By Lynford Simpson, Parliamentary Reporter
Davies
FINANCE AND Planning Minister Dr. Omar Davies has warned that the looming war in Iraq makes economic projections at best uncertain.
He told yesterday's sitting of Parliament's Standing Finance Committee (SFC) that he had already cancelled a trip to Europe to raise funds, because of the coming war.
"I was scheduled to be off the island this weekend... and the whole uncertainty in terms of Europe etc. that poses problems. I'm not going," Dr. Davies said.
The Minister used the occasion of the sitting of the SFC to explain a $6.4 billion increase in public sector spending during the last quarter of the fiscal year.
Grants and under-expenditure of $4.9 billion in some ministries and departments have combined to cut the figure to a net $1.51 billion to round off the 2002/03 Budget at just above $225 billion. These are contained in the Second Supplementary Estimates which were tabled in the House of Representatives on Tuesday.
The Estimates, which were approved by the House yesterday evening, show that recurrent expenditure had been cut by roughly $2.7 billion since December when the First Supplementary Estimates were tabled. But, the gains have been wiped out by $4.2 billion in net capital expenditure.
Yesterday Dr. Davies said the country's Net International Reserves (NIR) were still relatively healthy and that the US$1.27 billion balance as of March 14, 2003, represented 17 weeks of imports. The NIR which stood in excess of US$1.7 billion up to the end of last year, has plummeted in recent months due to the Central Bank's intervention in an unstable exchange rate market, and more recently, a US$220 million drawdown by Government to honour Euro bond payments.
In relation to the exchange rate, Dr. Davies said: "Everybody knows there was a period of instability."
In a power-point presentation lasting 15 minutes, Dr. Davies warned that any projections for the 2003/04 fiscal year could be affected by the war. "We don't know what will happen in some of our major markets," he said.
He pointed to areas such as debt management, inflation control, balance of payments and movements in oil prices which are likely to determine the state of the economy over the next few months. He said it was crucial that inflation targets are met.
"There are uncertainties, there are issues that we are now working on in terms of contingency, in terms of what we may need to do in order to counteract these things," Dr. Davies said. He said there could be a greater reliance on domestic borrowing which, he noted, "has its own implications."
The Minister conceded that balance of payments to foreign exchange markets are going to be affected, so too tourism earnings, commodities, imported oil and remittances.
"In certain instances the best you can do are educated guesses, but you have to operate in a what if scenario," Dr. Davies told the Committee. "We do not know what will happen in some of our major markets. There is the question of what additional measures the Ministry of National Security will have to put in place."
He explained that there was a $10.3 billion addition to the debt stock due to exchange rate movement. Also, Cabinet had approved the "formal assumption" of $2.8 billion of National Water Commission debt.
Dr. Davies disclosed yesterday that the $311 million in flood relief sent to Parish Councils to rehabilitate roads damaged by recent flood rains, fall under the Deferred Financing Programme and is yet to be reflected on the Budget.
