DR. THE HONOURABLE NATALIO D. WHEATLEY
PREMIER AND MINISTER OF FINANCE
22 JULY, 2022
ONE-ON- ONE PRESS CONFERENCE
“UPDATE ON ECONOMIC MATTERS
REDUCTION IN IMPORT DUTIES (EXTENSION) AND MONEY SERVICES TAX”
A pleasant good day to all our Virgin Islands people and to the members of the media who are with us.
It is a widely established fact that the last few months have been particularly challenging for businesses and consumers as the cost of goods and services has been escalating. Throughout the world, the pattern has been the same – with few to no exceptions.
As your Government, we are fully aware of how difficult this has been – particularly for the vulnerable and persons on fixed incomes. We empathise with persons, and we have been working to find ways to help alleviate some of the pressures which are facing our people.
Let me be up-front when I say that for many countries this is not an easy situation to deal with. Because in the era of globalization and globalized trade, problems that are experienced in one country can quite often emanate in another country thousands of miles away. And there is really little that a government in one country can do address the root cause of a problem in another country.
And this is the predicament that most countries that depend on imports are finding themselves in at present.
Of course, we are all aware that COVID-19 wreaked havoc on economies throughout the world for quite some time after the pandemic started in March 2020. Supply chains and business operations were affected by restrictions and health protocols. In some cases, countries were curtailing and even banning exports of certain goods.
Then, as things began to improve, in February 2022, Russia’s invasion of the Ukraine created a new set of problems for everyone.
Supplies of commodities produced in that region, such as cereals, were affected. Oil supplies and prices were affected. Sanctions by most countries against Russia have affected certain supplies to the world markets. The shortages have led some countries to ration or ban exports – further exacerbating the shortages and sending prices soaring.
There have been other issues such as the disruption to supply chains in the United States as new policies there affected truck drivers and ground transportation companies. We import a lot of goods from the US, and we are price-takers – meaning that if we want the good we have to buy at whatever the price is on the market.
Many countries that are major producers of critical agricultural products have either been hit by drought and hot weather or by storms and floods, which damage crops and reduced supplies.
These are just some of the factors that have been contributing to inflation and rising prices for petrol and diesel fuel, food and other goods, and services, over the past few months.
As the economic impacts of the Russia-Ukraine conflict began to be felt, on 25 March, 2022, the then Premier and Minister of Finance announced that all Customs duties on imports that are above five percent (5%) were reduced to five percent (5%) starting 15 April, 2022, for a period of three (3) months in the first instance. This is in relation to Schedule 4 of the Customs Management and Duties Act, 2010, which outlines the chargeable tariffs on all goods that may be imported into the Territory.
Duties on goods and services that were currently at five percent (5%) or less remained the same.
The purpose for the initiative was to ease the effects of the financial burden that the residents of the Virgin Islands were facing due to the ongoing pandemic and the growing impact of the Ukraine-Russia conflict.
This policy applied to businesses, as well as private citizens.
Another component of this policy was the reduction of import duty on diesel and gasoline by fifty percent (50%) of their respective rates, from 22 cents to 11 cents per imperial gallon for diesel, and from 32 cents to 16 cents per imperial gallon for gasoline.
The final component of this policy was the reduction of import duty on cement and propane by fifty percent (50%) of their normal rate from 18 cents to 9 cents per 100 lbs of cement and $1.20 to 60 cents per 100 lbs of propane.
The latter component was as a result of the nature in which cement and propane are taxed.
When these special rates were put in place, there was a lot of uncertainty as to how deep the economic impacts of the Russia-Ukraine conflict would cut and how long they would run for.
What has played out is that the impacts have gotten worse and worse from month to month, and it is continuing – all the while getting worse. Inflation and the cost of goods and services continue to rise; and again, the Virgin Islands is not the only country that is experiencing this.
Data published by the World Economic Forum on 23 June, 2022, state that inflation rates have doubled in 37 of 44 advanced economies over the past two years, citing analysis by the Pew Research Center of data collected by the Organization for Economic Cooperation and Development (OECD).
According to the report, in 37 of the 44 nations examined, the average annual inflation rate in the first quarter of 2022 was at least twice what it was in the first quarter of 2020 when the COVID-19 pandemic was beginning its spread.
In 16 countries, first-quarter inflation for 2022 was more than four times the level of two years prior. This is supported by reporting from McKinsey & Co, which reports on 3 July, 2022 that in June, the World Bank cut its global GDP growth projection for 2022 to 2.9% from 4.1% projected in January, with the OECD composite leading indicators pointing to general economic deceleration in the coming months. The narrowing of growth outlooks is attributed to surging energy and food prices, the effects of the war in Ukraine on supply and trade, and rising policy interest rates intended to cool inflation, according to McKinsey.
These reports and forecasts suggest that the pressures facing Virgin Islands residents from inflationary costs, supply issues, lower disposable incomes, and other factors, will continue and, as prices continue to rise, residents will essentially be forced to spend more for less volumes of goods and services, especially imports and more so for goods that have high international demand and constrained supplies.
In a joint statement on the current Global Food Security Crisis on 15 July, 2022, the Heads of the Food and Agriculture Organization, the International Monetary Fund, the World Bank Group, the World Food Programme, and the World Trade Organization, have noted that these developments, coupled with the doubling of fertilizer prices over the last months which are reflecting record-high costs of inputs such as natural gas, pose a significant threat to the lives and livelihoods of acute food insecure people. They have recommended providing immediate support to the vulnerable by rapidly strengthening safety nets for vulnerable households at the national level, as a measure to reduce persons being plunged into poverty.
Simply put, the high prices that we are getting due to the international forces are likely to continue, and there are a lot of uncertainties – but what is very clear is that we have to find ways to help our people, as much as possible, to cope with these developments.
In this regard, Cabinet, earlier this week approved for the extension of the reduced import duties, which I outlined earlier, for a further three months – following which we will review the situation again. The extension will be effective from 15 July, 2022.
I want us to bear in mind that as long as inflation continues to rise and the other factors continue to exist, considering our heavy reliance on imports, these external factors will more than likely lead to price increases.
And therefore the purpose of these reductions in Customs duties is to cushion our people from the full impact of the inflation and the rising prices. Without these measures, the impact of inflation and rising prices would be much worse on our people.
The value of these measures, over the past three months, is upwards of $6 million, and while this has had an impact on Government revenue, it has to be seen as an injection into the overall economy and much needed relief for businesses who are providing employment, who are buying services in the economy, who are heavily sought after for corporate sponsorship, and who help to stimulate our economy.
We do acknowledge that this is an interim measure and there is no scientific means of ensuring that savings are passed on to the consumer. Therefore, it is necessary to introduce additional long-term measures that can provide relief to the struggling families.
Competition, internally and externally, is healthy in lowering prices. But, as a national community, we have to have a discussion about other ways of ensuring concessions to businesses are passed on to consumers; whether it is in finding more targeted solutions to assist the everyday resident, such as ceilings on the percent mark-ups on specific basket of goods, and so forth. Or, we can explore how we can reform our Customs Duty system, what markets can we establish shipping routes to for less expensive products, how we can get less expensive shipping, et cetera.
These are things we will have to discuss with the range of stakeholders including the soon to be set up Trade Commission with their Consumer Affairs Unit, the Central Statistics Office, Customs, the Ports Authority, the BVICCHA, our freight operators, our supermarkets, and other heavy importers, to explore and put forward recommendations.
The Government of National Unity also recognizes that a large segment of our population utilize remittance services. These do not just include those persons who have families abroad that they have an obligation to support, but Virgin Islanders who have children in school in the United States, in the United Kingdom and elsewhere, who send them some dollars periodically to help them make ends meet.
In a recent meeting of Cabinet, we agreed to lower the tax on remittances from the present 7% down to 3.5% to help our students and families abroad to cope.
While we are collecting less revenue, this lower percentage may encourage a greater volume of transactions, and this is in line with what was recommended before this initiative was introduced.
In addition to what I have mentioned, we must explore lessening our dependency on fossil fuel by investing in alternative energy, producing more food and other goods within the Virgin Islands, and explore other ways of conserving and cutting out wastage, whether personally, as a Government, or as a nation.
And, I must mention as well, the measures we have taken to offer social assistance to our communities.
As we go through these difficulties, we pray God’s guidance and protection on all of us. Let us never forget our ancestors overcame through Faith in God and unity.
Let us hold to God’s unchanging hand, and we can do the same thing.
And, as I said, your Government and the relevant Ministries and Departments do empathise with our people and we will continue to work on finding more sustainable options that can bring some further benefits and relief to our people.
I thank you for listening and I would now invite questions from members of the media.