Finance Minister Jack Ading said Thursday the cabinet approved a series of policy initiatives to prevent a looming financial crisis in the face of declining American grant aid that now underwrites 60 percent of the economy in this nation of 54,000.
To set the stage for cut backs in government spending, cabinet members will take cuts in their electricity and housing allowances, Ading said.
“When I introduced these policies to the cabinet, I said ‘I don’t want my allowance cut,’ ” Ading said. “I’m comfortable and I’m sure you are too. But we have to think about the future of the country.”
The cabinet has endorsed:
• Public sector debt management guidelines for 2011-12, which include restrictions on loans and sets budget targets for revenue and spending. This requires that any state owned enterprise must have cabinet approval to borrow money, and puts a ban on government providing loans or loan guarantees to parties outside the public sector.
• A Comprehensive Adjustment Program advisory panel’s list of recommendations, with spending reductions planned to begin with the new budget in Oct. 2011 for electricity allowances, lease and rental housing allowances, utility bills, communications, vehicle purchases, fuel, travel and per diem, professional services, and subsidies to state owned enterprises.
• Principles for management of state owned enterprises, including requiring the SOEs to produce and publicly release corporate business plans, identify essential services they provide while either winding down or privatizing non-essential activities, and have boards of directors that are independent of government and qualified.
• An investment from local revenues to the government¹s Trust Fund of $2 million in fiscal year 2011.
Ading indicated that he will seek cabinet approval in the next two weeks of a recently submitted plan for an overhaul of the tax system.
Ading said the reductions in spending are being taking ³step-by-step with the goal of increasing the cuts over the next several years.
Ading expects the government to save $2.6 million from these cuts in 2011, $2 million of which will be invested into the trust fund that now stands at $113. The International Monetary Fund warned the government last November that it needed to begin adding up to $9 million annually for the trust fund to be adequately capitalized to provide interest equal to U.S. grant funding in 2023, the last year of U.S. grants.
The cabinet has given the green light to moving these financial reforms forward from Oct. 1 this year, Ading said. He emphasized the support of President Jurelang Zedkaia, the cabinet and Speaker Alvin Jacklick.
The cuts will affect Zedkaia and his constituents because of cuts to electricity subsidies, but he supports the plan, Ading said.
A lot of people may be unhappy about the reductions in allowances and subsidies, he said. But it’s either do it today or be in trouble in 2024.
“They are good for the country. I’m doing this for my grandchildren. I don’t want them to ask me in 2024 why we burdened them with all these debts.”
