Statement by Premier of the BVI Hon. Andrew Fahie on UK Loan Guarantee

Official statement by the Honourable Andrew A Fahie, Premier of the British Virgin Islands (BVI), on the Recovery and Development Loan Guarantee.

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Fellow Virgin Islanders and Residents, Good day and God’s Blessings.

In the very near future, a delegation from the Virgin Islands is expected to meet with officials of Her Majesty’s Treasury and other departments of the UK Government, to discuss what can be described as, one of the most critical issues facing us as residents of this Territory in modern history.

As your elected Premier, I have my own vision and philosophy of where our Territory needs to go and how we should go about getting there. But, as in all other things, I am guided by you the people on whose behalf I hold this office in trust.

I believe it is imperative that I must place all the relevant information before you so that you are aware of what is taking place and so that when the time comes, you would be able to have your say and make your input based on facts and informed opinions.

The matter before us is primarily that of accessing loan funding to support the mountain of work that needs to be done to advance our recovery, restoration and development following the natural disasters of 2017.

However, the issue that we face is whether we are prepared to mortgage our birthright in order for the British Government to provide the guarantee needed for us to access this critically needed funding.

At present, what the UK Government is demanding in order for it to provide its guarantee, is for the Virgin Islands to basically hand over almost full control of the management of the Territory’s finances to the Recovery and Development Agency (RDA), which was set up at the request of the UK Government.

The limited self-Government that the BVI enjoys today is the fruit of the labour and struggles of our forefathers who, through sheer grit and determination, forged the society that we see today after the slave masters and European capitalists abandoned these islands, condemning us to be nothing more than a bird sanctuary.

Our freedom and autonomy were hard-earned, are priceless, and cannot be given up or diluted so easily.

While it is not unreasonable for the UK Government to want some measure of security that we will be responsible and prudent in spending funds accessed through its guarantee, and that we will repay the loans, it is our respectful view that what is being demanded of the people of the Virgin Islands at this time in order to access these funds is far in excess of what is reasonable.

The Virgin Islands Government appreciates that the extreme caution being exercised by the UK Government may not be without some justification. However, not even the reckless mismanagement of the previous administration can justify the constitutional over-reach that we are being asked to sanction and to accept.

As you are aware, the August flood and hurricanes Irma and Maria in 2017 caused damage and losses almost triple the Gross Domestic Product (GDP) of the Territory, impacted the livelihood of everyone and severely affected the physical, economic and social infrastructure of the BVI.

In response, the Disaster Recovery Coordinating Committee (DRCC) was established by Cabinet in October 2017 with the mandate to coordinate the recovery efforts.

The British Government made available support equipment and personnel to assist in the re-establishment of law and order and distribution of food items, some funding for select critical public infrastructural projects and mobile equipment together with temporary housing to vulnerable residents.

This was but the beginning of the road to recovery.

High Level Framework for UK Support to BVI Hurricane Recovery
Having initially secured recovery loan funding from the Caribbean Development Bank, it was determined by the Government of the Virgin Islands at that time that additional funding would be required to underwrite the recovery process.

In response to appeals to the UK’s Lord Ahmad of Wimbledon by the then Premier, Dr. the Honourable D. Orlando Smith, OBE via correspondences of November 10 and 14 of 2017, the UK Government indicated that it would need to set conditions around such support to ensure that all recovery measures represent value for money and that the additional borrowing is sustainable for the BVI.

This is absolutely reasonable.

As a precondition to the UK’s support for guaranteeing up to £300 million of loans, it was recommended that a Partnership Agreement between the UK and BVI Governments be developed to establish the necessary structure that will drive recovery and thereby attract private investments.

The core of the “HIGH LEVEL FRAMEWORK FOR UK SUPPORT TO BVI HURRICANE RECOVERY” was centered on the five (5) principles of Good Governance, Fiscal Sustainability, Building in Resilience, Public Administration Reform and UK-BVI Partnership.

Why the Stringent Conditions for the Provision of the Guarantee?
The debate on whether or not the UK Government should be offering grants as opposed to the offer of guarantees for BVI loans is indeed a moot point in this discourse.

Conditions are typical and fundamental for each and every loan agreement between lender and borrower.

Additionally, the BVI Government is required to request the approval of the United Kingdom to secure all loans to the Government by third parties, since such loans are recognised as contingent liabilities on the records of the United Kingdom Government’s financial records.

Amongst other authorities, this Territory is governed by:
a) The Virgin Islands Constitution Order 2007;
b) Public Finance Management Act 2004;
c) Public Finance Management Regulations 2005 and;
d) The Protocol for Effective Financial Management of 2012.

Lord Ahmad in his November 24, 2017 correspondence to then Premier Smith centered his response primarily on the “PROTOCOL FOR EFFECTIVE FINANCIAL MANAGEMENT”.

The Protocol agreement documents were signed between the Government of the Virgin Islands and the Government of the United Kingdom on April 23, 2012.

Recall also that in the years after the signing of the Protocol agreement, a number of violations are documented or are deemed to have occurred under the previous administration, including but not limited to:
a) No audited financial statements for a number of years.
b) No registration of Elected Officials Interests.
c) No disclosure of contracts by elected Members of the House of Assembly.
d) Over-budgeted Peebles Hospital Capital Project.
e) Over-budgeted and un-approved $40 million Pier Park Expenditure.
f) Un-accounted for $7.2 million BVI/BV Airways expenditure for two planes that never materialised.
g) Un-constitutional transfer of $8 million loan funds to BVI Ports Authority which was intended for the East End/Long Look sewerage project.
h) Alleged misappropriation of over one million dollars on the Elmore Stoutt High School wall.

With the exception of the Elmore Stoutt High School wall, in spite of numerous requests and public outcry, the relevant authorities and those with Constitutional responsibilities have failed to commence and/or conclude the inquiries into each of the occurrences outlined above.

All appeals to the UK-appointed officials for these matters to be probed have seemingly fallen on deaf ears over the past several months.

May I say that it is unfair and unjust for the UK Government to seek to penalise the people of the Virgin Islands and this new Government on the basis of the actions of a past Government – an administration that the people have rejected and voted out of office – without the UK Government and its representatives having exercised their roles in getting those matters investigated and properly ventilated.

Investigation and ventilation of these suspicious and scandalous matters would have allowed all concerned parties to uncover whether any misconduct occurred and to hold persons accountable. This is essential for restoring faith in Government and the governance process.

Additionally, and most importantly, it would have allowed for the discovery of weaknesses in the system that facilitated the leakage of taxpayers’ money and which are at risk of being exploited in the future, so that those deficiencies can be strengthened to increase effectiveness in the future.

There is a widespread perception that this failure by the UK officials to act swiftly and to have these matters probed was deliberate and designed to hold the door open for the UK Government to impose certain conditions contained in the High Level Framework for UK Support to BVI Hurricane Recovery.

This kind of suspicion is not healthy for BVI-UK relations, but perceptions cannot be tamed only by will and wish.

Areas of Concern
It is important to point out that most of the conditions in the High Level Framework for UK Support to BVI Hurricane Recovery are required and just, and the Government of the Virgin Islands has no problem adhering to those.

There exists, however, a specific number of conditions that, in the interest of our people and in the interest of the Constitution, MUST be renegotiated.

In summary, Government of the Virgin Islands is concerned that:
1. The distinction about what funds should be automatically placed in the Virgin Islands Recovery Trust Fund, and which should not, needs to be clarified.

Section 15(c) of the Virgin Islands Recovery and Development Agency Act, No 1 of 2018, as currently worded, is being interpreted to mean that ALL moneys received by Government
for Recovery and Development, whether or not the projects have been referred to the RDA, SHALL be deposited to the Virgin Island Recovery Trust and accessed ONLY by the Trust
Manager.

We believe that it is only those funds that are obtained by application of the UK Government’s guarantee and certain other funds received on trust for hurricane relief and recovery
– such as UK funding assistance and project specific donor funding – should be placed in the Virgin Islands Recovery Trust Fund and managed by the Trust Manager.

ALL insurance settlements and loan moneys that do not concern the UK Government’s guarantee or donations as described above MUST be deposited into the Consolidated Fund. These funds can then be disbursed by the Finance Minister to the Virgin Islands Recovery Trust for the funding of projects approved in the original or revised Recovery plan(s) as necessary.

Further, Section 15(c) of the Virgin Islands Recovery and Development Agency Act, No 1 of 2018, may be deemed unconstitutional as it seems to conflict with the provisions of Section 102 of the Virgin Islands Constitution Order (2007).

Thus, the Virgin Islands Recovery and Development Agency Act, No 1 of 2018 needs to be amended to correct this problem.

2. When the “Protocol for Effective Financial Management” was signed on April 23, 2012, it included the application of certain financial ratios with respect to:
a. Net Debt,
b. Debt Service,
c. Liquid Assets,
d. Recurrent Revenue, and
e. Recurrent Expenditure.

However, the limits for these ratios were based on the figures and the economic environment of 2012 which changed substantially after the protocols were agreed to, and even more so after the natural disasters of 2017.

Might I add that under normal, non-disaster circumstances, maintenance of the set ratios of:

• Net Debt of 80 percent maximum of recurrent revenue,
• Debt Service of 10 percent maximum of recurrent revenue, and
• Liquid Assets of 25 percent of recurrent expenditure,

is not only reasonable but healthy.

But these are not ordinary times and ordinary circumstances. This is the aftermath of two back-to-back Category 5 Hurricanes that battered the Territory within two weeks of each other; and this was on the heels of destructive floods that hit the main island less than one month before.

Rebuilding the damaged infrastructure would have placed a sudden, high and unavoidable demand on the BVI’s financial system, way above normal-time levels.

And on that basis, we believe that these particular conditions should not be strictly applied or that the ratios should be revised or suspended.

It should also be noted that since 2014, for almost each fiscal year, revenues have been trending downwards. This has been partly due to the market’s negative reaction to the impending
introduction of economic substance and open public registry legislation. Attempts to compensate for this loss of business and loss of revenue by increasing registration fees in 2018 does not seem to have stopped the drop off rate.

Economic substance and open public registry, you would recall, were measures that were outside of the BVI’s power to resist and were imposed on us by outside forces in what seemed like an international attack on our industry.

The revenue retardation from these measures were also not considerations when the Protocol for Effective Financial Management was adopted in 2012 with those ratios.

Given:
1. The current national debt levels, which are within these ratios,
2. The declining revenues due to the reasons just stated,
3. The fact that the BVI’s earning capacity is impaired until our infrastructure is restored,
4. That certain expenditures, such as additional rent and repairs to infrastructure, will continue to burden the Government of the Virgin Islands until our infrastructure is restored, and
5. That accessing loan funding is inevitable,
the BVI would unavoidably exceed the currently stipulated ratios and be held in breach of the protocol once any significant loans are accessed - whether under the UK Government guarantee or not.

We must be mindful that in running a nation, it may be necessary to seek loan funding for other purposes than recovery and development projects. Unless the current ratios are suspended or revised, this can hamper the smooth running of the country.

On this basis, your Government will be asking the UK Government to review its position on these ratios as a condition for accessing the loan guarantee once this option is exercised.

It is our view that these ratios should be suspended for the duration of the guarantee or adjusted to more practical levels.

It may also be necessary to explore new options, and therefore we will have to discuss with the UK Government whether they would be amenable to considering any alternative proposals which may be more suitable to the interests of the people of the Virgin Islands.

Request for Urgent Meeting
Taking into account the primary concerns cited above, a request has been made for an emergency meeting with Government of the Virgin Islands and UK Government officials to discuss our concerns and determine the best possible way forward for all concerned.

Your Government is resolved that the people of the Virgin Islands must be fully appraised of positive or adverse conditions that are agreed upon and which would be imposed once loans are secured under the UK Guarantee if this option is exercised.

The Virgin Islands Government is fully aware that the imposition of conditions attached to the UK’s Loan Guarantee were required due to the failure of the previous administration to uphold or adhere to the agreed terms and conditions of the Protocol for Effective Financial Management. It is unfortunate that the innocent people of the Virgin Islands must suffer for their folly.

We have advised the Government of the United Kingdom of the present Government’s full commitment to the principles of ACCOUNTABILITY, TRANSPARENCY AND GOOD GOVERNANCE.

And, I have requested that a BVI delegation be afforded a direct meeting with the relevant officials of the Foreign and Commonwealth Office as soon as possible.

May I say, in the interest of equity and consistency, this appeal for renegotiation is NOT UNLIKE the call of the UK Government to renegotiate the conditions agreed between the UK Government and the European Community Council on the occasion of “Brexit”.

In this regard, I hope that the UK Government will not find difficulty in empathising with our request and our position, especially with respect to amending the Virgin Islands Recovery and Development Agency Act, No 1 of 2018 to properly distinguish which moneys shall be placed in the trust fund and which shall not.

In the language of Brexit, this will be a case of Deal or No Deal. It will be a deal breaker because there are some things that are too precious to the Virgin Islander to put a price tag on.

My friends, we must also consider that we cannot afford to become physically resilient but fiscally deficient. And the contentious conditions that I have mentioned will bind us as a Territory in a straight-jacket.

We must also weigh getting major loans at a time when it has been forecasted that our revenue from the Financial Services will be effected by the many international attacks for the next few years to come. Thus, we must be confident in our ability to meet our obligations and not to find ourselves being penalised for default.

As Premier, I reiterate my pledge that nothing that is adverse to the interest of the Territory shall be entered into without the consent of the people. I also promise to keep the population updated as this matter unfolds.

A series of public meetings is being planned to discuss this matter with the national population. The dates, times and venues will be advised in due course and all Virgin Islanders are asked to come out and contribute to this discussion.

May God bless the people of these Virgin Islands.

I thank you.