Mid-year 2013 report – a financial commentary

Once again the mid-year report required under the Fiscal Management and Accountability Act (FMAA) was published within the statutory deadline and once again publicly released before being laid in the National Assembly. As the calendar would have it, the National Assembly is usually on its two months recess when the mid-year report is scheduled for release. In a positive kind of way the report is unremarkable, no dramatic developments one way or the other, except perhaps in sugar where GuySuCo continues to cause serious headaches for the Government and no doubt those closely associated with or dependent on the sub-sector and the slow start to the capital expenditure programme.

Unlike his annual Budget Speech which is well-known for its prose and politics, Minister of Finance Dr. Ashni Singh stuck to a pattern of using only as much language as to place whatever numbers he wants to discuss into context. The report cannot be faulted in its requirement to give an account of the year-to-date execution of the annual budget but does seem short on explanations and clarification as well as on the prospects for the remainder of the year. The FMAA requires the report to address a number of other issues which this report at best only addresses tangentially or not at all. It specifically requires:

(a) an update on the current macroeconomic and fiscal situation, a revised economic outlook for the remainder of the fiscal year, and a statement of the projected impact that these trends are likely to have on the annual budget for the current fiscal year;

(b) a comparison report on the out-turned current and capital expenditures and revenues with the estimates originally approved by the National Assembly with explanations of any significant variances; and

(c) a list of major fiscal risks for the remainder of the fiscal year, together with likely policy responses that the Government proposes to take to meet the expected circumstances.

The report does not have a specific section dealing with Outlook for the second half of the year and the Conclusion, consisting of two paragraphs, is a very brief summary of the contents of the completed half-year. There is not sufficient information to support some of the broader statements in the report which does not capture, in particular, (c) above, factors of relevance not only for the macro-economy but individual businesses and segments as well.

Financial operations
Following the publication of the report the print media reproduced the half-year performance in the real sector and balance of payments. I do not think those need repetition. I will look mainly at the financial operations to June 30, 2013 and the outlook for the second-half of the year.

Budget 2013 had projected an overall deficit of $42,272 million before grants and a deficit of $29,064 million after grants. At June 30, the results were a surplus of $15,827 before grants and a surplus of $17,163 million after grants. The main reasons for the apparent mid-year improvements is that while revenues for the first six months are only 44% of the projected total, total expenditure is only 27%. The shortfall in revenue is not in taxes – all of which are in line to meet the full year target – but because of the non-receipt of a $20,000 million in GRIF funds. If we were to discount that $20,000 million, the half-year income is just over 50% of the full-year. Optimistically, the Government still hopes to receive the GRIF money in 2013 despite the events surrounding the Amaila hydro project from which the identified project sponsor Sithe Global had walked by the time the report was published.

Returning to revenues we note that tax revenues for the half-year amounted to 52% of the full-year target and exceeds tax revenue for the corresponding period in 2012 by just over 10%. Non-tax revenues from what is described as the private sector and public enterprises & BOG in the half-year amounted to $6,780 million of the $17,041 million (40%) of the income projected for full-year 2013 and that too is higher than for the same period in 2012. Current revenues therefore do not seem to be a problem for the rest of the year.

Shortfalls in expenditure
The real issues with the half-year were shortfalls in expenditure. Current non-interest expenditure in the first half of 2013 amounted to $41,928.7 million against a full-year budget of $112,491 million, or 37%! Interestingly, in absolute terms the non-interest expenditure in first half 2013 is less than for the 2012 corresponding period. With interest expenditure almost in line with budget current expenditure of $44,941 million was just 38% of the $119,391 million budgeted for full-year 2013. Personnel emoluments for the first half of the year amounted to $17,739 million or 45% of full-year budget and if 2012 is a reliable indicator, the full year budget will be fully utilised.

As a result of the above, the current balance for the half-year was $26,729 million, surpassing the $23,386 million projected for the entire year and despite the non-receipt of any GRIF funds!

The situation on the capital expenditure side is even more dramatic. Capital expenditure budgeted for 2013 amounted to $85,659 million but of this only $10,902 million had been expended by June 30, or less than 13%, compared with 26% in 2012. The Minister explained modest expenditure as due to the “lower disbursements on the externally financed public sector investment programme on account of project cycle timing issues”.

Catch up
The big question therefore is what the rest of the year is likely to be. Are we likely to witness a spending frenzy by the government and if so in what areas? There are some items that seem to be very period-sensitive such as expenditure on maintenance of buildings which in half-year 2012 was $164.5 million but by the end of 2012 the government had managed to spend $2,023 million. In other words, the average monthly expenditure in the second half of 2012 was more than the entire amount spent in all of the first six months. In drugs and medical supplies and print and non-print materials the story was similar but less pronounced. The purchase of drugs around which accusations of cronyism and corruption have swirled since the alliance with New GPC is another item that can arouse interest. In the first half of 2013 only $532 million or 11% of the $4,779 million budgeted for the purchase of drugs and medical supplies had been expended. Yet, in the latter half of the year, the government proposes to spend $4,247 million, or an average of $707 million per month. Lest anyone suggest that this is entirely “seasonal” they may note that in 2011 the percentage of the budget spent in the first half of the year was 57% and in 2012 it was 42%.

There are a couple of other items that are worthy of some comment. Budgeted expenditure on pension increases was $2,701 million which should have come into effect on May 1 2013. Some $865 million was expended for what should have been two months so it seems that there is some under-budgeting by roughly $600 million for the rest of the year. Electricity charges for the half-year amounted to $855 million against a full year budget of $$6,157 million. That works out at 14% of the annual budget. If the budget is to be fully utilised in 2013 the Government would be paying an average of $883.7 million per month for the next six months.

The story is the same with the capital expenditure programme. It seems a real stretch for the Government to meet its revised capital expenditure budget of $82,674 million, even if the GRIF $20,000 million and the $13,207 million in project grants were received before December 31, 2013.

In the circumstances it is impossible to comment on what the outcome for the full year is likely to be. All I can say at this time is that it is unlikely to be the deficit of $38,664 million before grants and a deficit of $25,831 billion after grants.

There are many things the Minister did not speak about: UG, the NIS, Amaila, GPL, the growing dependency on China and very importantly the international reserves.

I hope the report is not the last words of the Minister on the subject.

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