The Board of Aruba’s Financial Supervision writes to GOA, again

The Board of Aruba’s Financial Supervision writes to GOA, again

Our financial supervisors sent out a letter May 10th, in response to the island’s budget submitted to their reading pleasure.

Their first reprimand was about the late submission, April 26th instead of December 15th, which according to CAft stands in the way of sound budgetary management.

CAft’s supervisory relationship with our government is anchored in a protocol singed by Aruba and the Netherlands on November 22nd 2018. It was then extended on January 20th 2023.

The protocol stands until the Kingdom Act Aruba Financial Supervision (RAft) enters into effect. As you know, it is being discussed, and Aruba, as well as the other islands are all dragging their heels on ratifying it.

You know the sad story, we were broke, from before the pandemic, but the pandemic made things much worse, and the Dutch provided us with the much-needed liquidity support.

The Dutch now state that the budget was adopted much too late by Aruba, and it blatantly ignored all of CAft helpful recommendations, such as creating a budget surplus.

While Aruba experienced an unprecedented economic recovery in 2021, and the International Monetary Fund (IMF) reported our economy experience real growth, the deficit grew as well, instead of shrinking.

And based on the budget just handed in there is a threat of a significant deficit in 2023, plus a significant increase in debt.

We make more money than expected but we are spending more, and we now show an AWG 236 million gap, between income and expenses.

Imagine, GOA’s debt is estimated to reach AWG 5.9 billion, by the end of 2022, with more losses forecasted from 2022 to 2026. Unfortunately, with interest rates rising, this only means Aruba’s significant debt will continue to rise until 2027.

While CAft reiterates the importance of realizing budgetary surpluses, as soon as possible, in order to reduce government debt, it is not happening.

And there seems to be no effort to reduce expenditure and increase revenues.

CAFT predicts that  in the period between 2022 and 2026 Aruba will have to repay approximately AWG 4 billion, and thus restructuring of its public finances, is more important than ever.

So, what’s wrong with the 2023 budget?

Consumption of goods and services, is budgeted 33 million AWG higher.

Expenditure on hiring external parties or commissions of third parties shows a sharp increase.

The rent paid by GOA for buildings has also increased excessively in recent years, a 40 percent increase in 2022 compared to 2016.

And most expenses are insufficiently explained.

The budget also includes an additional financial contribution of AWG 3 million for Serlimar, on top of the annual contribution of AWG 22 million, but CAFT is completely opposed to that. It wants to see Serlimar solving the bottlenecks surrounding the levy and collection of fees – it’s high time, they learned to collect their invoices.

CAft also notes that AWG 4 million for the renovation of the Beatrix School is an investment, but should not be accounted under regular maintenance.

The personnel costs of AWG 433 million will increase in the 2022 budget by AWG 15 million compared to  2021 — Aruba got instructions to lower that to a maximum of AWG 417 million for 2022, but hiring continues.

CAft has since 2018 advised on an effective implementation of the Policy Plan for Reducing Personnel Expenses, BVP, which should lead to a structural reduction in personnel costs, and so far, how a structural reduction in personnel costs will be achieved, is a mystery.

CAft also recommended the inclusion of tax revenues, which are expected to recover fully. The supervisors go on to list their expectations, since the budget has not followed up on ANY of CAft’s earlier recommendation.

CAft conclude: It is necessary that Aruba, in view of the current state of government finances, achieves a decent level of compliance as soon as possible. Then CAft adds that the additional benefits of AWG 160 million, which should follow from the introduction of value added tax (VAT) in 2023, are still insufficiently substantiated.

The introduction of VAT will be accompanied by compensatory measures to, among other things, alleviate the inflationary effect of VAT. The CAft notes that these compensatory measures have not been included in the budget.

It goes on like that for four more pages, with the frequent use of “incomplete and insufficiently substantiated,” “Aruba failed to realize savings,” “measures not introduced in the Health Care system,” etc. A dozen well explained suggestion to remedy the situation are attached,

signed by the chairman of the Board of Aruba financial supervision Prof. dr. dr. R.H.J.M. Gradus

 

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June 02, 2022
Rona Coster