2013 budget boasts super-bond success and no new taxes

“…this Budget will see absolutely no new taxes and no overall spending cuts.”

“The Draft Estimates of Revenue and Grants amount to $871.1 million for FY 2013/14 and are comprised of $825.6 million in Recurrent Revenue, $5.1 million in Capital Revenue and $41.1 million in Grants.”

Shortly after 10:00 a.m. Friday, March 1, inside the National Assembly, Prime Minister Dean Barrow read his 6th national budget speech, captioned “Achieving debt sustainability, stimulating economic expansion”, in which he boasted nearly half-a-billion dollars in savings for debt repayments and no new taxes.

The proposed budget calls for $934 million in overall spending, $72 million more than last year, despite significant savings in interest repayments on the US$544 million super-bond, which is being restructured with international bondholders this month.

Barrow, the Minister of Finance and Economic Development, struck “two high notes” at the start of his presentation:

“We have pretty much done what the skeptics said was impossible: The super-bond—that bane of our existence, that monster of our nightmare—has been tackled and tamed. Not vanquished, mind you, but put on a leash and confined to its lair,” said Barrow. “And as a direct consequence, but also as a result of adroit stewardship and unshakeable commitment to the welfare of this nation, this budget will see absolutely no new taxes and no overall spending cuts….”

Budget performance 2012-2013

Barrow presented preliminary budget estimates for the year 2012/2013, which comes to a close on March 31. The estimates indicate a primary surplus of $40.5 million, the equivalent of 1.3% of GDP, and an overall deficit of $17.3 million or 0.5% of GDP. Barrow said that the overall deficit came in at $57.9 million less than had been estimated.

Of note is that last year’s approved budget called for $937.9 million in total spending, $3.4 million higher than these new estimates.

Government simply could not afford this outlay, and so it stopped paying the super-bond on the old terms and ventured into negotiations with bondholders, which resulted in vastly reduced interest payments. This is evidenced by the fact that spending in the category “interest payments and other charges”, although estimated at $136.1 million, is now projected at $57.7 million—a difference of roughly $80 million.

On the revenue side, Barrow said that “Total revenue and grants are projected to be $844.9 million, almost $20 million below budget, as a 0.6% increase in tax revenue was outweighed by declines in non-tax revenue, capital revenue and grant receipts.”

He explained that there was “a $5.6 million shortfall in receipts from the local petroleum industry and the non-payment of BTL [Belize Telemedia Limited] dividends.” Compensating for these losses were “one-off inflows in the form of loan repayments from BSI [Belize Sugar Industries], BTL and DFC [the Development Finance Corporation]….”

The Minister of Finance said that wages and wage-related payments continue to be significant.

Proposed 2013/2014 budget

The proposed budget assumes growth in the Gross Domestic Product of about 3.0% over the fiscal year, which is concluding, $934.3 million in total spending, and total revenue and grants of $871.7 million.

“When taken together,” said Barrow, “this results in an overall deficit of $62.6 million, or about 1.9% of GDP.”

Barrow’s budget also calls for $64.5 million for loan amortization, which means that the government’s total financing needs are $127.1 million.

How will this financing gap be met? The breakdown Barrow provided is as follows: $54.8 million from loans already contracted with multilateral development partners to fund Capital III projects; $20.0 million to be disbursed by Taiwan for budget support under the ongoing bilateral economic cooperation program; $32.2 million in domestic borrowing and a draw-down of $20 million from GOB deposits in the banking system.

“As we have been warning for some time now, the natural decline in the production of oil from the Spanish Lookout field continues,” said Barrow. “We expect a decline of a further 10% in the coming year,” he went on to say.

He said that the production at Never Delay remains at a small and steady flow—but not enough to compensate for the significant slowdown at Spanish Lookout.

“There are a number of exploratory wells being drilled in the northwest and others planned for the south, but while the seismic studies yield promising data, the hard reality is that we have not yet discovered any new reserves,” said Barrow, explaining why the new budget does not propose new revenues from petroleum.

The road to Jalacte coming soon…

Among the highlights mentioned in the capital budget is the completion of the new highway to connect southern Belize with Guatemala.

Barrow said that there will be “…$6.0 million from the OPEC Fund, the Kuwait Fund, and CABEI (The Central American Bank for Economic Integration) for the continuation of the upgrading of the Southern Highway between Big Falls and the Belize/Guatemala border.”

He said that the project is expected to be “substantially completed by the end of the upcoming fiscal year and that the economic impact to the area and the increase in cross-border trade will be dramatic.”

He also mentioned a $5 million allocation from the Caribbean Development Bank (CDB) for the new Macal River Crossing, including the upgrading of the La Loma Luz Boulevard and the Joseph Andrews Drive leading to the new bridge site.

Other capital allocations include the new Corozal Border Crossing Reconstruction Project ($3 million from CABEI); the Belize Municipal Development Project ($6 million from the World Bank); the Mesoamerican Health Initiative to improve the health of women and children in the Corozal, Orange Walk and Cayo Districts ($1.5 million from the Inter-American Development Bank, IDB); the Youth and Community Transformation Project for Southside Belize City ($2 million from the CDB); the Sustainable Tourism Project ($5 million from the IDB); and the Solid Waste Management Project ($6 million from the IDB) to complete the sanitary landfill site on the George Price Highway.

The capital budget also includes $7.1 million for the agriculture sector from the European Union for the National Cattle Sanitary Program (the Cattle Sweep Program); for assistance to the banana industry, and for the strengthening of the Sugar Industry Research and Development Institute (SIRDI).

The budget also has allocations for boosting crime fighting measures, Barrow said: “In this new budget, we have accordingly pledged more resources to our police and security forces, to provide more weapons, vehicles, and surveillance and communication equipment. At the same time, we will upgrade our intelligence-gathering capabilities.”

The budget debate is scheduled for Thursday, March 21, and Friday, March 22.

This gives Leader of the Opposition Francis Fonseca time to prepare a comprehensive response to Barrow’s budget, in leading off the two-day debate; and it gives the Barrow administration time to conclude the impending debt restructuring. Indeed, the proposed budget assumes that the restructuring will be successful.

Super-bond to save BZ$494 million

Barrow noted that the new bond offer closes Friday, March 8, and the transaction should be completed by Wednesday, March 20.

“Bondholders have been advised that the offer for exchange will be consummated only if 75% of holders participate, a threshold triggering the collective action clause that then ropes in the remaining bondholders, thereby guaranteeing a 100% subscription,” said Barrow.

The new proposal could bring $100 million in savings from reduced principal repayments, as well as a reduction in annual principal repayment from $110 mil to $46 mil. Lower interest rates and an extended maturity period of 9 additional years are also features of the proposed bond restructuring program.

“When this debt operation is clinched in just a matter of days, the debt repayment relief this administration will have secured for Belizeans will be unprecedented: BZ$22 million in 2012, BZ$66 million this year, BZ$236 million in the five-year period to 2017, and BZ$494 million over the coming decade,” Barrow said.

Speaking to the members of the Opposition People’s United Party, Barrow said: “Those that have condemned us to this perpetual migraine say they are tired of hearing about [the super-bond], but I endorse the words of the Minister of Housing: ‘you will hear about it till you are dead,’ because we have to continue paying it till we are all dead – 547 million US dollars, Mr. Speaker, and nothing to show for it. Yet with that money we could have built eleven thousand 3-bedroom houses each costing $100,000. With an average of 5 persons in each home, we could have provided decent accommodation for 55,000 persons.”