Lack of New Capital Projects Could Lead to Recession, says Financial Analyst

BRADES –  While the Hon. Minister of Finance and Premier Donaldson Romeo is confident that the new budget and pending projects with DFID will have a positive effect on Montserrat’s economy, a local financial analyst isn’t holding out much hope and cautions that without swift action the island could end up in a recession.

Peter Queeley, an Economic and Financial Analyst who also heads the St Patrick’s Cooperative Credit Union said last week that “In its current form, the 2015/2016 Fiscal Budget as presented by the Honorable Premier, Donaldson Romeo, lacks of new capital projects (new spends) and as such it is easy for one to assess that the 2015/2016 fiscal budget package will have little or no effect on economic activity in Montserrat in the short to medium term.”

Queeley said that when one considers the current economic context and realities of the island, where Government spending dominates the economic landscape, “sustained economic activity cannot be achieved if the Government is going to delay capital projects with no definite timetable for commencement. For sustained economic activity to occur in the Montserrat economy, capital projects need to be rolled out in a timely and sequential basis thereby maintaining economic activity at the same level if not increasing. Expenses relating to recurrent expenditure only serve to keep the economic activity at the same level or perhaps declining given the impact of leakages and inflation.”

Premier Romeo noted during the budget debates that several key projects are to be approved by DFID in the coming months. During the Monday, March 30, 2015 sitting of the Legislative Assembly, the Honourable Premier said he has received documentation from the UK development agency showing which projects are in the works.

Romeo noted that DFID has approved the drilling of a third geothermal well to the tune of 21 million dollars, which is to begin later this year. The business case for a new purpose-built ferry for Montserrat is to be submitted by April 2015, however the estimated 21 million dollars allocated for the project is not yet approved.

According to the premier, DFID is expecting a submission of a business case for the laying of fibre optic cables during the month of April, with the intention that it is approved and completed in 2016. Another 21 million dollars is the expected budget allocation.

Other projects in the works include the quarry development, infrastructural priorities, social housing and roads. The Hon. Minister of Health Delmaude Ryan is said to be fast tracking the business case to fit the design of a new hospital.

Premier Romeo declared during the debate that whether there was an MDC or not, small business development and tourism promotion will continue. He added that there is to be “a mechanism that works in partnership with DFID and GOM to deliver.” The DFID team, he added agrees that a port for the island is the most significant project needed to unlock all other investments for Montserrat and a decision on this will be made “very soon.”

Queeley said the planned return to Parliament later in the year with supplemental appropriations relating to capital projects is of little comfort for the citizens and residents of Montserrat. This he noted, is because “capital projects tend to go through a lengthy process of conceptualization, business case analysis, environmental impact analysis, procurement and so forth before they can be rolled out. Therefore, the lack of time bound sequential capital projects will definitely have a negative effect on employment, income, output and expenditures and government revenues in the short to medium term. It is quite possible the economy can slip into a recession, if the Government does not address this situation with urgency.”

The analyst supported his opinion with findings of the regional Eastern Caribbean Central Bank (ECCB) in its Quarterly Economic and Financial Reviews pertaining to Montserrat for June 2014 and September 2014, where the bank indicated amongst other things the following:

 “downside risks in the economy, however, remain a concern, including those related to …. the weak pace of implementation of infrastructural projects.” June 2014

“the forecast for growth may not materialize if there are setbacks in accessing grant flows, a slow pace of project implementation……” September 2014

To view the 2015/16 Budget Presentation which has since been approved in the Legislative Assembly, click here.