
3. UK ministers’ requirements fall into three parts:
• Their agreement to a revised Medium Term Economic and Fiscal Reform Programme
• The appointment of a UK funded Financial Adviser to the Government of Anguilla.
• A clear agreed list of the projects which UK funding will support and the establishment of agreed implementation arrangements.
I am confident that we can work through these issues quickly with a genuine sense of partnership.
Agreement to a revised Medium Term Economic and Fiscal Reform Programme
4. As we discussed when I was in Anguilla, and as you noted in your letter to Lord Ahmad of 27 October, Anguilla’s sustained economic recovery and future development depends not simply on building back infrastructure, but also on maintaining strong public finances and creating an environment that encourages business and attracts significant investment.
5. UK ministers fully support your approach. They are keen that the practical steps needed to achieve these two objectives should be set out – not least to avoid unnecessary and duplicatory work- through a rapid revision and implementation of Anguilla’s Medium Term Economic and Fiscal Reform Programme (MTEFP). I understand that a version of the MTEFP was prepared in 2016 and this has informed the 2017 GOA work plan which Executive Council agreed in 2017.
6. UK ministers have been clear with me that they will want to see and agree a revised MTEFP before any funds are disbursed. They have been equally clear that disbursement of the full grant package will depend upon them being satisfied that sufficient progress is being made in implementing the Programme’s detailed elements.
7. In order to make swift progress it would be very useful to see a first draft of a revised MTEFP by 31 January 2018. My officials stand ready to assist you in developing this. I would like to invite you and your officials to London to discuss and finalise the MTEFP in early February 2018 so it can be put directly to ministers for their consideration. The Programme should have two elements: one addressing public financial management, the other aimed at progressing sustained economic development.
8. In terms of the MTEFP’s public finances element, UK ministers have asked that the plan set out in detail the steps you intend to take to achieve a current account budgetary surplus from 2019 onwards with sufficient secured financing or operational surplus to cover debt repayments. To do this it will need to include:
• updated public finance projections from 2018 to 2025
• clearly identified actions to manage public spending – including steps to increase the efficiency of the public service
• clear steps to raise revenues through: increasing tax compliance rates, reducing arrears, extending taxation to sectors which are currently essentially untaxed, and putting in place a consistent policy on tax concessions
• a plan to manage Anguilla’s public debts.
9. Monitoring progress in implementation is key ministers so the MTEFP should:
• provide a clear work plan for each measure including actions that need to be taken and target outputs per quarter
• a risk register which includes mitigating steps to manage pressures on future budgets including from unanticipated shocks to the economy
• a timetable and process for reporting, initially on a quarterly basis, to ensure momentum on reform efforts is jointly maintained.
We would be very happy to work with you in any way you may find useful to put in place the mechanisms to monitor and review progress.
10. The 2018 budget will be an integral and important part of the MTEFP. I understand you intend to take a draft budget to the National Assembly sometime in early January. It would be very helpful if your officials could work closely with my officials here early in the process so we can secure the approval of UK ministers without any undue delay.
11. In terms of meeting the 2018 anticipated shortfall in revenue I understand you are contemplating taking out a long-term policy based loan with the COB to pay off existing short-term overdraft facilities. As we discussed the UK Government will not be in a position to provide grant funding to support your budget, but we will be open to discussions on access to private funding where all other options (like the COB) have been fully exhausted. In approving the 2018 budget UK ministers will need to be assured on your plans to meet the immediate cash requirements for the first part of 2018 noting that the earliest COB Board meeting at which a PBL could be agreed will be in May 2018.
12. More generally on debt I and UK ministers are concerned about the medium term budgetary pressures Anguilla faces in meeting debt servicing and amortisation costs. The coming years will be particularly challenging as the requirements to make debt repayments associated with the Banking Resolution start to kick in and as you move out of any grace period associated with a CDB loan. It would be good to discuss and understand your plans to accommodate these costs in your fiscal projections up to 2025. Again I would welcome any request for technical assistance to help re-structure debt.
13. With respect to the MTEFP’s package of economic reforms most of the necessary steps and measures have already been set out in the programme we agreed with you in April 2016. UK ministers would therefore simply ask that you revise and update that programme for them to consider and approve and that concerted efforts are made to implement this.
14. Looking at the most recent quarterly progress report I would like to see the revised programme be more ambitious by including the issues you identified in your letter of 27 October as being necessary to lay the foundations for a strong economy.
This includes steps to improve the ease of foreign direct investment and to privatise key utilities, including electricity. I would be very happy to consider any request you may want to make for UK assistance to support your efforts in these areas.
15. In terms of monitoring implementation of the economic reform package I would like the next iteration of the Programme to go beyond identifying policy leads, completion dates and priority ratings and to include:
• a clear work plan for each measure including: actions that need to be taken, target outcomes per quarter and the accountable body and Senior Accountable Officer within the GoA
• as with the MTEFP’s fiscal element, a clear timetable and process for reporting on a quarterly basis to ensure momentum on reform efforts is jointly maintained.
16. I recognise that this is a wide-ranging piece of work aimed at reducing multiple barriers to growth so it would be good to get your sense of the priority reforms that will deliver the greatest impact. I hope the CARTAC/COB/ECCB mission in January will be useful in accelerating the process of prioritisation.
17. For both the MTEFP’s fiscal and the economic reform components the actions on which UK ministers are asking to see progress are not new. They are for the most part steps which GoA has already committed to undertake. The emphasis now has to move towards implementation. Consequently, my team in London will be assessing progress in implementing both the fiscal and economic reform elements of the MTEFP, alongside the Financial Adviser to GoA who will be joining you in the early New Year. I would also welcome a conversation with you in early next year on how best to engage with our regional partners ECCB and particularly the COB to ensure consistency in the requirements of UK ministers and of any COB PBL and to harmonise reporting procedures as far as possible.
Appointment of the Financial Adviser
18. As Lord Ahmad set out in his letter of 24 November, the appointment of a new Financial Adviser is a condition for the agreement of the new grant funding.
19. The proposed candidate will bring significant experience and a successful track record of working in an Overseas Territory. We anticipate the Adviser will be in place in January and I would reiterate Lord Ahmad’s request that the Adviser is fully embedded into the GoA, located within the Ministry of Finance, has full access to necessary information, and attends all Executive Councils with the opportunity to advise in advance on all papers relating to financial matters.
Prioritisation and project implementation
20. Projects supported by UK grants will need to be governed by MOUs between our Governments and supported by robust business cases consistent with the UK’s Green book framework, proportionate economic appraisal of project options (e.g. where choices are made between repairing existing buildings and constructing new ones) and clear links to your reconstruction priorities in order to ensure maximum value for money from this finite grant.
21. Funding will be tied to annual budgets, based upon an agreed dispersal plan and an agreed list of projects for which UK support may be used. I would also request a costed work plan clearly setting out your priority projects for Anguilla’s most urgent reconstruction needs. We are keen to start disbursing funds to support recovery of key infrastructure as soon as possible, so your technical officials should be encouraged as soon as possible to provide the supporting analysis.
22. The UK grant funding will be disbursed through a new Anguilla Programme under the Conflict, Stability & Security Fund (CSSF) and will be subject to the reporting and governance requirements of that fund. We will work with the Governor’s office to agree the most appropriate mechanism for managing the funding programme. Any UK grant spend will require the approval of the Financial Adviser if procured locally and, in addition, the FCO if procured from the UK.
Finally, I would like to wish you a Merry Christmas and I look forward to working with you closely in 2018.
Yours sincerely,
Ben Merrick,
Director, Overseas Territories Directorate.
