During the last visit of the Board of Financial Supervision (Cft) in February, the government of Sint Maarten agreed to settle its payment arrears with APS and SZV before the end of May. The Cft regrets that government has missed the deadline and as a consequence, has discussed with the government of Sint Maarten how this issue can be resolved.
On June 24th and 25th, the Cft held meetings with the Governor, the Prime Minister, the minister of Finance, the Council of Ministers and the Financial Committee of Parliament. The main topics of discussion were settlement of the payment arrears, the compensation of the accumulated deficits in 2010-2014, the income ceiling for 2015, as well as the need to reform the public pension scheme and healthcare system.
The 2015 budget was provisionally approved by the end of March 2015 after substantial delays. At the same time the Cft requested the Kingdom Council to approve a multiannual compensation of the deficits accumulated in 2012-2014 (approximately ANG 60 million). On May 13th, the Kingdom Council decided that these deficits may be compensated in three years, up to the budget of 2018. Sint Maarten will now have to prepare a multiannual budget amendment to take this into account.
Actual revenue data up to April suggest that an income level of ANG 445 million may be just feasible. At the same time, the Cft notes that seasonal revenue patterns suggest that shortfalls may occur later in the year. Consequently, it has asked the government to stand ready to take remedial action if needed.
The government of Sint Maarten also accepted to come up with a final settlement of the payment arrears to SZV and APS by the end of May. The Cft suggested using a combination of selling government property, using the proceeds of the ‘vereffening’ and budgetary amendments. It was clarified that payment arrears cannot be settled by taking up long-term loans, since this would undermine any budgetary discipline, apart from the fact that the Kingdom law does not allow such loans. Likewise the Cft requested the government to focus on the completeness of the budget, with regard to pension and healthcare related expenses, in order to avoid unforeseen new demands on the budget. Progress has been made in agreeing on the exact magnitude of the arrears to be settled, but the financial means to settle the arrears have not yet been properly identified by the government. The Cft regrets that this long-standing issue – which is of paramount importance for the viability of the social security for the people of Sint Maarten – has not been resolved. The Cft will have to inform the Kingdom Council of Ministers by early July and will possibly advise to give Sint Maarten a targeted instruction to address the specific issues outstanding.
Pension and healthcare reforms needed
An analysis of the payment arrears with SZV and APS shows that both the healthcare and pension system need urgent reforms to attain financially viable funds for the near future. Although several plans have been proposed by the council of ministers to restructure both systems, the attendant legislation still needs to be adopted by Parliament. The government plan to increase the pension age needs to be implemented, and the final-pay pension scheme needs to be substituted by an average-pay scheme, as is best practice elsewhere. Premiums are already at a high level and further increases would be needed to make the current pension scheme sustainable, which is clearly unrealistic and would undermine Sint Maarten’s competitive position by adding to labor costs. Healthcare expenses have been increasing rapidly, causing the SZV funds to dwindle its reserves to cover the deficits. Cost cutting measures such as excluding over the counter medicines, applying a 10% deductable and increasing the salary threshold are just a few examples that were included in the 2015 budget, but have not been executed. The Cft advises the government to take swift action to restructure the pension and healthcare system to enable them to attain long term financial sustainability.
The Cft supports the government’s plans to structurally strengthen the Sint Maarten economy and lay the foundations for sustainable public finances. The government’s Strategy for Growth program can help to strengthen the tax base and so provide the necessary financial means to provide an adequate level of public services. Improved financial management, strengthening of the tax authority and improving tax compliance should underpin this strategy.