A memorandum from the Financial Secretary in the Ministry of Finance to Chief Executive Officers dated August 4 of this year froze Capital 2 and Capital 3 projects. What does this mean? In layman's terms simply that the Ministry of Finance is advising that expenditures that were to be made on capital projects be deferred until the next fiscal year. For a clearer understanding Capital 2 projects are financed from any surplus of government's recurrent revenues after its everyday expenditures are met. That combined with other sources of income such as unexpected loan payments to government are lumped to form Capital 2. Capital 3 is made up of projected grants and loans to government but at a time when government has been unsuccessful at floating their $450 million bond issue it seems that capital 2 and 3 cannot be financed.
With the lack of funds for Capital 2 and 3 expenditures Ministries in government are now unable to fund projects ranging from educational campaigns right down to buying office furniture. While Ministries will be affected one of them with great Capital 2 and 3 expenditure is the Ministry of Works and Minister Coye today gave his dissatisfaction with the manner in which the freeze took place and overall government spending and borrowing.
Hon. Jose Coye, Minister of Works
”I was not too pleased, not with the decision itself, but in the way the decision is being made because we have to accept that if we are to really review the budget and if we are to really become more disciplined in our fiscal policy and if we are to restrain the borrowing then we need to review our CAP 2 and CAP 3 for capital investments. Some of it may need to be deferred but what I am not pleased with quite frankly is that I don’t think the way it was done by the Financial Secretary was the right way. But I must say he did give a paragraph in there which left it opened to say well whether you could along with it or not. But in principal I support it. But I think it ought to be done and this is my concern and I am saying this now in principal I support what they want to do but I do not agree with the procedure and it was must be done in the context of a financial plan. We need to put in place a proper budget cycle and in that budget cycle will come your financial plan. We cannot continue to believe that we can just be borrowing and borrowing and there will be no end to it. We have gone out on a limb and we have borrowed a tremendous amount since 1998 but I do believe that most of what we did has been put into good sound investment but some of it yes maybe was not as good as it should have been. So what we need to do immediately is not to go and think about borrowing money to refinance debt because that in itself is not the answer, the debt must be re-financed within a fiscal plan within a strong fiscal plan that we will adhere to. So while I agree that we are the upper limits, and the credit rating being given to the country is evidence of that and lets not fool ourselves we cannot ignore those credit ratings, and therefore while there was always a need for fiscal discipline in any country and government there is more need for it now than ever because we went on a limb to borrow money to invest. But now we cannot just continue to be borrowing for new public initiatives outside of what we can afford today.”
Capital 2 and Capital 3 represents somewhere in the region of $152 million or 30% of government's $512 million budget.