The
Development Planning Unit
Government of the British Virgin Islands

THE MAIN DOCUMENT OF THE MTES 1999-2001

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Contents

1. Executive Summary

Introduction

Over the last five years, the BVI has been one of the fastest growing economies in the region with growth averaging just over 6% per year between 1993 to 1997. This Medium Term Economic Strategy (MTES) shows the strategic objectives, policies and activities that Government will adopt over the period 1999-2001 so that economic growth can continue into the new millennium and beyond. The MTES forms part of the overall National Integrated Development Strategy (NIDS) planning exercise that is currently being undertaken by Government and will be used as part of the 1999 budget cycle.

Opportunities for development

The economic opportunities which will allow the BVI to achieve continued economic growth are:

• developing and diversifying tourism;
  
• expanding the range of offshore financial services;
  
• using public sector reform to encourage private sector development;
  
• becoming an even more attractive location for inward investment;
  
• developing stronger economic linkages between sectors;
  
• using education as a vehicle for greater penetration by BV Islanders into financial and tourism sector and developing cultural and intellectual development.

Taking into account these opportunities and the situational analysis undertaken in the National Integrated Development Strategy (NIDS), Government structured the MTES around four themes:

• promoting and supporting private sector development;
  
• improving the performance of the public sector;
  
• environmental sustainability;
  
• maintaining social welfare.

Promoting and supporting private sector development

Key to the sustainable development of the BVI will be the continued growth and diversification of the private sector. The Government sees the private sector as being the main vehicle for development on BVI. To this end, Government will work in close partnership with businesses and undertake the role of:

• providing appropriate physical infrastructure to support development;
  
• ensuring that there is an enabling environment conducive to private sector growth;
  
• financing the overseas promotion of the BVI as a tourism, offshore financial services and investment destination;
  
• involving the private sector much more closely in policy formulation.

Improving the performance of the public sector

Government has been able to improve the range and quality of public services over the last ten years. Over the next three years, Government will make sure public expenditure is delivering value for money to taxpayers. During the MTES, Government will place a high priority on achieving efficiency, effectiveness and economy in public expenditure by:

• introducing a range of initiatives in public sector management to develop performance indicators across Government so the public sector can focus on results, quality, costs, and outcomes from public expenditure rather than budgetary inputs;
  
• prioritising expenditure on strategic national development objectives and providing the most conducive platform for economic growth;
  
• transferring a range of functions to the private sector and therefore create new investment and employment opportunities in the private sector;
  
• creating greater revenue stability and diversity;
  
• introducing a new capital project management system.

As a result of the policies articulated in the MTES, Government expects that between 1998 and 2001:

• revenue will grow from US$ 135 million to US$ 172 million;
  
• recurrent expenditure will grow from US$ 100 million to US$ 134 million;
  
• over US$ 139 million will be invested in the Public Sector Investment Programme (PSIP).

Environmental sustainability

Economic growth is closely linked to continued environmental stability in the BVI. Government will give prominence in decision making to issues related to the environment. The key elements of Government’s strategy will be to: (i) update environmental legislation and improve co-ordination of government environmental agencies; (ii) allocate additional resources to the environmental agencies of Government in order that they can develop environmental appraisal, monitoring and policing functions; and (iii) develop key carrying capacity studies during the MTES to ensure that the Territory’s environment can be sustained for present and future generations.

Maintaining social welfare

In addition to supporting private sector development, improving public sector performance and sustaining the environment, Government is strongly committed to the objective that all BV Islanders should have the opportunity to share in the fruits of economic growth. Over the period of the MTES, Government, in partnership with individuals, NGOs and the wider community, will place a high priority on addressing social issues through devoting resources to properly research and identify the extent of social welfare issues (particularly in health and poverty) in order that Government can more effectively target assistance and programmes.

Measuring the impact of the MTES

The elements described above will allow BVI to consolidate growth over the next three years, with growth projected at between 4-5% per year. The private sector will remain the engine of growth and employment in the private sector will increase from 75% of the workforce in 1996 to over 80% by 2001. Government will monitor the impact of its policies and programmes arising from NIDS and the MTES. To achieve this, the MTES also involved the formulation of over 20 strategic targets across the economy that show what impacts Government expects its policies to have. The strategic targets also set out the means by which Government will measure economic progress between 1999-2001.

2. Introduction

This Medium Term Economic Strategy (MTES) sets out the major economic policies, objectives and targets which will be pursued by the Government up to the year 2001.

2.1.1     Background

The MTES forms part of the overall National Integrated Development Strategy (NIDS) planning exercise that is currently being undertaken by Government. The MTES was prepared by the Development Planning Unit (DPU) in collaboration with officials across Government and in the context of the detailed submissions and public participation feedback produced to date under NIDS and the recently completed Memorandum of Co-operation and Partnership (MCaP).

2.1.2     Purpose of the MTES

The purpose of the MTES is to provide an overview of the Government’s economic strategy for the period 1999-2001. The MTES also contains forecasts of the levels of resources which are likely to be available to finance Government’s development strategy. In addition the MTES shows Government’s broad plans on how these resources will be allocated in the recurrent and capital budget.

2.1.3     How the MTES will be used

The MTES will be used by Government to complete NIDS and to inform the more detailed plans of recurrent and capital expenditure which will be developed in the 1999 budget and beyond. In this way Government can integrate the strategic objectives and aims developed in NIDS with operational planning and budgeting.

To make sure that strategies are incorporated into the budgetary process, once NIDS has been completed in 1998, Government will introduce three year operational business planning in the British Virgin Islands. Each Government department will be trained and assisted to produce business plans based upon the strategies described in NIDS showing how resources are allocated across inputs and activities and what outputs and outcomes each activity is intended to produce. This will ultimately allow Government to move towards a budgeting system which:

• focuses on the strategic priorities contained in NIDS;
  
• can demonstrate the cost of key activities as well as their expected impacts upon development.

The overall approach to planning is shown overleaf.


INSERT INTEGRATED PLANNING APPROACH DIAGRAM

3 Recent economic and budgetary performance

This section summarises economic and budgetary performance in the BVI between 1993-1997. A more comprehensive review can be found in a technical paper produced by the Development Planning Unit (DPU) called “Recent Economic Developments 1992-1996”, which is available on request from the Chief Minister’s Office (CMO).

3.1. The economy between 1994-1997 

The economy grew at an average rate of just over 6% in real terms per year between 1994-1997. This growth rate has made BVI one of the fastest growing countries in the region and has provided the basis for substantial economic and social development. Gross Domestic Product (GDP) per capita is estimated to have increased from US$ 20,815 in 1993 to US$ 26,875 in 1996. The territory’s Human Development Index (HDI), which is a broader measure of social development than GDP, shows that the BVI falls in the high human development average range of above 0.800.

Annual inflation has been stable at rates no higher than 5.5% over the period, whilst the fiscal position of the Government has improved dramatically from a minor overall deficit in 1993 of US$ 1.7 million to a projected surplus of US$ 24.3 million by 1997. Government currently holds over US$ 40 million in reserves, equivalent to five months of recurrent expenditure.

Outstanding Government debt is estimated to stand at US$ 30 million. The debt repayment/GDP ratio in 1997 was less than 1%: this makes BVI one of the least indebted countries in the Caribbean. The composition of debt is 40% domestic and 60% external. The majority of domestic debt is long-term loans which are held by private sector financial institutions and financial statutory bodies. Over 98% of external debt is to international development institutions and comprises long-term concessional loans. 

The territory regularly generates a large deficit on the balance of trade, for example the deficit reached US$ 137 million in 1996. However, the overall balance of payments position has been in surplus since the early 1990s due to income generated by tourism and financial services. In 1996, the current account stood at US$ 56 million or 11.2% of GDP.

3.1.1    Major contributions to economic growth 1994-1997

The key contributions to economic growth in the BVI have been offshore finance and tourism. In 1996, the sectors generated US$ 360 million income for the territory, contributed 34% to GDP and employed 21% of the total workforce. ¹Overall growth in total tourism numbers (including cruise passengers) increased by an annual average of 21% between 1992-1996 whilst Caribbean tourism as a whole recorded growth of 3.5% per year for the same period. The offshore sector has been growing at a average annual rate of 25% per year between 1992 and 1996 when measured by contributions to GDP.

Tourism and offshore financial services have strong multiplier impacts in the BVI. This means that income generated in each sector has additional economic impacts when it is spent in the economy (by the individuals employed in each sector and by Government expenditure of revenues raised from tourism and offshore financial services). When the “multiplier” impacts are considered, it is apparent that the tourism and offshore financial sectors form the basis of much of the economic activity which takes place in the territory. For example, the sectors generated over 60% of Government revenue in 1997 which in turn financed the majority of Government expenditure.

As tourism and offshore financial services have expanded, the relative contribution to GDP of other sectors has declined. However absolute levels of activity in a number of other sectors including retailing, manufacturing, and real estate services have increased. For example, employment expanded by an annual average of 6% between 1992 to 1996 in retailing and wholesaling, by just under 7% in manufacturing, and by 3.5% in real estate services.

Not withstanding the impressive growth over the last five years, the BVI, like all small island states is a very open economy and as such remains vulnerable to changes in factors which are out of its control. For example, the Gulf war and US recession in the late 1980s had an adverse impact on tourism. More recently, the SE Asian crisis has reduced the volume of business transacted globally in offshore jurisdictions and in the BVI.

Yet the measure of the resilience of the BVI is that it has been able to “bounce-back” from such events and has, in particular in tourism and offshore financial services, established a strong international reputation (for example over 50% of overnight tourist visitors are repeat visitors).

With economic growth however, issues of immigration have started to emerge. In 1997, over 50% of the workforce were non-BV Islanders. This trend is starting to raise concerns as to the carrying capacity of the Territory (population has doubled in 10 years mostly due to immigration) and whether BV Islanders are managing to make inroads into the professional services which are currently being provided by imported skilled labour.

3.1.2     Economic factors to be considered in economic planning

The above analysis reveals that the key economic factor which will condition economic success over the next three years is the BVI to preserve and grow market position by maintaining competitiveness. Other issues are:

• the extent to which the territory can sustainably service increasing numbers of tourists;
  
• challenges to offshore financial business from re-regulation efforts in industrial countries;
  
• the level of population in the Territory and in particular whether continued economic growth will depend on more imported labour or whether strategies can be devised to promote greater sourcing of skilled labour for tourism and offshore services from BV Islanders.

The final consideration in economic planning is the vulnerability of the territory to natural disasters. Although BVI recovered quickly from the 1995 hurricanes, a key issue at the centre of Government policy making will be the need to have in place contingency plans for disaster preparedness and importantly to finance recovery measures.

3.2. The Government budget 1994-1997

3.2.1     Recent budgetary performance

Recent budgetary trends are shown in Table 1.


Table 1: Recent budget trends 1993-1997

Source: BVI Budget Yearbooks and Annex 1.

Table 1 shows that between 1993-1997 revenue increased from US$ 70.3 million to a projected US$ 128.2 million. This is equivalent to an average annual growth rate of 16%. During the same period, recurrent expenditure increased from US$ 56.7 million to US$ 91.4 million, equivalent to an average annual growth rate of just under 13%. 

As a result Government has been able to generate a substantial surplus on the recurrent budget which has been used to finance capital investment and build up reserves. 

Between 1993-1997 Government spent over US$ 80 million in capital expenditure of which over US$ 70 million was financed from a combination of recurrent budget surpluses and draw down of reserves. 

Due to falling allocations of expenditure to capital projects after 1994 however, Government has used recurrent budget surpluses to build up reserves. The level of reserves were estimated to stand at US$ 40 million by the end of 1997, equivalent to over 43% of recurrent expenditure in the same year.

3.2.2     Key observations on recurrent budget trends 1993-1997

A detailed analysis of budgetary trends is contained in Annex 1. The key findings from that annex are:

• Government has been able to allocate increasing resources to promote private sector development, however this has largely taken place through a decline in recurrent resources to support physical infrastructure;
  
• Government has in broad terms, managed to contain expenditure on personal emoluments to less than 50% of recurrent expenditure, however in 1997, Government increased such expenditure in the budget to 53%, largely at the expense of allocations to operations and maintenance;
  
• in all but one year (1995, the year a hurricane hit the Territory), revenues have always out-grown expenditure, however between 1996 and 1997, revenue growth started to decline, it fell from 19% between 1993-4 to 14% between 1996-1997;
  
• Government revenues are increasingly becoming concentrated in direct offshore financial services, with revenues increasing from 42% in 1993 to 51% in 1997. This chiefly reflects a slower rate of growth in non-offshore finance related revenue compared to revenues generated from financial services;
  
• importantly, non-financial sector revenues grew at a lower rate between 1993-4 and 1994-5 and only just above expenditure growth in 1995-6 and 1996-7. This illustrates that if the offshore sector slowed down, present expenditure patterns would reduce the surplus generated on the recurrent account;
  
• Government allocates just under 50% of the entire recurrent budget to supporting social welfare. Within this, expenditure on education has increased from 17% of the recurrent budget in 1993 to 19% in 1997 whilst expenditure on health increased from 8% of the recurrent budget in 1993 to 9% by 1997.

3.2.3     Key observations on capital budget trends 1993-1997

A detailed analysis of capital expenditure trends is contained in Annex 1. The key findings from the analysis are that:

• capital expenditure has, in general, not increased in line with the level of resources raised from the recurrent budget. The major reason for this has been a lack of projects which have been designed and appraised and ready for implementation. As a result Government capital expenditure has been falling, but in fact Government would like to be allocating more to capital expenditure;
  
• over the period 1993-1997, a higher proportion of capital expenditure was allocated to the productive and physical infrastructure sectors whilst expenditure on projects in the social welfare sector have been declining, reflecting Governments policy priority of supporting private sector development.

3.2.4 Key planning issues arising from recent budgetary performance

3.2.4.1 Available resources

Analysis of revenue trends described above, shows that revenue growth has been strong in the BVI, but since 1996, the growth of revenue has been slowing. Estimates for revenue in 1998, show that revenue growth will further decline to around 6%, with the expectation that revenue in 1998 reaching a level of around US$ 135 million. Revenue growth is estimated to fall as a result of (i) the continuing impacts of the economic instability seen in SE Asia in 1997; and (ii) a general slow down in offshore revenue growth reflecting the maturation of the market in the BVI. 

The key planning issue from the above analysis is that, holding all things equal, over the period 1999-2001, Government should plan for lower levels of growth in revenue than has been experienced between 1993-1997.

3.2.4.2 Budgetary factors to be considered in economic planning

Government has in general managed to keep the growth of expenditure (recurrent and capital) below the level of revenue growth. However, lower rates of growth of revenue will mean that Government’s strategy must contain measures to control public expenditure for overall budgetary and macroeconomic stability.

By far and away the most important planning issue for Government arising from the analysis of the capital budget is that although significant volumes of resources have been generated from the recurrent budget, capital expenditure has failed to keep pace with these resources. This problem has occurred due to a lack of properly designed and appraised projects ready for implementation. 

Government will ensure that these planning issues are fully incorporated in the policies and strategies which will be developed in the MTES and which are set out in Section 5.

4. Prospects for economic growth 1998-2001

This section sets out the prospects for economic growth in the BVI between 1998-2001. Through an examination of the opportunities, constraints and risks it demonstrates where the main impetus for growth will arise from and what issues Government will be required to consider to ensure that future opportunities can be realised. The section concludes by developing four key themes for development which will inform the basis of the policies to be pursued by Government over the MTES period.

4.1. Opportunities

There are a range of opportunities available to the BVI to enable the Territory to achieve continued economic growth. The major opportunities include:

• developing and diversifying tourism;
  
• expanding the range of offshore financial services;
  
• using public sector reform to encourage private sector development;
  
• becoming an even more attractive location for inward investment;
  
• developing stronger economic linkages between sectors;
  
• using education as a vehicle for greater penetration into financial and tourism sector and developing cultural and intellectual development.

4.1.1     Tourism

BVI has a well established reputation and status in tourism. The Territory has a pristine eco-tourism image, is virtually crime free, is the sailing and dive centre of the Caribbean, has achieved year-on-year growth in visitor arrivals during the 1990s, and is gaining a reputation for exclusivity. Future opportunities will be based upon: (i) Government putting in place the right infrastructure to encourage private investment; (ii) improving existing products through private sector investment and upgrading; (iii) targeting growth to the low season by attracting visitors from new markets, particularly the Southern Hemisphere; (iv) developing on-shore inns and villas to complement resorts and yachting market segments; (v) developing new products (eg meetings and conference centres, specialist summer schools for Universities and schools); and (vi) creating additional spending opportunities.

4.1.2 Financial services

The industry is constantly evolving in line with client demands, patterns of world trade and regulatory requirements. The BVI has become the pre-eminent offshore corporate domicile, known for its dynamism, quality, service and vigilance. The key opportunities for BVI will be to: (i) diversify the range of products it offers to become a true business facilitation centre to serve the requirements of globalisation; (ii) achieve greater market penetration in existing services by being one step ahead of the competition whilst maintaining its first class reputation for effective and competent regulation; and (iii) achieving stronger linkages with the BVI community as first generation BV Islanders move into managerial and professional functions within the industry and second generation entrants are equipped with the qualifications required by the market. 

4.1.3 Public sector reform

As Government looks to the future, there are opportunities to use public sector reform measures to: (i) redefine the role and relationship of the public sector with the wider community in general and the private sector in particular, so as to promote effective and dynamic performance; (ii) transfer functions to the private sector and therefore create new investment and employment opportunities in the private sector; (iii) create greater revenue stability and diversity, in particular by moving towards appropriate fees and charges for services provided by the public sector; (iv) move to focusing on results and outcomes from public expenditure; and (v) prioritise expenditure based on strategic national development objectives and thus provide the most conducive platform for economic growth.

4.1.4 Inward investment

Inward investment has played a major role in developing tourism and financial services in the BVI. As Government seeks to promote diversification of these products and promote other sectors it will still be necessary to encourage further inward investment. The BVI has many attractive features to encourage investment including: an established international image and track record of investment protection; stable Government, no unions, a healthy environment, a stable currency; and educated workers. These all contribute to making BVI an attractive location for investment which can provide the necessary resources to supplement local investment and support economic growth.

4.1.5 Economic linkages

The economy of the Territory has benefited dramatically from the impacts of tourism and financial services. However, there are significant opportunities for these impacts to be “multiplied” by creating effective linkages between other sectors of the economy. The key opportunities in these areas are: (i) meeting consumer preferences (especially tourists) for high value, niche agricultural and fisheries products from the local market (particularly through new technologies such as hydroponics); and (ii) developing micro enterprises aimed at import substitution (for example, spirits and breweries; tyre-remoulding, furniture).

4.1.6 Reducing need for imported skilled labour through education

The BVI has little unemployment and at present over half of the workforce are non-BV Islanders. Approximately 1000 immigrants are engaged in employment in a range of professional functions including, medicine, accountancy, management, and banking. There exists opportunities for Government, in partnership with the private sector, to orientate the education sector towards producing graduates who can fill these positions and so reduce the need for immigrant labour and retain the incomes earned by such persons in the Territory.

4.2. Constraints

The major constraints which impact upon BVI being able to realise the opportunities above are:

• there is a limit to the carrying capacity for land and sea based tourism which will inevitably mean that over the medium to long term, tourism will have to rely on “added value” rather than increased numbers, particularly during the high season;
  
• current air and sea access facilities are not adequate to serve the new generation of aircraft and cruise ships which will be introduced over the medium term;
  
• the capacity and speed with which the current legislative structure can consider and endorse new legislation and regulations in line with a modern economy (for example, in environmental and land planning, and in developing an enabling environment);
  
• gaining support for the need for public sector reform when the economy is booming;
  
• a shortage of labour - BVI will need to depend on imported labour until at least the medium to long term for skilled labour and indefinitely for low skilled labour;
  
• present inward investment procedures and legislation which are more discretionary than rules-based, reducing the competitiveness of the BVI compared to other locations in the region;
  
• the reality that agriculture and fisheries are currently part-time and relatively low income activities and have difficulty competing with white collar opportunities in the public and private sector;
  
• a budgeting system which, in general, is characterised by an annual spending round rather than long-term planning leading to a year-to-year bidding culture, with too much attention to current spending and to little attention to long-term investment, focusing on results and strategies for reform.

These constraints form the array of issues which Government will address in its economic strategy. Government recognises that it will only be through concerted attention to constraints in policy formulation and expenditure plans that the constraints can be overcome and opportunities realised.

4.3 Risks

As well as constraints to attaining opportunities there are also risks. The major risks which are faced by the BVI are that:

• other countries which compete in tourism and financial services embark on more dynamic reforms and investment and are able to compete away market share;
  
• Government will not be prepared for the challenges prompted by economic change, because planning and reform will not receive sufficient priority whilst recurrent revenues are strong and the economy is booming; 
  
• BVI is in the corridor for hurricanes and natural disasters may cause significant structural damage to the Territory;
  
• irrespective of the high standards of regulation in place in the BVI, there are threats to offshore financial services arising from re-regulation in industrial countries;
  
• over time contingency and reserve plans will not be formally managed and specified, so that at the time they are needed they will not be sufficient to meet requirements
  
• even with continued economic growth, such growth may not trickle down to the disadvantaged groups in the community.

It is apparent that with the exception of natural disasters, that the Government is in a strong position to anticipate these risks and minimise their impact through policy reform. (Even with natural disasters risks can be managed through preparedness plans and risk management such as insurance). 

From the analysis of opportunities, constraints and risks and taking into account the situational analysis undertaken in NIDS, it is possible to identify the key themes for development of the MTES, which are set out below.

4.4 The key themes of development

The NIDS through extensive consultation and participation has developed 26 themes for national development. These themes are grouped around the six categories of economy, social, environmental, physical/spatial, population and social. The full list of themes is shown at Annex 2.

The MTES, with its emphasis upon articulating Government’s economic strategy, has taken the themes developed under NIDS and after considering the opportunities, constraints and risks shown above, developed its own four themes for sustainable economic growth over the period 1999-2001. These themes are:

• promoting and supporting private sector development;
  
• improving the performance of the public sector;
  
• environmental sustainability;
  
• maintaining social welfare.

4.4.1 Promoting and supporting private sector development

Key to the sustainable development of the BVI will be the continued growth and diversification of the private sector. The Government sees the private sector as being the main vehicle for development on BVI. To this end, Government will work in close partnership with businesses and undertake the role of:

• providing appropriate physical infrastructure to support development;
  
• ensuring that there is an enabling environment conducive to private sector growth;
  
• financing the overseas promotion of the BVI as a tourism, offshore financial services and investment destination;
  
• involving the private sector much more closely in policy formulation.

4.4.2 Improving the performance of the public sector

Through economic foresight and appropriate economic management the Government has been able to improve the range and quality of public services over the last ten years. Government recognises that a major factor in improved public services has been the dramatic increase in resources which have been generated through economic development in the territory in general, and from offshore financial services in particular.

As Government looks ahead over the next three years, it is clear that a major objective must be to make sure that the much higher levels of Government expenditure being undertaken in the late 1990s are delivering value for money to taxpayers. During the MTES, Government will place a high priority on achieving efficiency, effectiveness and economy in public expenditure through a range of initiatives in public sector management.


4.4.3 Environmental sustainability

BVI has a very high profile internationally as a location which places great emphasis upon environmental management. However, it is clear that the long term future of marine and shore based tourism and the livelihoods of BV Islanders and their offspring will require constant vigilance and foresight. 

Government’s role in preserving the environment of the Territory will be high profile and will ensure that as economic development unfolds, the national interest in issues related to environmental stability are given prominence in Government decision making and fully considered, through a system of appropriate regulations, by the private sector, private individuals and the wider society.

4.4.4 Maintaining social welfare

Government is strongly committed to the objective that all BV Islanders should have the opportunity to share in the fruits of economic growth. However in the wake of rapid economic growth, a number of social issues have emerged which potentially exclude certain groups from the benefits of growth. Over the period of the MTES, Government, in partnership with individuals, NGOs and the wider community, will place a high priority on addressing these issues.

4.5 The Vision for BVI

The above four themes are brought together in the Vision for BVI which was developed and endorsed through a range of participatory workshops conducted in early 1998. The Vision contains the aspirations of the Territory and shows the ultimate goal of all the development efforts currently being undertaken. The Vision is shown below.

Vision for the British Virgin Islands

To create a society that is globally competitive and socially cohesive and able to satisfy the basic needs of all the people by upholding the principles of equity, human rights and good governance, by managing in a sustained and integrated way the natural and human resources of the territory, by generating self-confidence among the people and by maintaining the unique cultural identity of the territory.

This document will demonstrate how the MTES, through prioritized objectives and key targets for Government action, will enable BVI to move closer to this Vision by 2001.

5 The economic polices which will support the MTES

The MTES is structured around the four themes described in Section 4. Each theme is now discussed in greater detail and the polices, objectives and targets to be adopted by Government are shown.

5.1 Promoting and supporting private sector development

Over the next three years Government will work in close partnership with the private sector to ensure that the private sector continues to be the major force for development in the Territory. 

5.1.1 Tourism

Since the 1960’s tourism has emerged to become one of BVI’s largest GDP contributors, the largest source of employment in the territory and a major generator of Government revenue. In June 1998, Government began to implement the six year British Virgin Islands National Tourism Development Plan.

The key issues in the sector are: (i) protecting the marine and land environment; (ii) ensuring air access into the new millennium; (iii) the emergence of larger ships in the cruise market; (iv) adequacy of inter-island transport; (v) the quality of welcome, general appearance and user-friendliness of the Territory; (vi) intense international competition; (vii) greater involvement of BV Islanders in tourism investment and management.

In response to the above issues, Government has developed the following strategic objective related to tourism:

To support/enhance the future development of tourism, on a sustainable basis, in the BVI which will continue to stimulate the economy for the benefit of the BV Islanders while preserving the heritage, culture and environment of the Territory

In pursuit of the above, Government will, between 1998 and 2001, use the British Virgin Islands National Tourism Development Plan as the strategy for developing tourism on the Territory. The main elements of which will be to:

• allocate at least US$ 25 million between 1999-2001 to the promotion of tourism through grants to the BVI Tourist Board;
  
• between 1998 and 2000 complete the upgrading of the runway and terminal on Beef Island and upgrade the airport at Virgin Gorda;
  
• between 1998-2001 institute an array of environmental measures aimed at sustaining the environment and improving the appearance of the BVI;
  
• in 1998, as part of the PSIP, extend the cruise-ship dock and thereafter only target middle and upper segment of cruise market;
  
• from 1998, encourage additional high class resort development on Anegada;
  
• in 1999, develop in partnership with ferry owners ferry schedules which maximise access to the BVI from the USVI and which develop greater communication between Virgin Gorda and Tortola.

These initiatives will form the basis of Government’s support to the tourism sector. Government will measure its performance in the sector by setting the strategic targets that: (i) tourist arrivals (excluding cruise ship passengers) will grow from the 1997 level of 260,800 to 301,900 by 2001; (ii) average occupancy will increase from 58% in 1996 to 65% by 2001; and average real expenditure per visitor will increase by 2% each year between 1999 and 2001. All the above will be measured and reported by the Development Planning Unit and the BVI Tourism Board.

5.1.2 Offshore financial services

In 1997, offshore financial services generated over 51% of total Government revenues. The sector employs approximately 640 persons and was estimated to generate around 17% of GDP in 1996. The BVI has become the pre-eminent offshore corporate domicile, known for its quality, service and vigilance.

In an industry noted for its high degree of competition and the requirement to constantly meet the requirements of the marketplace, the Government has developed the following strategic objective in the sector:

We will build on the BVI infrastructure and reputation established as “A Global Leader Among Offshore Financial Centres.” Our goal being, to further enhance and broaden our services, while remaining true to the principles that comprise the basis of our success, “Quality Service and Vigilance.”

In pursuit of the above, Government will:

• in 1998, expand the company manger legislation to provide for a mandatory code of practice;

• introduce compulsory powers to extend regulator to regulator co-operation when current financial services legislation is revisited in 1998;

• prepare for and co-operate with the Caribbean Financial Action Task Force (CFATF) evaluation planned for July 1999;

• ensure that the BVI meets the Basle Core Principles by early 1999, including the transformation of the Financial Services Inspectorate into an independent statutory body.

Government will measure its performance in the sector by setting the strategic target that revenues generated by the sector will grow by 5% per year between 1999 to 2001, as measured by data compiled by the Ministry of Finance.

5.1.3 General private sector development 

Government recognises that it must constantly work to ensure that the environment in which business takes place is conducive for investment, growth and development. Currently 75% of all employment is in the private sector.

The key issues related to the business environment include: (i) levels of regulation (for example in labour markets); (ii) the fiscal framework; (iii) processing times within Government for licences, permits; (iv) the degree to which the business community is involved in important policy making decisions related to the private sector; (v) the suitability and efficiency of physical infrastructure; and (vi) the capacity of the education system to produce suitably qualified school leavers and post school graduates for the employment opportunities available in the BVI.

In the context of the above issues, Government has adopted the following strategic objective:

To enable the full potential of the private sector to be realised through the creation of an environment which encourages investment and optimism about the future prospects of the economy.

In pursuit of this objective, Government will:

• at the start of 1999, establish a public sector/private sector business forum to review the regulations and procedures related to conducting business in the BVI. The forum will make specific recommendations to Government on how bureaucratic procedures can be streamlined in order that constraints to business are minimised, rules are transparent and government response times are improved;

• after devising a Government-wide divestment programme in 1999 (see Section 5.2 below), initiate new partnerships with the private sector in the financing and delivery of services currently in the public sector;

• in 1999, in partnership with the private sector, develop vocational courses at the Community College and at secondary level;

• during 1999-2001, prioritise PSIP expenditure on key infrastructural projects including: (i) upgrading Beef Island Airport; (ii) completing the upgrading of the Southern coastal road from Beef Island to West End; and (iii) Virgin Gorda airport.

• during 1999, with the use of professional consultancy support, undertake a fiscal review of the Territory with the purpose of developing a competitive, sustainable and appropriate taxation structure for BVI and appropriate levels of charges for publicly provided services;

• during 1999, improve the profile and responsibility of the Trade & Investment Promotion Department (TIPD). Government will consider re-launching the TIPD as an executive agency acting under a new comprehensive and transparent investment code with delegated powers to act as a “one stop shop” for inward investment approval.

• between 1999-2001 continue implementation and financial support of the micro-enterprise project designed to encourage local entrepreneurs to establish businesses with the goal that the project will be self-financing by 2001;

• work in partnership with the private sector to establish and design vocational courses based on projected BVI labour market needs which will take prominence in the 1999 five year Education Development Plan;

These initiatives will form the basis of Government’s support to the private sector. Government will measure its performance in supporting the private sector by setting the following strategic targets: (i) by 2001, over 80% of all employment will be in the private sector; (ii) by 2001, BVI Islanders participation rates in professional employment increases by 10% compared to the 1997 level; (iii) trading licences will increase by an average of 5% per year between 1999-2001; and (iv) over the period 1999-2001, 80% of the PSIP is contracted out to the private sector.

These targets will be monitored and measured by the Development Planning Unit in co-ordination with the BVI Tourism Board, Financial Services Department and Ministry of Communications & Works.

5.1.4 Agriculture and fisheries

In 1997, agricultural output (crops, livestock and poultry) was estimated to be worth US$ 4 million, whilst the fisheries sector generated US$ 8 million. In the same year equivalent full time employment was 180 in agriculture and approximately 300 in fisheries.

As employment and income opportunities have increased in tourism, professional services and other sectors, agriculture and fisheries have become less attractive for private sector investors in general and young people in particular. Nonetheless, both of these sectors have been targeted since the late 1980s by Government as part of the strategy for economic diversification, food security, environmental preservation and reducing the level of imports. Government will continue to support these sectors, but sees its strategic role as regulator and facilitator in each sector rather than engaging in direct production and marketing.

Accordingly the role of Government over the next three years and beyond will be to put in place a framework of incentives and structures which encourage BV Islanders to engage in production. This role will embrace:

• as part of the fiscal review in 1999, undertake to examine the costs and benefits of reducing duties on agricultural and fisheries inputs and also consider exempting both sectors from income taxation to encourage investment and employment;

• as part of the divestment programme to be drawn up in 1999, consider options for transferring ownership and management of the BVI fisheries complex to local fishermen (which could include the transfer on an equal basis of shares at minimal cost to all local fishermen);

• seek to promote agriculture and fisheries as part of the micro-enterprise scheme and other sources of soft credit;

• during 1998 and 1999, work with farmers to critically review the current array of extension services offered by Government with the view to target extension services towards promoting the production of high value crops and products (for example organic produce, poultry and livestock, tree crops, and other products demanded by the domestic market and the hospitality sector in preference to imports) to be included in the recurrent budget between 2000-1;

• as part of the divestment programme to be developed in 1999, consider contracting out fishery licence enforcement activities to local fishermen with the incentive of initiating a shared revenue formula for additional revenues generated by such contracts.

Government will determine its performance in the sector by setting the following strategic targets; (i) in both sectors the current levels of employment are maintained up to the year 2001; (ii) marketed agricultural output increases by an average of 5% per year up to 2001; and (iii) the volume of fish landed (inshore and offshore) increases from its present level of 1650 tonnes per year to 1800 tonnes per year by 2001. These targets will be measured by the Ministry of Natural Resources and Labour.

5.2. Improving the performance of the public sector

Government policies have produced an impressive record of economic growth which averaged 6% per year between 1993-1997, low levels of debt, increasing levels of reserves such that by 1998, reserves were at 40% of recurrent expenditure, and greater levels of domestically financed capital projects. However by 1997, with revenue growth having slowed between 1996 and 1997, recurrent expenditure increased at a faster rate than revenue for the first time in five years. If this continued the budget surplus would dwindle which might ultimately lead to unplanned reductions in expenditure, run-down of reserves, increases in taxation or any combination of the these measures.

This future scenario will be avoided by Government through the introduction now of public sector management initiatives designed to fully exploit existing revenue raising mechanisms, control expenditure and direct resources to priority areas which increase growth and generate sustainable development. The BVI is in a unique situation in that it can structure and introduce a programme of public sector reform based on foresight rather than introduce a reform programme based on a crisis.

The programme of public sector reform which will be initiated during the MTES builds on the lessons and successes which have already been achieved in the BVI. These include: contracting in the water sector, the arms length operations of the Directorate of Financial Services, the creation of statutory bodies in Ports and Harbours and the Social Security Board, the use of contractors for major PSIP projects, and financial management information systems introduced in the MOF in 1997 and 1998. The programme will also fulfill the pledges made in the “Taking stock - focusing on what is important” elements of the 1998 Budget Speech.

The programme of public sector reform will embrace issues such as:

• improving accountability of Departments and individual civil servants;

• greater partnership with the private sector in delivering public services;

• obtaining better value for money from public services;

• introducing a three year outlook to recurrent and capital budgeting;

• redirecting existing expenditure towards the priorities identified in NIDS;

• revising the procedures for capital expenditure;

• measuring performance in the public sector;

• actively planning for change including manpower planning; structural reform; and training and development. 

Governments objectives with respect to the public sector are:

To be an effective and modern public service that delivers high quality services whilst delivering value for money to taxpayers.

To focus and prioritise scarce financial and human resources on areas which are consistent with the articulated development objectives of Government and which contribute to the wider Vision for the BVI.

To develop a culture of accountability and standards in the public service through wider public participation in decision making and greater use of performance indicators with Government.

In pursuit of these objectives Government will:

• in 1999, with the use of professional consultancy support, introduce Departmental Business Planning across Government which will provide a link between NIDS and the existing budget process by training and assisting key personnel in all departments to relate expenditure to strategic objectives, produce three year budget proposals, fully cost the activities for which they are responsible, develop departmental performance indicators and set targets for departmental performance;

• in 1999, establish a Government wide divestment programme with the specific aim of improving the quality of services currently provided by the public sector and promoting new partnerships with the private sector in the delivery of government services through privatisation, establishing executive agencies, and contracting-out;

• in 1998, implement the proposed Performance Management Programme which will improve the merit and reward system for public servants;

• between 1999 and 2001, restrict existing budgetary expenditure to the level of inflation and only increase expenditure above inflation for the priorities outlined in NIDS and in the new Departmental Business Plans and on autonomous expenditure items such as pensions and increments;

• between 1999-2001, maintain reserves at a level equivalent to at least four months recurrent expenditure;

• in 1999, implement the acceptable recommendations arising from the 1998 Risk Management Study;

• from 1999, encourage departments to identify savings in their own budgets (which do not impact on outputs) which they can then retain for new expenditure provided such expenditure is allocated to NIDS priorities;

• in 1999, as part of the fiscal review, undertake an examination of collection mechanisms for existing taxes, fees and charges within Government with a view to increasing collection rates and reducing arrears;

• from 1999, introduce the project cycle management system (PCM) for capital projects which was devised in 1998, which will require that all projects over the value of US$ 300,000 are subjected to the formal appraisal system managed by the Development Planning Unit of the Chief Minister’s Office;

• by the end of 1998, have completed succession plans for all sectors of the public service.

These initiatives will form the basis of improving performance in the public sector in the BVI. Government will measure its performance in supporting the private sector by setting the following strategic targets: (i) from 1999, all Departments will identify 5% savings in their annual budgets to be used in the financing of new activities associated with NIDS priorities; (ii) by the start of 2000, all departments will have in place strategic and operational performance indicators which will allow outputs and outcomes of budget expenditure to be measured; (iii) over the period 1999-2001, 80% of PSIP projects will be completed on time and to the published PSIP schedule; and (iv) revenue diversification to improve by 2001 such that non-offshore revenues will increase from 49% of total revenue to 56%. These targets will be measured by the Ministry of Finance in co-operation with other ministries of Government.

5.3. Environmental sustainability

Over the last ten years there has been rapid economic growth which has been accompanied by a near doubling in the population to 20,000; and an increase in the number of visitors to the Territory from just over 200,000 to 370,000. In addition there has been increasing competition for the use of land in general, and coastal areas in particular. 

Government fully recognises the importance of environmental protection, management and promotion to safeguard economic development. For example, the BVI tourism product is heavily dependent upon the maintenance of the natural environment as is the future viability of fisheries and agriculture. To this end, allocations of resources to the Conservation and Fisheries Department have increased by on average 19% per year between 1993 and 1998.

Yet important key issues remain. These include: (i) insufficient cross sectoral-linkages across government on environmental issues and incorporation of environmental analysis into the planning process; (ii) an inadequate legislative environment with outstanding legislation awaiting enactment and other legislation needing to be updated/amended in line with international standards; (iii) limited enforcement of existing environmental regulations due to limited manpower; (iv) inadequate strategic planning for land use; (v) emerging concerns over the carrying capacity of the Territory for tourists and in particular specific tourism sites; and (vi) inadequate systems for collection of household garbage and methods of disposal.

In response to these issues Government has formulated the following objectives:

To institutionalise environmental concerns by re-focusing of attention from coastal and marine issues to the wider area of environmental management and sustainable development as an integral part of the devilment process.

To guide the use of the natural resources of the BVI for diverse and often conflicting sectoral activities so that the continued viability of all aspects of use and ecosystems will be secured.

In pursuit of these objectives, Government will:

• during 1998 and 1999, resolve the outstanding issues related to outstanding environmental legislation and land use planning, with a view to enacting such legislation at the earliest possible opportunity;

• in 1999, improve departmental integration by appraising environmental impacts of major policy initiatives and incorporating environmental concerns into the decision making process. For example, all PSIP projects over US$ 300,000 will, as part of the new system of project cycle management (PCM) include an Environmental Screening conducted by Government;

• from 1998, for all major inward investment proposals, Government will require an environmental impact assessment (EIA) to be submitted by proposers as part of the approval process;

• in 1999, Government will, as part of the Fiscal Review, increase penalties and fines for the contravention of environmental legislation and regulations so as to improve the deterrent to non-compliance; 

• in 1999, allocate additional resources to environmental agencies of Government, with funds targeted to increasing staff numbers and training such staff in professional environmental management techniques to strengthen capacity to conduct environmental planning, policy development, education, monitoring, regulation and enforcement;

• by December 1998, determine which environmental conventions apply to BVI and develop a programme to implement them;

• in 1999, the Conservation and Fisheries Department will undertake tourism carrying capacity studies for the Territory in general and for specific tourism sites;

• forge stronger links with regional and international environmental bodies and in particular with the relevant DFID adviser to ensure professional support and guidance can be offered by these organisations.

These initiatives will form the basis of sustaining environmental stability in support of continued economic development in the BVI. Government will measure its performance in sustaining the environment by setting the following strategic targets: (i) between 1999-2001, all PSIP projects above US$ 300,000 will have an environmental screening and projects over US$ 1 million will be subjected to a formal environmental impact assessment; (ii) by 2001, all land will be zoned according to national land use planning objectives; and (iii) by 2001, at least 80% of households will comply with effluent limitations and water quality standards. The above will be measured and monitored by the Conservation & Fisheries Department in co-operation with other Government departments.

5.4. Maintaining social welfare

The final theme of the MTES is maintaining social welfare. Indeed a crucial element of achieving the Vision for BVI is the need to ensure that all people are included in enjoying the benefits of economic development. 

Government’s role in social welfare is three-fold: (i) to provide education and health services to the population, (ii) to work in partnership with the community to provide support mechanisms for disadvantaged members of the community; and (iii) to ensure that there is equity of access to income, employment, education, health and other social services.

5.4.1 Social development

Social statistics prepared for the NIDS suggest that BVI has a high average human development status as measured by the UNDP’s Human Development Index (HDI). Nevertheless important social issues have emerged over the last ten years of rapid economic growth. Amongst these issues are: (i) pressure on social services resulting from rapid immigration; (ii) ageing of the population; and (iii) the emergence of small but significant disadvantaged group in the BVI of single parent families.

As Government promotes continued economic growth in the Territory, it is determined to better understand the nature of emerging social issues and develop strategies to address such issues in order that no groups are excluded from the benefits of economic growth. However, a fundamental objective of Government is to institute programmes and projects which promote self-help and encourage solutions to be found within families and communities and to work in partnership with the community to resolve social issues rather than create welfare dependency. Government will implement poverty reduction measures without interfering with the market mechanism.

Government is determined to strike the right balance between assistance and self help and to allocate additional resources to activities which will help solve and prevent further escalation of social problems.

To enable Government to achieve this, it will:

• continue to sustain economic growth in the Territory in order that opportunities for employment and wealth creation are maintained;

• commission a Country Poverty Assessment (CPA) in 1999 which will: (i) conduct a situational analysis on poverty in BVI; (ii) propose strategies and action plans consistent with GBVI objectives; (iii) identify systems for collection of data and quantification of problems related to vulnerable groups. 

After considering the CPA, Government will seek to allocate resources in line with the recommendations made to enable BVI to have a social welfare system commensurate with its stage of economic development. Government will assess its performance in the sector by setting the following targets: (i) that by the start of 1999, renovation of Adina Donovan Home for the elderly is completed; (ii) by 2000, monitoring systems for identifying and measuring problems faced by vulnerable groups including children, juveniles, the elderly, the disabled and single parents are in place and being used by Government to target resources. To be measured by the Ministry of Health & Welfare.

5.4.2 Health

In broad terms, BVI has a relatively good health status. Improvements in nutrition, sanitation, access to immunisation and family planning have generally contributed to lower mortality rates and increased life expectancy. However, rapid economic growth and improved living standards have resulted in a greater incidence of chronic diseases and disabilities. Indeed medical conditions associated with lifestyles and longevity are beginning to emerge as major health issues in BVI (for example nearly 40% of women on BVI are categorised as obese).

In the early 1990s, Government commenced reform initiatives in health. Government will build on these initiatives during the MTES period by adopting the following three strategic themes in the health sector: (i) placing greater significance on formulating health policy and planning and preparing for the health issues that will arise beyond the millennium; (ii) resolving emerging issues in the financing of health care for all BV Islanders; and (iii) reviewing the range of services currently provided by Government with a view to introducing changes to improve the quality of service delivery.

Government’s strategy is directed towards the overall goal of:

Providing an adequate and effective health service to the entire population of the BVI, and delivery of such services in an efficient manner

In pursuit of this goal and in accordance with the strategic focus identified above, Government will:

• during 1998, resolve outstanding issues related to revising the BVI Medical Act legislation with a view to enacting revised legislation in 1999;

• in 1998, leading on from the recommendations made in the 1998 Health Financing Study, propose changes to the financing of health care in BVI (which may include proposals to institute a compulsory national health insurance scheme);

• during 1998, seek to discuss making local providers of medical services (public and private sector) the preferred providers under the Civil Service health care insurance scheme and to retain such fees generated through this policy to improve the quality of services offered by Government;

• in 1998, recommend changes to the public sector fee structure to recover more fully the costs involved in providing health services;

• in 1999 institute changes to the procedures for collecting fees, including, but not limited to, the development of an Account Receivable Unit and provision of a 24 hour cashier at the hospital;

• from 1999, attach a high priority to increasing budgetary resources to health promotion and disease prevention;

• review the finding and recommendations of the 1993-96 Health Reform Initiative and identify which elements of the strategy are suitable for improving the public provision of services and seek to fund these through the increased revenues which are anticipated as a result of: (i) the Government becoming one of the preferred providers under the Civil Service health care insurance; and (ii) increased levels of fees resulting from the health financing study;

• from 1999, design and introduce customer satisfaction surveys for major services provided by Government.

Government will assess its performance in the health sector by setting the following strategic targets: (i) by 2000, BVI is the provider of choice for persons covered under the Civil Service health insurance scheme; (ii) by 2000, at least 80% of bills are collected in the year they are issued; (iii) to improve the number of satisfied customer/patients by at least 10% between 2000 and 2001; and (iv) by 2001, health monitoring systems are in place which can report in a systematic and meaningful manner changes in the health status of the territory. Data and information to assess performance against targets will be collected by the Ministry of Health & Welfare.

5.4.3 Education

The BVI Government provides education at primary, secondary and tertiary levels. There are currently approximately 2,700 pupils in the primary level, 1,700 at the secondary level and 700 in tertiary education. Educational performance at tertiary level is amongst the highest in the Caribbean, with around 11% of adults having attained formal qualifications at that level. Performance in the primary and secondary levels however, has been identified as a major issue currently facing the BVI.

The NIDS process identified a number of critical issues facing the territory. These include: (i) majority of students not reaching academic standards, particularly numeracy and literacy standards at the primary level; (ii) saturation of facilities due to rapid growth in intake due to immigration; (iii) increasing rates of drop-out from schools, particularly among male pupils; (iv) difficulty in attracting and retaining BV Islanders into teaching with the result that over 50% of all teachers are expatriates; (v) out of date education curricula and legislation; and (vi) large classes in primary level which will present space issues at secondary level in the medium term.

These issues are of major concern to Government. At a time when the territory is focusing on producing more skilled and qualified people to take up opportunities in financial services and other professions, performance in the school system is not meeting the standards required.

In recognition of the above issues, during 1998 and early 1999, Government will complete a fundamental review of the effectiveness of government activities in the sector over the last five years. In particular Government is fully determined to understand the complex issues which are impacting on educational performance and to put in place policies and programmes which will promote higher achievement across all sectors. In accordance with this Government will produce a fundamental review of the education sector by March 1999 and from this produce a new Five Year Education Development Plan for 1999-2004.

The new Five Year Education Development Plan will highlight the key activities which will be undertaken by Government . 

Government will assess its performance in the education sector through setting targets and using measurement criteria which will be developed as part of new education plan. These will be finalised in 1999, whereafter Government will announce its strategic education sector targets.

6. Financing the MTES

This section sets out the level of resources that Government expects will be available to finance the MTES. It then shows the level of recurrent expenditure associated with the strategy and also presents a new Public Sector Investment Programme (PSIP) for BVI which was prepared in reference to available financing and the priorities which have emerged during the NIDS process.

6.1. Projection of available resources to finance the MTES

The Government will finance the MTES through a combination of budget revenues, concessional loans and grants.

6.1.1 Budget revenues

The most important source of financing in the MTES will be revenue raised through the Government Budget. 

Section 3 showed that between 1993 to 1997, Government revenue increased at an average annual rate of 16% per year, rising from US$ 70 million in 1993 to US$ 127 million by 1997. A key factor in this growth has been strong performance in the offshore sector. 

During 1998, Government expects that growth in revenues from the offshore sector will be lower than in previous years as a result of: (i) the continuing impacts of the South East Asian economic downturn; and (ii) maturation in the BVI offshore sector. The impacts of a slow down in the growth of revenue from the offshore sector means that in 1998, revenue is projected to increase to around US$ 135 million.

In developing a projection of budget revenue, Government investigated a number of different scenarios for revenue, where key variables where changed and resulting impacts measured. The full details of the different scenarios are shown at Annex 3. From the revenue investigations, Government selected a case which it considers to be the most appropriate for planning purposes and which forms the basis of the revenue projection used in preparing the MTES. The key assumptions for this case are:

• revenues from offshore financial services will grow at a rate of 5% per year;

• revenues from tourism will increase at an average annual rate of 9% per year between 1999-2000;

• the fiscal review will increase non-offshore related revenue by 5% in 1999 and then 10% in 2000;

• autonomous increases in non-offshore related revenues (due to economic growth and inflation) will increase by 5% per year between 1999-2001.

The combined impact of the above elements will be to enable Government to generate revenues as shown in Table 2.

Table 2: Budgetary revenue to finance the MTES

Source: Annex 3
Notes:*revised estimate produced for MTES projections

Table 2 shows that revenue will increase from a projected US$ 135.0 million in 1998 to US$ 145.9 million in 1999, rising to US$ 172.6 million by 2001. The average rate of growth for the period is 8% per year.

6.1.2 Grants

The major grant donors in the BVI are the UK and the European Union (EU). However, grants do not play a major role in the financing of expenditure in the BVI. For example in 1997, grants funded less than 0.7% of total Government expenditure. 

Over the next three years, it is assumed that the level of grant financing will total approximately US$ 5 million over the period 1999-2001 (mostly from the EU through the European Development Fund). For planning purposes these resources have been allocated equally across each year.

6.1.3 Loans

Like grants, loans are not a major source of financing for government expenditure. This reflects:

• prudency in current policies towards the accumulation of debt with Government’s current target that loan repayments should not increase above 3% of recurrent revenues; and

• a clear determination by Government to limit the use of loan financing to projects which are self liquidating.

However, over the period 1999-2001, Government will use loan financing to speed up the implementation of the PSIP. In particular loan financing will be used by Government to finance airport improvements at Beef Island. Government expects to raise US$ 20 million from loans between 1999-2001.

The combination of budgetary resources, grants and loans is shown in Table 3.

Table 3: Projected resources which will be used to fund the MTES 1999-2001

Table 3 shows that projected resources to fund the MTES will be US$ 157.5 million in 1999, rising to US$ 173.8 million by 2000 and reaching US$ 174.2 million by 2001.


6.2. Projection of Government expenditure 1999 to 2001

6.2.1 Recurrent

Section 3 showed that between 1993 and 1997, recurrent expenditure increased from US$ 55 million to US$ 91 million, equivalent to an average annual rate of increase of 13%. By 1998, recurrent expenditure is projected to increase to US$ 100 million, an increase of over 9% between 1997 and 1998². 

In the context of the revenue forecasts shown above and the policies contained in the MTES, a major objective of Government will be to control the rate of increase in the recurrent budget. In very broad terms Government will achieve this by:

• commencing each budget cycle by holding total recurrent budget expenditure in real terms;

• after considering revenue forecasts, set a target for increasing real recurrent expenditure in real terms and then use these resources for NIDS priorities;

• as part of the budget exercise, and after the formulation of Departmental Business Plans begin (see Section 4), a programme of targeting cuts on areas of expenditure which are not consistent with the overall strategy of the territory, in the first instance offering “saved” resources to the Departments making the savings to be reapplied to new NIDS priorities. The target to be set for these savings is 5% of the recurrent budget each year between 1999 and 2001³. 
  

By using the above approach, and through application of NIDS in the budget cycle, it can be expected that the recurrent budget will grow as shown in Table 4.

Table 4: Projected recurrent expenditure in the MTES 1999-2001

Table 4 illustrates that recurrent expenditure is expected to grow from US$ 110.9 million in 1999 to US$ 120.8 million by 2000 and reaching US$ 134.3 million by 2001. The average annual rate of growth is around 10% per year. 

The important outcome of the above approach to the recurrent budget however, is that within the total recurrent budget, because new resources and “saved” resources are being directed to NIDS priorities, over time the recurrent budget will increasingly reflect strategic priorities and move away from historical allocations (which would have prevailed without NIDS). Indeed, by 2001, Government expects that over 20% of recurrent expenditure will be targeted on the specific programmes and activities identified in NIDS. These new priorities will be fully articulated in NIDS. However, a number of the major economic priorities have been described in the MTES. They include:

• financing a fiscal review of the territory in 1999;

• allocating additional resources to re-launch the Trade and Investment Department;

• developing vocational course at the community college;

• continuing support of the micro-enterprise project;

• increasing allocations to promoting and regulating financial services;

• continuing financial assistance for the promotion of tourism;

• financing the introduction of business planning in Government;

• increase allocations of resources to environmental agencies of Government;

• increasing resources to health promotion and disease prevention;

• after endorsement, finance key recommendations arising from the Education Development Plan;

• after review and refinement, finance the acceptable elements of the Health Reform Initiative.

Comparison of projected revenues, grants and loans with recurrent expenditure reveals the Government will generate a considerable recurrent budget surplus over the period of 1999-2001. However after 2000, revenue will grow less rapidly than recurrent expenditure: highlighting why Government is committed to maintaining efforts at expenditure control.

Government will use these resources to fund priority capital projects in a Public Sector Investment Programme (PSIP) which will contribute to the developmental objectives specified in NIDS. The resources that will be available to fund investment in the PSIP are shown in Table 5.

Table 5: Resources available to fund the PSIP 

Table 5 shows that a projected total of US$ 139.6 million will be available to fund PSIP expenditure over the period 1999-2001.

6.2.2 The core Public Sector Investment Programme (PSIP)

The objective of the PSIP is to support sustained economic growth that will bring the maximum benefit to the Territory from private sector led growth whilst at the same time minimising environmental damage that might accompany physical infrastructure projects. The PSIP reflects the strong commitment by Government to play its part in the development of territory. The PSIP also incorporates a number of social projects which are necessary to sustain the social fabric and development of the territory.

The core PSIP contains projects which have already started in 1998 or earlier and projects which are scheduled to start between 1999-2001. The projects shown are those with expenditure of over US$ 300,000. 

6.2.2.1 Existing projects in the PSIP

Table 6 shows capital projects which are approved and ongoing and their projected spend profile over the period 1999-2001.

Table 6: Existing approved projects which are currently being implemented

Table 6 indicates that during 1999, approved capital expenditure will equal US$ 23.1 million falling to US$ 9.8 million by 2000. At present no expenditure is expected from projects which are currently on-going for 2001. In total on-going projects are expected to cost US$ 32.9 million. 

6.2.2.2 New projects in the PSIP

Once approved projects have been taken into account, around US$ 106.7 million is projected to be available to fund new PSIP expenditure.

Over the course of the NIDS process, a large number of projects have been proposed to meet the objectives which have emerged. The number of projects and their cost is larger than the projected funds available to implement these projects. Accordingly, in preparing the MTES, Government has reviewed the major projects which have been proposed and prioritised on the basis of which projects most successfully integrated with the key themes for development of the MTES. The resulting prioritisation of projects is shown in Table 7.

Table 7: Proposed new projects for the Public Sector Investment Programme 1999-2001

* shows projected spend of projects which will continue to be implemented in 2002.
** see the list of projects at Appendix 1 in Annex 3 for details of these projects.

Table 7 shows the new projects which, along with existing projects currently being implemented, will form the basis of the Government’s PSIP for 1999-2001. A key objective of Government over the MTES period is to ensure that all major PSIP projects are subjected to formal appraisal. Accordingly, all the projects shown in Table 7 will, under the guidance of the Development Planning Unit, be appraised as part of the new PCM system to be implemented under the MTES.

Another objective of Government is to endeavour to work to the priorities and sequencing shown in the PSIP. In the event that Government is able to raise additional revenues than those projected, projects will be implemented more quickly than shown in Table 7. If revenue falls short of projections, Government will delay the implementation of projects.

7. Measuring economic performance

At present, performance indicators are not used by Government. As part of improving performance and promoting effective management, Government is determined to move towards measuring performance in the public sector and in particular paying greater attention to measuring the impacts of government expenditure.

As part of the implementation of the MTES, and to support the monitoring of the impact of the NIDS, Government will be introducing three year departmental business planning across Government in 1999. A key component of each business plan will be the specification of strategic and operational performance indicators for each major activity of Government and the setting of targets for performance.

7.1. The strategic economic targets to be adopted by Government

Government has set the following strategic economic targets for the period 1999-2001.