On December 5th the College Financieel Toezicht (CFT, the independent public-sector financial supervision body) announced that it would give Sint Maarten legislators until January 31st, a 45-day extension, to approve a draft budget for 2015. The extension was granted amid delays in forming a government following inconclusive elections on August 29th.
The CFT, a four-member body that includes representatives from Sint Maarten, Curaçao and the Netherlands, was created in the wake of the October 10th 2010 dissolution of the Netherlands Antilles, with the aim of imposing fiscal discipline on the grouping's members, each of which has a history of troubled finances. The islands, including Sint Maarten, received extensive debt-relief from the Dutch government in exchange for accepting the CFT's supervision, which requires that legislators approve the coming year's budget by December 15th annually.
Sint Maarten has historically missed the target date for budget approval. In 2013 complications in presenting the 2014 budget led to threats from the Netherlands Council of Ministers to place Sint Maarten under fiscal guardianship. At the time, facing a need to meet a 2012 revenue shortfall and compensate for prior years' deficits, the prime minister, Sarah Wescot-Williams of the Democratic Party, struggled to erase a US$36m deficit, which prompted the delays. After revisions, financial guardianship was avoided and the CFT gave its final blessing to the budget in February 2014.
The forthcoming budget faces similar challenges. The 2014 fiscal year is likely to end with a US$5.6m deficit owing to higher personnel costs and a revenue shortfall. In October, the CFT asked the government to lower its 2015 revenue projections from US$249m to US$238m, to reflect historical tax-collection levels. It also warned that perennial funding shortfalls to the public pension fund and social and health insurance programmes need to be addressed quickly. Those challenges will be managed by the incoming government, a coalition led by the United People's party. Cabinet ministers haven't yet been sworn in, owing to Dutch-mandated screening measures to ensure the government's integrity. Once they are, the first priority will be to pass the 2015 budget.
Impact on the forecast
The event is in line with our forecast scenario that the threat of financial guardianship by Dutch authorities will act to encourage fiscal responsibility over the outlook period. It also supports our view that over-optimistic revenue projections remain a continued fiscal risk.