Mr Victor F Banks
Hon Chief Minister
PO Box 60
The Secretariat
The Valley
Anguilla
13 March 2018
Dear Chief Minister,
Thank you for your visit to the UK last month to discuss the draft Medium Term Economic and Fiscal Plan with my officials. I am sorry that I was unable to meet you in person, however my officials have briefed me on the discussions that took place and the Medium Term Economic and Fiscal Plan (MTEFP) that was submitted. I am conscious that a number of critical milestones are fast approaching including approval of Anguilla’s 2018 Budget and the release of the £60m recovery funds which, as I wrote to you in November, was linked to the submission of a credible fiscal plan.
The 2018 Budget
I appreciate the 2018 Budget is still in draft, but I believe we have an honest relationship where I can be candid. Therefore, I want to clearly signal now the areas that will need to be addressed in order for me to approve the budget. I am extremely concerned that given what we know about the depressed performance of revenue in the first two months of the year, the absence of reserves and the limited scope to extend overdrafts, gives rise to a very significant risk that Anguilla will not able to meet all payments which will fall due in the next few months. Put frankly, Anguilla is at risk of defaulting. Neither you nor I would want that, and I cannot let that happen. It is in our mutual interest that this budget process is not delayed so I ask that the following concerns are addressed:
• Updated revenue forecasts: I understand revenue receipts for January and February are below expectations. The revised Budget should therefore reflect the performance of these two months. We need to be assured that revenue forecasts for the remainder of the year have been reassessed in the light of the first two months, including if necessary any downward revision. We also expect to see clear proposals to increase recurrent revenue from existing predictable revenue streams including consideration of Customs Duties, Stabilization Levy and service related taxes for example, Accommodation Tax and Tourism Levy.
• Updated expenditure forecasts: We will need confirmation that all expenditure estimates have been thoroughly reassessed and revised where necessary. This includes implementing plans to cut recurrent expenditures such as personal emoluments, consultancy and goods and services. This should also include a more realistic assumption about debt servicing (interest payment) costs given the anticipated increase in debt for 2018.
• The current account deficit: Taking into account the revenue and expenditure forecasts the Government of Anguilla (GoA) is beginning this year with no reserves and very little headroom left on overdraft facilities. I am aware that even before the hurricane the position was strained. We would therefore expect to see, at a maximum, an EC$20m current account deficit.
• Government Arrears: The draft budget we currently have does not yet incorporate recognition of the outstanding payment values. We would like to see the revised budget include a clear statement on the precise extent of all monies owed by government and the proposals to reduce these going forward.
• Tax and duty concessions: I remain concerned in particular about the continued practise of providing concessions on import and stamp duties to investors- both local and international. Given the critical position of Anguilla’s public finances, as a condition for agreeing the 2018 Budget, we will require that any and all tax or duty concessions are discussed and approved with ourselves through a full business case that demonstrates the economic benefits of such, before they are awarded. We will also require a register to be maintained listing all the tax concessions moving forward.
Medium Term Plan
With regards to the approval of the MTEFP I have to reiterate the points raised in Ben Merrick’s letter of 16 February. The current draft does not meet the requirements I set out in my November letter. At the most basic level you need to show a credible means to finance the anticipated deficits in 2019 and 2020. More specifically the document should include credible and measurable specific policies to increase revenue and reduce expenditure in real terms. Debt as a share of recurrent revenue remains well above 200% and it is as yet unclear to me how you plan to meet the costs of debt amortisation resulting from the bank resolution.
As we have discussed previously, I want there to be no doubt about the importance the UK Government attaches to Anguilla managing its public finances sustainably. This is critical not only for managing future fiscal risks, but attracting private investment and delivering long term economic growth.
I would like us to disburse the £6om recovery funds as soon as possible and I am willing to agree to the dispersal of some funds for the high priority recovery projects.
However, this is based on two conditions. First, preparation of a revised 2018 Budget which addresses the concerns I have noted above by no later than 31 March 2018.
Second, your commitment to prepare a revised MTEFP consistent with the issues I have noted above by no later than 30 June 2018.
Given the risk of default, one of the measures I am considering is the appointment of a Chief Financial Officer. I have therefore asked officials to begin work on preparing an Order in Council that would provide for a Chief Financial Officer who would have considerable responsibilities over the public finances of Anguilla. This is not a step I wish to take. However, I am asking officials to begin this work now so that this legislation can be enacted if needed following the submission of the revised MTEFP if it does not meet the conditions I have specified. You would of course have an opportunity to make representations on the drafting of the Order. I should stress, however, that this step would only be taken to ensure the good governance and sustainability of Anguilla’s public finances.
I would therefore strongly encourage you to work with the Financial Specialist to achieve these requirements. But I also hope that you recognise the seriousness of Anguilla’s financial position. I of course remain available to speak over the phone if that would be helpful.
I look forward to receiving the 2018 Budget very soon and working with you to ensure the attached concerns may be addressed.
I am copying this letter to Tim Foy, Governor of Anguilla.
LORD AHMAD OF WIMBLEDON
Minister of State for the Overseas Territories
Prime Minister’s Special Representative for Preventing Sexual Violence in Conflict
