Finance Minister of the Year 2018

Global and Asia-Pacific

Arun Jaitley, India

In 2017, India rolled out policies of historical value, including the goods and services tax (GST) and demonetisation, while enjoying record volumes of inward foreign direct investment (FDI). And although recent structural reforms hit gross domestic product (GDP) growth, India is already on track to witness a growth rebound in fiscal year 2017/18. These are the key reasons why The Banker has selected Arun Jaitley as the Finance Minister of the Year in Asia-Pacific and globally.

The GST and demonetisation policies have been contentious, complex and disruptive. Many market participants argue the full effect of these new measures is still impossible to judge. But it is certain that the implementation of such policies not even a year apart in a country that typically struggles to execute structural reform is in itself a momentous achievement.

Indeed, in November 2017 Moody’s upgraded India’s sovereign rating from Baa3 to Baa2 on the back of sustained reform, boosting the country’s ability to finance – and ultimately reduce – government debt, which stood at about 70% of GDP in 2016/17. It is India’s first ratings upgrade in 14 years.

Introduced in July 2017 after a 16-year debate, the GST is the biggest indirect tax reform in India since independence in 1947. The GST aimed to remove all indirect taxes levied on goods and services by the central and state governments and to replace them with one unified tax to address India’s double taxation problem. 

“The GST [would] certainly add to India’s GDP; it helps to avoid tax evasion and increases the volume of trade,” Mr Jaitley said in an interview with The Banker in April 2016.

The full extent of the GST effect remains to be seen. Some market participants lament the fact the tax is still being modified and that there have been hiccups when using the online platform for payment. But in July 2017 alone, India collected more than $14bn in sales taxes, according to the Financial Times, while the International Monetary Fund (IMF) says: “Larger than expected gains from GST and further structural reforms could lead to significantly stronger growth.” 

Launched at the end of 2016, demonetisation was an additional milestone in Indian reform. It aimed to slash the amount of black money in the country by making Rs500 and Rs1000 notes invalid. The policy implementation was chaotic, and some argue it was rolled out hastily. In August 2017, India’s central bank announced that 99% of the banknotes cancelled in late 2016 were deposited or exchanged for new currency, suggesting the black money issue remains unsolved. 

Mr Jaitley admitted that the black money had re-entered the banking system, but said the owners had been identified and that the finance ministry is probing 1.8 million bank accounts. What is more, India’s markets benefited from the vast amount of cash deposited in banks during demonetisation being invested in financial assets.

The GST and demonetisation hit economic growth in 2016/17, as expected. But India’s economy had bounced back by the third quarter of 2017, when it grew by 6.3% after more than 12 months of diminishing growth. Additionally, the IMF expects India’s GDP growth in 2017/18 to rebound to 7.2%, or double the global GDP growth rate for 2017. 

Meanwhile, in 2016/17 the volume of FDI flows entering India hit a record $43.5bn, according to professional service company KPMG. Overall FDI equity flows for fiscal years 2015/2016 and 2016/2017 totalled $114.4bn, which is approximately 40% higher than the $81.8bn registered between 2011 and 2014.

India’s finance ministry is also making some processes more efficient. The budget presentation in 2018 will be brought forward a month to February 1 to ensure proposals are rolled out starting on April 1, which is the beginning of the new fiscal year. The budget for railways, which has held ‘standalone’ status for almost a century, will be included in the national budget starting from 2018.

Finance minister of the Year, Europe

Peter Kazimír, Slovakia

Since Peter Kazimír took over the top position in Slovakia’s finance ministry in 2012, the economy has gradually improved to become one of the best performing in Europe. Having joined the eurozone in 2009, Slovakia now boasts one of the region’s lowest budget deficits and above-average economic growth.

The country’s unemployment rate decreased from some 14% in 2012 to an estimated 8% in 2017, according to the International Monetary Fund (IMF), which forecasts a gradual reduction in unemployment to 6.5% by 2020.

The economy is also growing. Gross domestic product (GDP) grew by 3.3% in 2016 and is expected to again reach the same level in 2017, according to IMF estimates, which predicts that the GDP will increase by 3.7% in 2018. By comparison, the European Commission’s spring forecast saw eurozone growth at 1.7% in 2017 and 1.8% in 2018.

The country has maintained its momentum despite ambitious plans to cut costs. “Fiscal consolidation is a must, no questions asked,” says Mr Kazimír, adding that the nature and pace of it requires precise planning and execution. “The last thing you want is to choke the economy for the sake of a balanced budget and harm the economy in the medium and long term.” 

Mr Kazimír gradually reduced Slovakia’s deficit from 4.3% of GDP in 2012 to 1.7% in 2016. He expects 2017’s figure to reach 1.29% – fulfilling the eurozone’s stability and growth pact criteria of a budget deficit below 3% and a debt-to-GDP ratio of below 60%. 

Still, his budget priorities for the year ahead further underline his ideas of disciplined fiscal consolidation. He seeks to cut the deficit further, to 0.83% in 2018, and lower debt below 50% of GDP to “keep us on track towards a balanced budget by 2020”, he says, adding that fiscal policy has to be “smart” and “flexible” and needs to allow room to manoeuvre. 

“Consolidation is not a race; trajectory is more important,” he says. “Getting to zero is not a problem, how you get there is more important.”

Going forward, he believes the Slovak economy will benefit from investments made by carmakers such as Jaguar Land Rover, and hopes this will boost Slovakia’s position in automotive research and development. 

Finance minister of the Year, Americas

Donald Guerrero Ortiz, Dominican Republic

Big achievements can sometimes go unnoticed if they affect a country with a relatively small population. And what the Dominican Republic’s Ministry of Finance is doing to support the country’s economy and improve the lives of its population does not quite receive the recognition it deserves.

The country’s fast-growing economy, which has often outpaced its neighbours across the Latin American and Caribbean region, has expanded while managing to significantly reduce poverty. Finance minister Donald Guerrero Ortiz and his team have ensured that structural changes would create a virtuous cycle in which the standard of living in the country would improve and, as a consequence, so would productivity and the competitiveness of the Dominican Republic.

In 2017, 48% of public spending was directed at the provision of services, with the biggest increases in budget allocations going to the creaking education and health sectors. As a result, new schools have been built, the school day has been prolonged and includes the provision of meals, and teachers’ salaries have been boosted. Also, hospitals are being built or upgraded and a new primary care system has been created to attend to basic needs and reduce pressure on existing facilities.

Mr Guerrero Ortiz has committed to more of the same in 2018. “Public expenditure on education, health and social protection programmes are the main focus of this administration not only because of their impact on poverty reduction and improvements in the standard of living of Dominican people, but also because of their effects on productivity and competitiveness,” he says.

He is also mindful of keeping national finances in order as the country’s economy adjusts to lower growth rates and it continues to grant a high level of tax breaks to attract private sector investment. 

Fiscal discipline is one of Mr Guerrero Ortiz’s main priorities. And at a consolidated 4.3% of gross domestic product, the fiscal deficit is still in better shape than it has been in the recent past, which has led to the International Monetary Fund praising the government for its “strong revenue administration effort”.

Finance minister of the Year, Middle East

Omar Malhas, Jordan

For Jordan’s economy, the difficulties keep stacking up. Conflict in neighbouring Syria and Iraq – Jordan’s main export markets – have had negative repercussions for tourism, investor sentiment and transportation costs. The presence of 1.3 million Syrian refugees has added a strain to the country’s budget. To compound these issues, an economic slowdown in the Gulf Co-operation Council has hit Jordan hard through reduced remittance inflows and diminished exports to the region.

But the government, and the finance ministry in particular, have taken these challenges in their stride. The winner of the Middle East Finance Minister of the Year award, Omar Malhas, has demonstrated outstanding skill in addressing these external shocks, and numerous domestic headwinds, while maintaining macroeconomic stability.

Most impressively, Jordan’s programme of fiscal consolidation has advanced considerably in recent years; the country’s overall fiscal balance went from -5.3% in 2015 (the year Mr Malhas became finance minister) to -3.2% in 2016. The International Monetary Fund expects this to improve further to -0.4% in 2018, down from -2.5% in 2017. The country’s debt-to-gross domestic product ratio, meanwhile, is anticipated to improve to 77% by 2022, from 96% at the end of 2017.

Reforms to the tax structure underpin much of this fiscal consolidation. This has included the removal of exemptions to the goods and services tax, a policy set to continue over the 2018-19 period. With the most vulnerable in Jordanian society in mind, the government will maintain exemptions on foods and medicines. A similar strategy is in place for customs duties exemptions, which will be removed over the same timeframe.

Changes to the personal income tax regime are also occurring. At present, about 95% of Jordanians are not paying income tax because they fall outside higher-than-normal tax thresholds. As a result, tax bands will be lowered to capture a greater share of the population, while other sources of personal incomes will also be taxed.

Improvements to the country’s debt management strategy include the publication of a medium-term plan to better balance Jordan’s debt profile and financing mix. Mr Malhas has also suggested that a public expenditure review would be a prudent way to assess potential areas for spending rationalisation.

Finance minister of the Year, Africa

Alamine Ousmane Mey, Cameroon

Cameroon’s finance minister, Alamine Ousmane Mey, joined the cabinet in 2011 following a year in which the country’s economy grew by a disappointing 3.3%. But under his stewardship, Cameroon’s economic fortunes have improved considerably. Gross domestic product (GDP) growth jumped in 2012 to 4.6% before increasing further to 5.9% in 2014. This performance was largely due to an ambitious strategy of public infrastructure investment targeting key sectors of the economy, under the auspices of the finance ministry.

Falling oil prices and security threats in Cameroon’s north have since moderated this growth story; in 2016 GDP increased by 4.5%, while estimates for 2017 and 2018 put aggregate growth at about 3.7% and 4.2%, respectively. But over the medium term, the International Monetary Fund (IMF) expects things to improve with growth rates of about 5% to 5.5%. This ameliorating outlook will emerge due to the completion of key infrastructure projects including hydroelectric power plants, a deepwater port, and roads and their associated benefits for private sector development, job creation and diversification.

In June 2017, the IMF approved a $666.2m extended credit facility (ECF) for Cameroon to unlock further private sector-driven growth and buttress fiscal and external sustainability. Indeed, the finance ministry’s commitment to fiscal and structural reform is a model for the wider region. The fiscal deficit is expected to decrease from 6.1% to 3.2% for 2017, even as the country grapples with challenges to its all-important oil sector.

Meanwhile, under the draft 2018 budget the deficit is expected to shrink to 2.3%, in line with the requirements of the ECF programme. To do this, the finance ministry is accelerating revenue mobilisation by widening Cameroon’s tax base, while strictly prioritising essential public investments. In addition, encouraging reforms designed to enhance public financial management – including the introduction of limits on the use of exceptional budget procedures – have garnered IMF praise.

Mr Mey’s commitment to a private sector-led growth model, coupled with an ambitious programme of structural reforms and fiscal discipline, offer an outstanding example of ministerial leadership in leaner times for Cameroon. For these reasons, and others, he is the winner of the 2018 African Finance Minister of the Year Award.