The
Development Planning Unit
Government of the British Virgin Islands

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LEGISLATIVE COUNCIL
BUDGET ADDRESS 2002

by the
Honourable Ralph T. O'Neal
Chief Minister and Minister of Finance

Delivered on: 14 December ,2001

"EXODUS - Movement of the People"

 
INTRODUCTION

Mr. Speaker, I move that the Appropriation Bill, 2002 be read a second time, and in so doing, I seek your indulgence to allow me to read my Budget Address.


2. Mr. Speaker, I have meditated for some time about this Territory as regards its past, current and future status. I have seen great successes and tribulations. In consoling my thoughts, I reflected on a song which is as follows:

              “Praise God from whom all blessings flow
               Praise him all creatures here below
               Praise him above ye heavenly host
               Praise Father, Son and Holy Ghost”

We, as a people, have so much to be thankful for that it is impossible not to give thanks and praise.

3. Mr. Speaker, the world stopped on September 11th, 2001 and took note of a great tragedy. A tragedy that could not be reasonably foreseen and one that we can never forget. It has made the rich and poor equal in humility, for life is not mortals to decide. 
Our families and friends have been reunited and even greater than that, enemies around the world have learnt the importance of unity. In all that turmoil, we have persevered to date, and every day the Lord has bestowed light unto this Territory, I have been grateful for his continued blessings. At this time, Mr. Speaker, I would like for everyone listening to me today, from shore to shore, to stand for a moment of silence to pay our respects to those who perished in that tragic event, their families and loved ones.

~ Moment of Silence ~

4. Mr. Speaker, I have much to say, but I intend to say it in a concise and precise manner. The Government has moved from strength to strength through many challenges and difficult times. A few weeks ago, I wondered if it was even possible to produce a timely budget that would adequately address the Territory’s needs. I emphasise needs and not wants, for in these times it is important to set the right direction for the Territory’s financial affairs.

5. Today, Mr. Speaker, I call on all Honourable Members, who now have the Appropriation
Bill 2002 and Draft Budget Estimates, to review them with a view towards an expeditious Standing Finance Committee process, as time is of the essence.

GLOBAL PERSPECTIVE

Mr. Speaker, Sir, the global economy faces probably its greatest challenges since the economic crises of the late 1920's to early 1930's known as the “Depression Era”. We have had a number of upheavals since that time which required tremendous effort to regularise. With all these variances, the resilience persisted. Today however, the combination of challenges, I feel, are greater than ever before. The global recession before September 11th, 2001 was already a factor; coupled with the threats to air safety and thus air traffic and the continuing military efforts in the East, the way forward is not clear, much less transparent.

2. Economic Advisers around the world now make their predictions on a daily basis as oppose to weekly or even monthly, for the variables change every day. Every forecast includes such high contingency factors that it makes negotiation efforts very costly.

3. Sir, we now have to take things “one step at a time”. Predictions for the global economy 
are still relatively pessimistic and are not expected to reverse polarity in the immediate future. To enable one to better understand the gravity of the situation we are currently faced with, I hereby provide details on the global economy.


Presently, the German DAX, the United Kingdom FTSE and the Japan Nikkei are up since their decline in September. However, over the majority of the past twelve (12) months the financial markets in Europe have been on a downward trend due to the global recession. The European markets, as should be expected, hit an all time low during the month of September. However, after this major drop, which they received as a result of the September 11th (911) events, the markets have been recovering somewhat but nevertheless are relatively low as compared to the same period last year.

The Asian Markets were hit even harder by the global recession and their recovery is expected to take even longer. The level of global competition is intense and to remain competitive requires market demand coupled with significant niche opportunities. These are not easy to come by and thus the Asian Markets are expected to take some time to recover.

The Dow Jones Industrial Average has grown consistently since 1991 however, it has tapered off as the economy began to slow down. Prior to the September 11th events, this consistent growth pattern was expected to continue for some time to come. Although the markets appear to be slowly recovering from the 911 events, the events have placed a cloud of uncertainty over the future of the stock market in general and the DOW in particular. Nevertheless, in recent days, the market figures appear to be consistent with those prior to September 11th. 

REGIONAL PERSPECTIVE

Mr. Speaker, the region has suffered a severe blow. The Trade Industries have been under pressure by international trading blocks and agencies. The Financial Services Industry has been the subject of increased scrutiny to ensure transparency and integrity. This scrutiny, by regional and international agencies, exerted the need to continue to regulate the Financial Services Industry. However, the cost implications to manage the way forward places increased burdens on regional Governments with little recourse for cost recovery.

2. Sir, the Caribbean is known to be a premier tourist destination. The issues and concerns as regards air safety are having an impact on all economies. The upcoming tourist season is expected to be, at best, on par with the last tourist season. There is no expected growth in this area and marketing efforts are concentrated on maintaining current flows of capital. Though the British Virgin Islands (BVI) may not solely rely on this Industry, it does rely on it significantly enough to be concerned. The region on a whole and its dependency on this Industry concern me as a Caribbean Leader, for the future of our region remains difficult to forecast.

3. Mr. Speaker, I called in previous Addresses for the various regional and international organisations to take a more proactive role in addressing the needs of the region. This effort needs to be reorganised as substantive initiatives need to be taken far more aggressively towards addressing the needs. Though some effort has been made, for which I would like to publicly thank the organisations, still more needs to be done more timely to ensure the viability of the region towards a sustainable future.

FISCAL DOMESTIC PERFORMANCE 2001

       Mr. Speaker, I have to say thank God we are still economically sustained. I say this with all sincerity because we, as a Territory and people, are still moving in a positive direction. If one did not believe the famous statement before, you would have to believe it now - “God is a BVIslander”. The Gross Domestic Product (GDP) for 2001 is approximately seven hundred and forty-two million, three hundred and thirty-five thousand dollars ($742,335,000).

2. This reflects a growth of fifty-nine million, five hundred and five thousand dollars ($59,505,000) or 8.7% over that of 2000. The annual rate of inflation for 2000 was 2.8% and the inflation rate for 2001 average 3.13%. Factors such as these become increasingly more important to guide the Government in planning and analysing its economic affairs and repositioning the Territory where necessary.

3. All national indicators were impacted during the year by recessionary factors and external and recent challenges to Tourism in general. Notwithstanding, the economy has remained incredibly resilient and more substantively, vibrant. The statistics for the Tourism Sector remain consistent overall with that for the previous year and for all intents and purposes, this is good. The recent events were sufficient to potentially collapse this vital Industry but instead, we have remained static. If we are fortunate with our marketing efforts, this static trend may turn positive but a number of factors governing this upturn, are outside the control of the Government and this Territory proper.

4. In recent months, numerous calls have been made on the Government to be more proactive with subsidies. Though a noble concept, the critical importance of the subsidy concept is to reach the end consumer. It is not fair to say that the major external supporters of our Tourism Industry will truly require the Government to enable them to ensure their viability with subsidies. The international players have well seen too that I am truly appreciative. More concentration is placed on the local players. The Tourism supplier locally can be identified as hotels, the marine industry and support services. Many of these players are surviving through the difficult times and my commitment to enhance the marketing drive in Tourism will do more to ensure stability and growth in this Industry than direct subsidies. The employees in the Hospitality Industry are under pressure. I have instructed the Ministry of Finance, Economics and Development Planning to move swiftly, to ensure that the proposed amendments are made to the Income Tax Act to remove all levies on gratuities. This however, as direct as it is intended, still has negative repercussions. I was dismayed to learn that a portion of gratuities are used by employers to fund operational costs including, the employees’ salaries. It would seem like the employees in the Hospitality Industry need a “Robin Hood” to ensure their well-being. To this end, Mr. Speaker, I have further instructed the Ministry of Finance, Economics and Development Planning, in conjunction with the Inland Revenue Department, to monitor weekly the disbursement of these gratuities by auditing the payroll books of the employer. Needless to say, this power has been conferred on the Commissioner of Inland Revenue by statute and this is only a measure to ensure justice is done. I forewarn the employers in the Hospitality Industry to do the just and proper thing and ensure that employees get their just due. Failure to comply may well be met with sanctions.

TOURISM

       Sir, I have said so much about my commitment to supporting the Tourism Industry, that there is very little to say but rather more to do.

2. The Tourist Board has functioned extremely well under very difficult circumstances. I would like to publicly commend the Board and Staff of this organisation and encourage them to keep up the good work. During the course of the Budgetary Exercise for 2001, the financial provisions for the Board were increased significantly. This was to enable the functions of the organization to be carried out as effectively as possible with sufficient cushion for contingencies. This contingency was well placed as the Board was able to respond timely to the events of September 11th, 2001. The efforts extended then and now are to the benefit of this Territory. The Board also engaged in reorganising efforts, closing some offices and relocating staff where needed. The Board also pursued new avenues for Tourism and the benefits to this Territory I feel, will soon be harnessed with the expected increase in European visitors to the Territory. This Mr. Speaker, has been an initiative of the Board for some time, to diversify the product base of our Tourism Sector. It seems like quite a bit of traffic will be directed to the Caribbean and we expect to benefit from this.

3. Initiatives continue, such as:

1. The launching of the website for the Tourist Board called www.bvitouristboard.com. This is expected to open the avenues whereby tourists can get a preview of the BVI before traveling and thus lure more tourists to the Territory. We all know that the world is now a www.com world and if you are not with it, you will certainly be left behind. As a Territory Mr. Speaker, I want us to be with it and as such, I call on our internet supplier to increase the capacity to get the Territory to move even faster. All these factors are so interlinked for without one, the other is practically stranded.
   

2. Product development within the Territory to increase access to beaches and improve our roadworks. I have received numerous positive comments on the opening of the alternate Blackburne Highway and access to Long Bay Beach on Beef Island to mention a few. The accessibility has reduced the pressure on other beaches and the roadworks have opened new areas to sightsee on the island.
   

3. Improvement in the Capital, Road Town, has not gone unnoticed, as the Sunday Morning Well and the Bandstand are new features in the tours offered. I understand that on a regular basis, you can now find tourists leisuring in these areas which were once considered far from appropriate for such things. This has spurred my energies to do the same for other areas such as the Quaker’s Burial Grounds, the well at Sea Cow’s Bay and the Stickett in Long Look. I have included a token provision in the Budget to try and improve these and other areas in the Territory, to make sure that we expand the land based Tourism, as much as possible.

4. Mr. Speaker, the improvements in the capital have truly made a difference with the completion of a number of car parks, but more substantively, the works on the Crafts Alive Project will be a pleasure to behold when completed. It is surprising that when petty contract initiatives are positive, they get no recognition or praise, but any mere negativity is given national prominence. Tell me Mr. Speaker, given the late start of this Project to get ready for the 2002 Tourist Season, could such be done so quickly had we not used petty contracts? Tell me Mr. Speaker, how many contractors are employed on site working in harmony to get things moving for this great country? Tell me Mr. Speaker, how many lives have been touched positively by that employment and how many mouths have been fed? As the leader of the Territory, Sir, it behooves me to turn to the Bible to get peace and guidance.

5. Mr. Speaker, in the good book, Ecclesiastes is known as the preacher. It also Sir, follows the book of Proverbs and we all know the strength there. However, Ecclesiastes Chapter 2, Verse 13 says and I quote:

“Then I saw that wisdom excelleth folly, as far as light excelleth darkness”

FINANCIAL SERVICES

Mr. Speaker, I turn now to Financial Services. Honourable Members will recall that my 2001Budget Address predicted that 2001 would be a year of consolidation, re-engineering and development for the local Financial Services Industry, as we endeavour to ensure our Industry related programmes, practices and laws are at the cutting edge of the provision of cross-border financial services.

2. The Industry continued to operate under intense international scrutiny in 2001. I am therefore pleased, Mr. Speaker, to inform this Honourable House that notwithstanding the anxieties, uncertainties, fears and misgivings, rumours, innuendos, threats and misinformation occasioned by the myriad of initiatives targeting offshore centers, the local industry performed admirably in 2001.

3. Mr. Speaker, preliminary indicators suggest that as a result of the initiatives and the general down turn in the economies of Organisation for Economic Co-operation and Development (OECD) countries, the 2001 performance will not be as robust as that of 2000 in terms of new business. This, Sir, is very much in keeping with results from our major competitors. Direct revenue from the sector in terms of licence fees, registration fees, and post licencing services will surpass the one hundred million dollars ($100M) milestone for the first time. This is the first milestone we have reached moving towards 2002 and more are yet to come.

4. Significant revenue growth has been recorded in all sections of the Industry and the Financial Services Industry continues to be the cornerstone of the Government’s Budget. Mr. Speaker, I believe that major Corporations worldwide continue to be pressured into improving profitability and they will continue to seek offshore jurisdictions which offer the best opportunity to provide them with this. As long as the need is there, we here in the BVI should work to provide the right business environment for the services of these Corporations because by so doing, we safeguard the best economic interests of the Virgin Islands and its people.

5. Today it is evident that the BVI is competent in a changing market place where new strategies, new policies, new practices, new programmes and the implementation of innovation and novel public education, marketing and promotion techniques will be necessary to ensure that the BVI continues to attract the discerning businesses, yet remaining flexible and ever sensitive to the changing needs of the global market place and the local community.

6. Honourable Members will recall Mr. Speaker, that only last Friday, December 7th, 2001 the Financial Services Commission Act was enacted, thereby establishing an autonomous regulatory agency responsible for the regulation, supervision and development of the Financial Services Industry in these islands. The primary objective in establishing the Financial Services Commission is to provide an appropriate organisation to which skilled professional staff can be attracted, so that the supervision and regulation of the Sector can be enhanced and developed in line with the best international standards and for the economic benefit of these islands.

7. As with most reputable offshore jurisdictions, the BVI is continually updating its laws in order to remain competitive as an international finance center. Mr. Speaker, there can be no room for complacency and, with the support of a forward and progressive thinking financial community, locally, there will be none. The Commission will have to be at the forefront of legislative and regulatory reforms which will strengthen the BVI’s competitiveness. Through its statutory and general duties, the Commission will be expected to bring about an internationalisation and diversification of the Sector’s financial business.

8. At the same time, Sir, through its ongoing commitment to the promotion of high regulatory standards and membership of international regulatory and law enforcement organisations, the BVI and its Industry practitioners must remain abreast of worldwide market, law enforcement and regulatory developments. This brings us to the so-called initiatives that continue to be focused on the activities of offshore financial centers.

9. Mr. Speaker, Honourable Members are aware that our stated strategic policy objective in this regard has always been to do whatever is necessary, to ensure that the BVI does not appear on any negative list. For 2002, we intend to stay the course. Evidence suggests that attempts to remove oneself from a blacklist are far more costly than proactively ensuring that blacklisting does not occur. This does not mean that we are surrendering sovereignty or capitulary on issues fundamental to the international competitiveness of our Financial Services Industry. Far from it, Sir, as foretold in my 2001 Budget Address, the Government engaged in dialogue with the OECD and now has a much better appreciation of the level playing field case being made by targeted jurisdictions. Of course our position has also benefited from the intervention of US Secretary of the Treasury, Paul O’Neil. The revised OECD Harmful Tax Competition Initiative, as outlined in the recently released OECD 2001 Report, Mr. Speaker, is not perfect but it is a move in the right direction. It signals that for the first time, the OECD publicly conceding not only the flared nature of the Initiative but more so that it is not the source of infinite wisdom. Solutions to the very problem that confronts us all may very well lie outside the OECD and could very well reside within the targeted jurisdictions including the BVI. We have long expressed a desire to cooperate internationally in the exchange of information protocol, the refocused OECD initiative with exchange of information and transparency as its key concerns appears less daunting.

10. Given what is at stake for these islands, I am sure Industry practitioners will agree that it is much better for the BVI to have a voice at the table where international standards are being developed relating to International Business Companies (IBC), bearer shares, exchange of information and the like, than to remain excluded from the outside when these issues so critical to our economic well-being are being ironed-out on the inside. Acting in connection with other like-minded jurisdictions or going on its own, the Government of the BVI will, through its own actions, keep the BVI off the negative list.

11. With regard to the European Union (EU) Initiatives, this Government and the other Overseas Territories (OTs) informed Her Majesty’s Government, during the Paymaster General, Honourable Dawn Primarolo’s recent visit to the BVI, that we had no intention of putting the economic well-being of our Territories at risk by implementing automatic and spontaneous exchange of information mechanisms in advance of EU countries and our key competitors. In this regard, I am pleased to report that at the recent Ecofin Meeting, Her Majesty’s Government robustly rebutted attempts by Belgium and other countries to obtain that option. 

12. Mr. Speaker, Honourable Members should be aware that this country is the only UK Caribbean Overseas Territory with measures identified as being offensive to the EU Code of Conduct. I speak specifically of our IBC’s and Income Tax regimes which both contain ring-fencing mechanisms. 

13. The Government has been seized of what is necessary to put the BVI on an even keel with the other OTs where income tax mechanisms are non-existent. The Government remains poised to act expeditiously to ensure that all our regimes are fully compliant with the code. Accordingly, Mr. Speaker, the Attorney General’s Chambers, in collaboration with the Financial Services Commission and the local industry, will be amalgamating the local Companies Act Cap. 285 and the IBC Act Cap. 291 into a singly corporate statute during the year. Further initiatives to repeal and replace the Income Act are underway.


14. The comprehensive Financial Services Legislative Agenda for 2002 also includes a new Money Services Bill aimed at policing the perimeter of regulated activities, to capture under the regulatory oversight of the Financial Services Commission a number of activities not presently regulated.

15. The Industry will be pleased to hear that Protected Cell Legislation will be enacted during the year. In response to enquiries from the private sector, the Protected Cell regime will embrace both insurance companies and mutual funds.

16. A new investment business legislation aimed at regulating investment intermediaries including brokers, dealers, etc. will become a reality during the year. It will therefore be an offence for anyone not licenced to sell investment products in the BVI. Those who engage in these activities and those who facilitate these activities are strongly advised to govern themselves accordingly.

17. Mr. Speaker, occasions have arisen in the past where persons lost money by investing in unregulated entities or by placing their funds in the hands of unregulated persons. The Government believes that this must stop!

18. It is hoped that the long awaited Insolvency Bill will be enacted during the first half of the year. Drafting of this vital new Bill has already been completed and the Industry has been universal in commending the approach. I am advised, Mr. Speaker, that work is proceeding on regulations and consequential amendments to existing legislation that will be necessary to effect the efficient implementation of this much anticipated Bill. It will also be necessary for an Insolvencies Unit to be established within the Financial Services Commission, which will be charged with administering the Insolvency Act. Recruitment of staff for this Unit is expected to proceed during the first half of the year.

19. Mr. Speaker, as we progress the implementation of the KPMG Report in 2002, an Amendment Bill in respect of all current financial services related legislation will be tabled in this Honourable House to update and modernise current practices. Thus, Sir, the year 2002 promises to be one of enhanced legislative activity and heighten regulatory vigilance, as the new Financial Services Commission establishes a regulatory environment that is not overbearing, but which has the necessary checks and balances to protect the good name of the BVI and its Financial Services Industry. Notwithstanding, the anxieties caused by the environment in which our Financial Services Industry has been forced to operate under the international microscope, the Sector continues to perform well. I expect this to continue for the foreseeable future under pressure by an aggressive marketing strategy orchestrated under the aegis of the new Financial Services Marketing and Promotions Unit of the Ministry of Finance, Economics and Development Planning. Special thanks must be given to the Financial Services Department for all its efforts in carrying the marketing and legislative initiatives over the years and to recognise a job well done. I would also like to thank the Attorney General’s Chambers for its support to the Financial Services Department over the years. The Chambers will continue the mandate of liaising with the international and regional regulatory organisations.


CENTRAL GOVERNMENT

Mr. Speaker, the operations for the Government in the year 2001 have been exemplary, given the circumstances with which we have been faced. I stand here before you in utter amazement that we have withstood the challenges so well and I am truly thankful for the efforts made by Civil Servants and the people of this Territory, to stand their grounds and defend this Territory’s economy.

2. Sir, Recurrent Revenue for 2001 is expected to exceed one hundred and ninety million dollars ($190M). This is a conservative estimate and I truly expect to collect in excess of the budget revenue of one hundred and ninety-two million dollars ($192M). It is fair to say that in today’s environment it’s wise to be safe, rather than sorry. I prefer to venture on the side of conservatism rather than optimism. However, I am willing to say that an optimistic estimate for revenue in the year 2001 is one hundred and ninety-four million dollars ($194M). One glaring statistic that has affected this year’s performance is the fact that the performance for every month except September were normal or exceeded expectations. In the month of September however, we lost some seven million dollars ($7M) that was never regained. If we were not adversely impacted in that month, we were on target to collect one hundred and ninety-seven million dollars ($197M). Therefore, I say today that we have been extremely resilient because it is only now in December that the U.S. economy is showing signs of some recovery from the 911 events with the Dow Jones and NASDAQ averages posting numbers similar to that of pre 911. Revenue collected in 2000 was approximately one hundred and eighty-two million dollars ($182M). The projected increase collection in 2001 over that of 2000 is some eight million dollars ($8M) or four percent (4%).

3. The Consolidated Fund balance as at December 31st, 2000 stood at ninety-six million dollars ($96M) approximately. The projected surplus for 2001 will carry the balance over the one hundred million dollar ($100M) mark. This Mr. Speaker, is a point we as BVIslanders can be proud of because not only is the one hundred million dollar mark significant, it also reflects a carrying capacity of almost fifty percent (50%) of the Government’s operating cost. How important is that, had the 911 events impacted this Territory more significantly and the Government was to lose substantive inflows of capital, it would have to depend on the Consolidated Fund balance to carry the Government. Depending on the length of time the flows ceased, then such a carrying capacity if exhausted would require debt financing to cover the operating cost of the Government. Now, in the BVI that may seem strange but if one refers to figures of the early eighties, you will see how tight the flows of capital were for this Territory. If one looks through the Caribbean, you will see many countries who before 911 were debt financing recurrent operations through bonds. In some countries, Mr. Speaker, this sort of thing is a way of life but this is not the life I want or aspire towards for my people. Sir, I have seen the good and bad times in this Territory of ours. Not enough of our people have seen both sides to truly appreciate what we have today in the BVI. However, 911 was a wake up call to do business right or you may well lose it.

4. It is to our credit that we were well advanced with all legislation for the Financial Services Industry including that of the Financial Services Commission Act. The ability to retain this critical Industry is not a matter for the BVI to decide, but rather the global community within its global structure. If the BVI does not play by the rules of the global community, it will not be able to participate in the game. Any inability to participate in that game can be very costly, as the carrying capacity becomes the “X” factor.

5. At this time Sir, I think it is appropriate to point out that the Government has finally charted a course towards implementing accrual accounting. I know I have commented on this in previous speeches; however, the Financial Secretary and the Accountant General have formed a new alliance towards ensuring greater accountability and viability for the Government. This is reflected in the formulation of new funds in this year’s Appropriation Act to ensure better accountability. Funds to be established are the:

1. Pension Fund – to secure funds for the payment of all Government pensions separately. This fund will be increased over time and will be based on actuarial advice.
   

2. Debt Service Fund – to secure funds for all future debt payments separately. Currently such funds are appropriated for in the budgetary allocations but with the onset of so many major loans, it is important to establish a sinking fund to ensure that the funds are more safely secured to enable payments irrespective of shortcomings in operations.
   

3. Loan Revolving Fund – to separate the funding of loans for Government employees from that of the advance limit and enable employees to benefit from their right to obtain loans. Currently, the Advance Warrant limit includes such sums and the two (2) need to be separated for they serve different purposes.
   

4. Reserves Fund – to properly account for what is reserves, as oppose to a merged account called the Consolidated Fund, with reserve balances factored. It is time that we recognise that the Consolidated Fund was designed to be an operational account by which Government can collect and disburse money. In the days of marginal reserves, if any, it could all be amalgamated. In this time when our balances are exceeding one hundred million dollars ($100M), this sort of management is unacceptable. It is further unacceptable to simply have the money sit in bank accounts within the Territory, as mandated by law, if the interest bearing operations are not serving the best interest of the Government and its people. Mr. Speaker, the times are changing and the Government must move its financial platform to the next level. The things I just mentioned, are but Phase I in a general plan being formulated eventually leading to the implementation of accrual accounting. Phase I is the creation of the Fund Accounts and the dismantling of the Consolidated Fund as we know it.

PUBLIC DEBT

In the period ending December 31st, 2001, the Public Debt (Central Government) is estimated to be forty-nine million dollars ($49M) and the National Debt (including Contingent Liability) is estimated to be eighty-nine million dollars ($89M). The net increase year over year for the national debt is some five million dollars ($5M) or six percent (6%). Contingent Liabilities are estimated to be a total of forty million dollars ($40M).

2. Public Debt to revenue rate is twenty-eight percent (28%) and Public Debt repayments as a percentage of revenue is three percent (3%). Public Debt to Gross Domestic Product ratio is seven percent (7%). As regards the international borrowing criteria mandated by Her Majesty’s Government, the BVI is at approximately seventy percent (70%) of its borrowing capacity, including envisaged borrowing.

3. Recently, a team from the Foreign and Commonwealth Office of Her Majesty’s Government made a formal visit to the Territory, to assess the state of affairs and to advance the process towards adapting formally the borrowing criteria. For the most part, the outcome has been favourable and it is expected that the report will be laid before this Honourable House in short order.

4. I am Sir, concerned that whilst the overall gist of the report was favourable, it highlighted that petty contracts are not used in the most effective way to ensure value for money. In a recent visit to the city of New York, it was surprising to see how they used the same petty contract system with higher limits to ensure work is distributed amongst all, including minority interest who would not ordinarily get anything, but more importantly, that the rich do not get all and the potential for wealth is distributed. We have to be very careful in this country that we do not subscribe to the monopoly and oligopoly scenarios. The more competition that is introduced, the more effective the pricing structure will be. If the Territory ends up with a few in the area of construction and the supply and demand factors that currently exist continue, then prices will be even more excessive. The Government has a responsibility to see that its people grow with this growth in the economy or else what sense does all of this make. You know Mr. Speaker, we have to ask ourselves a fundamental question. Who are we developing the BVI for? As I reflect on my answer, there is inconsistency with what I see as challenges to the answer. The BVI must be developed for the benefit of the people of this Territory. If all we do is create wealth for others and the people do not grow and benefit pass a bi-weekly pay cheque then Mr. Speaker, we have failed. Look at places like Trinidad, where the people were developed during the boom and they can now export qualified labour around the region. We cannot even produce enough human resources to sustain our current growth. Therefore Mr. Speaker, the human resources we do have, have to be encouraged and given opportunities to participate and benefit. I see this as fundamental to sustainability for if the opportunity to benefit is not afforded to all, we will have revolts in the country. Revolts, Sir, are things we have read about in our history and one great thing about history, it teaches us about ourselves, because history does have a way of repeating itself.


Recurrent Budget Estimates of Revenue and Expenditure

Mr. Speaker, I have another milestone to announce today. The first milestone was the one hundred million dollar ($100M) mark in collections by the Financial Services Industry. The second was the Consolidated Fund reaching the one hundred million dollar ($100M) mark. The third is that today, we project that the Government will collect two hundred and one million, sixty-six thousand dollars ($201,066,000) in the year 2002. This, Sir, breaking the two hundred million dollar ($200M) mark. Not only is this sum significant, but it was only in 1996 that we broke the one hundred million dollar ($100M) mark.

2. The revenue estimates reflect a projected growth of over one hundred percent (100%) in six (6) years. Needless to say, that as a Territory and people we should not only be proud but be an active participant in this growth in the Territory.

3. The recurrent expenditure is estimated at approximately one hundred and fifty-six million dollars ($156M). Contributions to the Capital Fund are estimated to be forty-four million dollars ($44M). Sir, this sum however, will not be automatically transferred to the Capital Fund for two (2) reasons:

1. Recent events have taught us that our cash flow needs to be better managed;
   

2. Arbitrary allocations to the Capital Fund for projects which have not been initiated will no longer be supported. This year the allocations to the Fund will be authorised by the Minister of Finance, subject to the satisfactory flow of funds and the justification that the projects will be implemented properly.

4. Sir, there is too much disregard for the efforts to ensure the funds are properly secured and the ineffective management of funds by some Accounting Officers which contribute to the increase in variations must be curtailed. There is a sentiment in Government “not to worry, funds will come”. Funds do not just appear and we certainly do not print money. Funds have to be projected for and, more importantly, collected timely and managed properly. I intend Sir, to ensure that the last two (2) are done properly for as Minister of Finance, I am entrusted with the stewardship of the Territory’s monies. I also realised in recent times that Accounting Officers do not realise that this does not entrust any automatic authority to them. The Finance Act clearly stipulates the role of the Minister of Finance, the Financial Secretary and the Accountant General. Any further authority is delegated by way of Financial Instructions and authority in the structure of the Appropriation Act thus, the Estimates. The Accounting Officers will be made to understand that they are accountable to the Minister of Finance and the Legislative Council for their stewardship. The Legislative Council must be given its due respect for what it entrusts the Accounting Officers to do. I have noticed that annual reports and annual plans are not submitted timely enough but to receive funds in the future, they will have to be. 


5. Mr. Speaker, I honestly believe that besides what reporting the Accounting Officers produce to me they should be giving mid-year reports to this Honourable House on their stewardship. The situation just simply has to be more proactive, accountable and transparent.


Capital Budget Estimates of Revenue and Expenditure

Mr. Speaker, in the 2002 Annual Budget Estimates, I have made provisions for funding of capital projects as follows:

2. Mr. Speaker, of these funds, all are expected from local sources.

Major Projects

Mr. Speaker, this year we are introducing a new module on the J.D. Edwards System called the Job Cost Module. Encompassed in this module is the ability for Government to track all major projects electronically in a contract management structure. Instead of previous years whereby project funds were assigned to a general budget figure and then separate software packages were used to track details, it’s all now amalgamated in a network accessible to all who need to see.

2. This technology is not new to the Government but is one more extension of the capacity of the J.D. Edwards System. I am pleased to say that I truly welcome this move, for it will enable the requisite authorities who manage the funds on a daily basis (that being the Accounting Officers) to have a better sense of what happens on projects real time from a financial perspective. It will enable the funding departments and ministries to keep a better check on expenditure and project management. This exercise however, will only be for the major projects (i.e. five million dollars ($5M) and over) in the first instance.

3. Sir, as you can see I am taking a bold initiative to ensure the mishaps I have observed over the years with various projects do not continue. These days are days whereby the capacity of my stewardship and leadership will be tested. I intend to use all my resources to ensure that this ship is kept well afloat and I can hold my head up high when I report on progress to this Honourable House.

New Initiatives

Mr. Speaker, as regards new initiatives here is an even bolder one. I have authorised the Financial Secretary to commence the financial rating exercise for the Territory in the first quarter of 2002. The exercise is long overdue to ensure that as we seek future funding, the financial institutions will be conversant with the Territory’s financial status on an internationally accepted level.

2. I expect the Territory to benefit from this exercise with better rates being secured. I have seen the benefits already, as the preliminary works done thus far in this exercise have changed the way in which financial institutions do business with Government. It is no longer prime plus or even take whatever we offer. The Government has strength and it must use this strength not only to benefit the Government and its Statutory Boards, but even the people of this Territory as they approach these institutions for funding. It is a whole new era Mr. Speaker, which I intend to see this Territory enter into from a position of strength and for the greater good of us all.

3. Sir, the second initiative is the soon to be appointed Fiscal Review Committee which will be charged with the responsibility of reviewing existing and new revenue measures. The appointment of this Committee is soon expected, and I trust that it will commence work early in the year 2002 and thereby have some of the recommendations ready for approval and implementation before the next Budgetary Exercise. The under collection of revenue in the Government has been estimated by experts to be anywhere from ten percent (10%) to twenty-five percent (25%). A significant enough sum to warrant serious efforts to reduce the percentage. 

Statutory Boards

The Statutory Boards for the most part have been operating within a reasonable state. The performance by the majority of the Boards are positive and efforts continue to improve the productivity.

2. Mr. Speaker, I said I would attempt not to be too long winded and thus, I am going to be very specific in this section of the speech. The Development Bank of the Virgin Islands (DBVI) has undergone an intensive strategic audit and a copy of the report is on its way to this Honourable House. Some aspects of the report are currently being implemented and I have seen some positive results. Before the way can be set aright for the institution, it will have to be restructured and staffed to assume the mandate. This initiative has to be accelerated as the prudential supervision of the Bank has raised concerns about operational efficiency and financial adequacy. In the Draft Estimates, I have proposed to initiate an equity injection programme to attempt to resolve some of the financial short falls but this is only but one area of the financial restructuring. The operations including the constitution of the Board, have also been reviewed with a restructuring plan being proposed for the future. I am pleased to say that we are well on the way to addressing the issues with this institution, given the environment of more financial scrutiny and integrity.

3. The BVI Electricity Corporation was recently discussed at length in this Honourable House and therefore, I would only like to point out that the co-funding for the operational audit of this institution is in the Draft Estimates. The Government is committed to seeing this done expeditiously as this resource is vital to the way of life in this Territory. The Government cannot continue to simply advance equity to assist this institution if the proper plans and structure are not proposed and implemented. I am pleased, once again to say that the Board and Management are quite amendable to this concept and I trust that the Permanent Secretary in the Ministry of Communications & Works will lead the change with this initiative.

4. Finally, Mr. Speaker, the BVI Ports Authority is currently finalising the details to commence a feasibility study and master plan for the ports including West End. This initiative has been long awaited and I call on the Board to expedite this and other matters surrounding such, as a matter of urgency.

Ministries and Departments

Mr. Speaker, I am truly disappointed that as customary whereby ministries would submit contributions to the Address, only one (1) ministry submitted any contributions to the exercise. It was very evident in the committee exercises that not sufficient time and effort was put into budget submissions. I feel that the said exercise has now become an arbitrary exercise and officers intend to come to final committee exercises and/or Standing Finance Committee to seek funding. This did not happen in the committee exercises thus far and I do not intend to entertain such in Standing Finance Committee.


2. Sir, having said that, the Government continues to advance a number of initiatives as outlined in the Draft Estimates. The two (2) most critical capital projects are those of the Terrance B. Lettsome International Airport and the New Peebles Hospital. There have been several obstacles in the way as we try to complete the Airport Project. The most recent update reveals that the expected opening for the terminal facility is in the second quarter of 2002 and the runway extension before the next tourist season. Works are still continuing to try and advance these dates.

3. The Hospital Project is in the final stages of design and tendering for construction has been initiated at a pre-qualification level. We are all aware that excavation has commenced on site, though slower than anticipated, progress is still being made. The programme of works indicates that construction should start on Phase I as early as the second quarter of 2002 and the substantive structure (Phase II) by the fourth quarter of 2002. The target date for completion is the second quarter of 2004. The level of commitment to the Project is a reflection of the importance this Government places on our social services. You will see that throughout the Estimates, efforts have been made to accommodate as many social and environmental areas as possible. One must admit that not everything has been included, but this happens in any Budget Exercise. 

4. Sir, in support of the balance of outflows to inflows there is need to ensure we concentrate on revenue initiatives. One such capital project is the New Financial Complex. The building is to facilitate the accommodation of the New General Post Office, Customs Headquarters, the Marketing Unit for Financial Services, Project Cycle Management Unit, a Conference Facility (with hire capacity) and the BVI Ports Authority Headquarters (at full cost to the Ports Authority). This Project for some reason has been totally misrepresented with suggestions of a twenty million dollar ($20M) Post Office and the like. It is obvious that the building started off to facilitate the Post Office, Customs and the BVI Ports Authority. However, further review of needs and demands necessitated further expansion. Mr. Speaker, it is in this same Honourable House that we have questioned the cost of continuously retrofitting buildings not owned by Government. It would be an interesting analysis to see what it would cost to locate these same Departments and/or Agencies elsewhere and further, the cost of Government continuously renting conference facilities. The annual cost of these options will quickly outweigh the capital and debt burden cost of the New Financial Complex.

5. A final area of concern for which the Estimates make provision for, is corrective action to commence within the Water and Sewerage Department. We are all aware that revenue collection has been less than acceptable given the outlay of expenditure. To address the operational deficiencies, I have included funding for an operational audit of this Department to be done in the year 2002 to identify its strengths and weaknesses and develop a comprehensive plan to take the Department forward. Supply of water is as critical to the Territory as is that of electricity. It affects all and it is expected by year’s end, 2002, that the water distribution system will be looped/interconnected to allow supply of water to be directed and/or re-directed from multiple services.

6. Mr. Speaker, included in the Estimates are provisions for the New Governor’s House; expansion of facilities for the Police Department; support services for the Attorney General’s Chambers along with a computerisation initiative; computerisation of the Immigration Department which will also support our national statistics; continuation of reform efforts in the Ministry of Finance, Economics and Development Planning; transfer of marketing responsibilities from Financial Services to the Ministry of Finance, Economics and Development Planning; continued initiatives for the environment and agriculture; provisions for the ongoing reform efforts in the education and social areas as well as, general roadworks and telecommunication programmes.

Addressing the Sister Islands

Virgin Gorda

Mr. Speaker, I must say that the year 2001 did produce action in Virgin Gorda and the provisions for 2002 are just as good. During the course of the year, the Virgin Gorda Administration Building, Phase II was initiated and is well on the way towards completion. The discussions on the procurement of the airport facilities are well on the way with closure expected very soon and thus, this facility can be refurbished and opened to substantiate air traffic. Sir, I do not have to emphasise the importance of this Project to Tourism on the island and to the Territory in general. Too many tourists complain about the difficulty to complete their travel to that island in the course of one day. We have started the building of the alternate highway to North Sound and procured an asphalt plant to commence the road paving concurrently. I am encouraged by recent developments on the design for the New Public Works Department and I expect that construction of the facility would commence in 2002. There are plans to continue the roadworks programme and water connection system throughout the island. The improvement to historical sites will be a programme for all the islands; however, I intend to concentrate on some areas of that island.

2. On a more somber note Mr. Speaker, the Government services on the island need to be strengthened. It is obvious that Virgin Gorda is expanding rapidly and is a significant factor in the economic equation. Whilst this is so, not enough is being done to establish permanent Government offices and officers on the island. The presence of these departments on a weekly or bi-weekly basis is simply not sufficient to do the job. I therefore call on those ministries and departments to reassess their commitment to the sister islands. The Public Sector Development Programme has clearly identified this need and thus, I trust that the authority associated with that good Programme would lend full support to this initiative.

3. Sir, it is fair to say that in general the island of Virgin Gorda is receiving more attention and with some extra effort, it could go even further.

Anegada

The development efforts on the island of Anegada, Mr. Speaker, are progressing as regards such areas as roadworks, improvement to transportation facilities and water distribution. Some works have also been done in the areas of the environment and agriculture. However, I am concerned about the lack of a more concentrated effort on the overall development. The Anegada Land Development Committee has been revised and I look forward to positive action in 2002.

2. Sir, I recognise that this is not an easy subject matter to handle as evidenced by the survey mapping exercises. I have discussed with the Financial Secretary a need to have the Development Planning Department conduct a comprehensive study of the island to see what type of master plan can be developed in conjunction with eco-tourism and in collaboration with the people of this island. This will be an area of priority for me in the year 2002 and I hope to be able to report on the progress of such efforts during that year. A committee under the Chairmanship of Mr. Darwin Potter was set up to make recommendations for the Port development in Anegada and I understand the report will be soon submitted to me. I wish to thank the Chairman and Members of the Committee for the time and effort they put into this exercise.

Jost Van Dyke

Mr. Speaker, the island of Jost Van Dyke over the past two (2) years has benefited from development in the areas of roadworks and water distribution efforts. We are very close to offering desalinated water supply on the island. The Budget Estimates also has provisions for construction of a New Police Station. Once completed, the administration headquarters needs to be refurbished to be more functional.

2. These efforts need to be commended, for the tourist product on the island is critical to the overall national tourism product. I understand that the BVI Ports Authority will also be commencing dredging works on the harbour with the intent to improve the docking facilities thereafter.

Conclusion

Mr. Speaker, Sir, the Members of this Honourable House have called for adequate chambers to hold Council Meetings, given that the current environment is inadequate. I have responded by having the offices of the Legislative Council relocated to proper accommodations given the space restrictions in the central vicinity. I am further reviewing options to determine a site to construct a proper Council Chambers and I hope that during the course of the upcoming year this initiative will be underway.

2. Sir, the Territory has withstood trials and tribulations that have not been seen in recent times. The character of the people and the soundness of our systems have been tested and found to be adequate. We have always been strong people and we are accustomed to hard work. It took hard work for us to be where we are today and it will take even harder work for us to excel.

3. As I reflect on the progress of the Territory amidst the challenges, one cannot help but to refer to the Bible for strength and guidance. This good book Sir, has always been my refuge and strength and you have heard me refer to this book on numerous occasions in this Honourable House. The journey we are on Mr. Speaker, is no less of a journey than the Israelites took from Egypt. There were tremendous obstacles that the leader Moses had to overcome with the help of God and the people. Of particular correlation for us as a people today was the great ascension to the mountain to obtain the ten (10) commandments, which form the rule of life even today. Sometimes Sir, I feel very similar to how Moses must have felt after his return from the mountain top. 2 Timothy, Chapter 4, Verse 7 states:

“I have fought a good fight, I have finished my course, I have kept the faith”.

4. We as a people must not succumb to the temptation to rest on our laurels. Like Moses, I see the need to go back to the mountain top with the understanding that my people will keep the faith and not subscribe to vanity. As promised to the people, there is a promise land for which we as a people must strive. Most would wonder why the correlation, given the outcome for Moses. The critical question we all must ask is “what is the promise land, and where is it”? It is in the wisdom of the answer that the future will be determined. Therefore Sir, I have titled the Budget Address “Exodus - Movement of the People”

5. Let us therefore Mr. Speaker, Honourable Members, Ladies and Gentlemen, move to review the Estimates with the wisdom and guidance, understanding the faith Job exhibited to affirm his commitment to God. We shall persevere if we want to do so and commit to doing the right things to get there. I trust my Honourable Colleagues have listened to my words today and will reflect on them not only for this Budget Exercise but for future deliberations in this Honourable House.

6. Mr. Speaker, I would like to recognise the contributions by the local Financial Institutions and Agencies, Regional and International Financial Institutions, the Statutory Boards and other Committees, the Government and all Institutions and Agencies, Her Majesty’s Government and His Excellency, The Governor, whom have assisted with the development of the economy of the Territory and its resilience in recent times. To my Honourable Colleagues, I wish to thank you for your support thus far and welcome your continued support during the process into the year 2002. Mr. Speaker, to you and your staff, I say, thank you, for your efforts during the course of this year and into 2002 and I wish you every success. This accomplishment was only achievable through the hard work and support of the staff of the Ministry of Finance, Economics and Development Planning, the efforts of which I truly appreciate and would like to publicly acknowledge.

7. To the people of this Territory, I thank you for your support and confidence. I pray God’s speed as we deliberate this document. To all and sundry, I wish you a Merry Christmas and a bright prosperous New Year.






Thought for the Year

“Give instruction to a wise man, 
and he will be yet wiser:
teach a just man, 
and he will increase in learning.”

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Proverbs, Chapter 9, Verse 9