The public entity Saba will have to await the completion of an inventory before it receives a reply to its urgent appeal for more structural funding from The Hague in order to cover its operational costs.
Dutch State Secretary of Home Affairs and Kingdom Relations Raymond Knops informed the Second Chamber of the Dutch Parliament in a letter last Friday that currently a trajectory of inventory and reassessment was taking place with regard to the division of tasks and the associated costs. The public entities Bonaire, St. Eustatius and Saba are involved in this trajectory.
The results of this inventory are expected to be ready in the first quarter of 2021. “Based on the recommendations and conclusion, where possible, a reassessment of the financial means will take place in relation to the available budget of the Caribbean Netherlands islands,” stated Knops.
The state secretary said he was aware of the “communicated signals” by the Island Council with regard to the dire financial situation. In November, the Island Council approved the 2021 budget with a US $1.3 million deficit, putting aside the advice of the Committee for Financial Supervision CFI: For the first time, Saba reached the point where it could no longer present a balanced budget as required by law.
The Island Council and Finance Commissioner Bruce Zagers asserted that more budget cuts were not possible as it was already a skeleton budget which barely covered the legal obligations of the local government, and that following the CFT advice to book the loss of income due to the coronavirus COVID-19 crisis to the general reserves would have a detrimental effect on Saba’s liquidity position.
According to Knops, of importance in the discussion about raising the free allowance (“vrije uitkering”) was part or the findings of earlier reports, which stated the division of tasks between the Dutch government and the public entities was “blurred”. As such, the Dutch government initiated a reassessment of the division of tasks. This reassessment also included the issue of whether the financial means were “still fitting”.
In response to Saba’s financial situation, where the local government has been finding itself unable to cover its operational and structural costs due to insufficient structural funding from the Netherlands, Knops stated that the Dutch government in the past years has taken a number of actions to support the public entity with the local challenges.
Also, The Hague provided additional means for island-specific tasks. This takes place via the direct monetary flows, such as structural means for infrastructure, but also through direct funding from the ministries’ budgets.
From the Regional Envelope, 12.5 million euros has been made available for the construction of a new harbour in Saba, and one million euros was allocated for agricultural projects. The idea is to create the opportunity for Saba to generate more of its own income through these projects.
In addition, emergency packages have been made available to help Saba cope with the COVID-19 pandemic which has a huge impact due to the closure of the borders. To compensate the loss of income, Saba received 300,000 euros. To mitigate the social consequences of the pandemic, an additional 560,000 euros was allocated to Saba.
As for one of the major impacts on the Saba budget, the US $560,000 pension provision for former politicians, Knops noted that research has been initiated on the request of the CFT on this matter. Assessed will be the possibilities of adapting the law which regulates the pension of elected officials and to transfer this pension facility to a pension fund, for example the Caribbean Netherlands Pension Fund PCN.
The state secretary promised to take the comments and advice of the CFT and the external auditor with regard to Saba’s budget, including the importance of creating structural coverage for trajectories that were agreed upon in the Saba Package, the multiannual development plan, into consideration.
Knops pledged to also take the signals communicated by the Island Council and the results of the inventory and reassessment of the tasks, which should be concluded in the first quarter of next year, into consideration in determining a structural financial solution for Saba.
The Daily Herald.
The world of difference:
Curaçao tried to diminish the deficit of the operational budget with a surplus of the capital reserves budget. The CFT did not allow this, because it was “against the law”.
For Saba the CFT wants to use the general reserves to diminish the deficit of the operational budget. Now the law does allow this?
Of course there are differences between these 2 proposals, and although governments have used these 2 budget components for a long time, it has always been a teasing structure to use. Almost a creative kind of bookkeeping when a deficit occurs. But fair to say: the theoreticists and politicians have different opinions about the merits and supposed use.
The danger of the budget structure with an ordinary or operational budget and a capital reserves budget is that it has opened the door to enlarging the debts of the state / country.
Therefore it’s not advisable to kill the reserves so easily. This applies also to Saba.
Nowadays there is still part of “Den Haag” who think that operation budget cuts, and even mandatory salary cuts, are the solution. Fortunately, the signals from the islands do sometimes reach the other opinions. And that’s the reason an inventory is important.
This flattens the path for long term strategic planning and financial development. Nevertheless more grip on operational goal reaching, professionalization, strong management, efficiency of the internal organization of the government is needed. A more result driven organization is needed.