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Finance Minister warns 2021 likely to be difficult year

Finance Minister warns 2021 likely to be difficult year
Minister of Finance Camillo Gonsalves

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This year is likely to be difficult from an economic standpoint, and already, revenue in January 2021 is down by about 30 per cent relative to January 2020.

This follows a difficult year in 2020 when the economy of St Vincent and the Grenadines (SVG) contracted by between three to five per cent.

“The final numbers are still being totted up, but the numbers are somewhere between a three to five contraction which is significant,” Minister of Finance Camillo Gonsalves told a Chamber of Industry and Commerce discussion on the 2021 Budget.

Speaking via Zoom on Thursday February 18, the minister said 2021 needs extensive collaboration and cooperation between the government and the private sector as we go through what is likely to be a difficult year from an economic standpoint.

He said the interaction with the business community shaped the budget “somewhat”.

However, Gonsalves said that SVG’s economy in 2020 performed better than several other countries as in CARICOM, contraction averaged eight per cent and the Central Bank has advised that in the OECS, contraction is over 15 per cent.

“So a three to five percent contraction, while significant and unprecedented, is nonetheless relatively better than what we achieved in the OECS,” Gonsalves said, noting that it is hard to say the word “good” when you are talking about a three to five per cent contraction and with over 4000 persons in the formal sector being unemployed or underemployed.

“But you know, good is relative in this time of COVID,” the finance minister said.

He noted that SVG’s contraction was not as severe for a few reasons, one of them being that our economy is less reliant on tourism than some of our neighbors and we did not at any point have a lockdown, state of emergency or curfew, “or any of these things that put dampers on economic activity.”

“A third reason is that we delivered a stimulus package in a very quick and targeted manner and that stimulus package was over 54 million dollars when you tot it up, probably over 60 million dollars depending on what you decide to count and not count,” Gonsalves told persons listening to the meeting.

He said also that the stimulus package touched over 40,000 persons directly and it is a very significant stimulus in the context of a nation of a little over 110,000 persons.

“And of course, fortuitously, COVID came in March which was after the peak of our tourism season so we managed at least in December/January/February to get some of the revenue from economic activity that we would normally get.

“In fact the first quarter of 2020 was a very good quarter, so it helped to buoy us at least through the first quarter of the year,” Gonsalves said while pointing out that we do not have the luxury of a good start in 2021.

“In fact, we have started in a concerning manner,” Gonsalves lamented, while revealing that the starting numbers show that our revenue in January 2021 declined by about 30 per cent relative to January 2020.

He said for this year, SVG is already EC$14 million down, relative to where we were in 2020 and this is an area of concern but not something that was not predicted.

He said that in 2021, SVG is confronting three immediate threats, COVID-19, the continued effusive eruption of La Soufriere and the ongoing threat of climate change and the impending hurricane season in a year when weather has already being going “haywire” around the world.

“These things give us cause for concern. In the context of 2021, we are already in the environment of reduced trade activity, reduced direct investment regionally and globally and a decimated tourism sector which is difficult to predict in terms of its recovery date,” Gonsalves pointed out.

He said that for 2021, the projection for economic activity in terms of growth or contraction, depends on who you are speaking to.

The projection for SVG ranges from 0 to 4 per cent depending on which variables you place more emphasis on, whether it is the Eastern Caribbean Central Bank (ECCB), World Bank, the International Monetary Fund (IMP) or local statisticians.

Gonsalves noted also that persons have to look at when the COVID-19 vaccines will begin making an impact globally and when tourism and trading activity will resume and lockdowns lifted.

“So there are a lot of variables, but the range that we are projecting right now is somewhere between completely flat at zero per cent or growth of about four per cent.

“But of course if we grow by four per cent remember that we contracted by five percent in 2020, so we still do not, in any of these scenarios project that by the end of 2021 we will be back to the levels of economic activity that we had in 2019,” Gonsalves explained.

He said that in that light, the government crafted a budget that it believes addresses the short term challenges as comprehensively as possible while preparing for an elevated post COVID-19 transformation.

For 2021, government has put forward an EC$1,212,601,578 fiscal package – a 2.2 per cent increase over 2020’s approved budget.

That figure comprises recurrent expenditure inclusive of amortisation and sinking fund contributions of EC$895,199,329 and capital expenditure of EC$317,402,250.