|
|
The Opposition Spokesman on Finance in critiquing the estimates has pointed to several priority areas which he has allocated additional funds.
A total of $6.247 Billion in additional expenditure. To be fair to him he is not suggesting that we increase the estimates tabled to the full amount, as he has identified several areas of "savings" which would finance his additional expenditure. Major source of financing would be $4B from reducing average interest rates by 1%. Mergers and rationalization e.g. NIBJ/DBJ - $1B. Further divestment of assets - an additional $1B. The total of these initiatives is $7B leaving, as he claims, a "surplus" for other areas which need some topping up. The arithmetic is correct but very little else. It is imperative that these populist assertions be dissected and shown for what they are. Let us begin with the interest rate savings. How did the Opposition Spokesman come to his figure of $4B from a reduction of 1% on the average interest rate? He didn't say. However, I believe that he used the total domestic debt of just over $400B and hence a 1% reduction would, superficially, mean a $4B saving. Unfortunately, the issue is a little more complex than this. Please follow carefully. To begin, 60% of the current stock of domestic debt has a fixed interest rate. Therefore any adjustment will have to apply to the other 40%. Let us now turn to that 40% of the domestic debt, with variable interest rates. Interest payments are spread through the year and the stocks are re-priced either quarterly or semi-annually. Hence, any rate adjustment will impact on only approximately $84B of the domestic debt. The 1% reduction, if it can be attained, would mean savings of approximately $835M, maximum. New debt to be issued is projected at $122B and this we could argue that this would be affected by this "hoped for" reduction in rates. However, only about two-thirds of this will have any impact in 04/05 and hence a 1% reduction in rates will generate savings of approximately $400M. At best therefore, this reduction which is proposed by the Opposition Spokesman would yield approximately $1.2B, if it is possible - not $4B as he asserts and for which he has clear-cut expenditure plans. If the Spokesman's projections/calculations are unrealistic, as I have just shown, consider the pipe dream of the Leader of the Opposition, who speaks of a possible reduction of 5% on Government domestic bond offers which could yield $22B in one year - thus wiping out the fiscal deficit.. Whilst these are technical issues, it is important that the public understands that these reductions which are so loosely referred to are simply not feasible. Furthermore, it would be unwise for any Government to proceed to commit itself to additional expenditure to be funded on possible savings from interest rates - that is spent and then hope for the best.. What happens if, per chance, due to shocks - domestic or external, interest rates move in the opposite direction? How would we then compensate for expenditure already undertaken? Simply put, Mr Speaker, we have projected interest expenditure assuming a most aggressive reduction in interest rates. This interest rate assumption does not stand in isolation. It is consistent with all the other aspects of the macro-economic programme. We cannot simply assume an average reduction of 1% and proceed to spend in advance. Furthermore, the $4B savings, is as I have shown, simply not possible - much less the $22B suggested by the Leader of the Opposition Let me say something about the intended merger of these institutions. The fact is that the previous merger - of the former ACB and NDB - was quickly effected because the institutions were very similar except for areas of focus. In this case, there is a difference in that NIBJ has significant equity stakes in a range of companies unlike the DBJ which is essentially a bank with a loan portfolio As such the analysis has demonstrated that, prior to effecting the merger, it is important that the various investments held by NIBJ be reviewed, so as not to affect the balance sheet of the DBJ which, as is generally accepted, is in excellent financial state. Put another way, there is need for us to separate those investments which have not been profitable prior to proceeding with the merger of the two institutions. The timetable is that this will be done during this fiscal year. However, even when the merger takes place, gains will be in terms of increased efficiency levels and greater focus in terms of developmental initiatives. The total administrative budget for both institutions amounted to $......... last year, hence there are no significant savings to be reaped from this merger. A third area identified to fund the expanded budget as proposed by the Opposition Spokesman is "further divestments" yielding an additional $1B. The proposal re increased divestment which, to be fair emanates not just from the Opposition Spokesman, is sometimes based in ignorance. During the last fiscal year, the Government divested various assets to the tune of $6.9B. This included sale of receivables from AIC, Sale of LOJ shares, sale of RJR shares, receipts from the sale of non-performing loans. The truth is that this amount was far in excess of that which had been projected. For 04/05 it is projected that we will receive $1.9B from similar divestments. Members of this House should be assured that if it is at all possible to do better we will, but we cannot begin to spend money before it has been earned.
|
