I’ve made several gloomy predictions in the past about the likely fiscal outlook for the US Virgin Islands following its devastation by Hurricanes Irma and Maria. The islands’ lifeblood is the tourism industry, as its economic decline has wiped out most other productive industries.
Unfortunately, it appears like my prediction is bearing fruit:
Along with billions of dollars in damages to U.S. Virgin Islands hospitals, schools, homes and more, the loss of tourism due to the storm may balloon the V.I. government’s deficit, Budget Director Nellon Bowry told the Legislature Friday.
Before the storms, the territory was looking at a roughly $80.9 million shortfall in a 2018 budget of $914.8 million – about 9 percent.
Based on very preliminary and admittedly “soft” estimates, the FY 2018 budget gap could widen to as much as $325 million, Bowry said Friday. That’s a deficit of 36 percent – about a third of the total budget, which already included sharp cuts.
To bridge this gap, Bowry said the government is looking at a short menu of options, including as much as $120 million in cuts to discretionary spending and a massive Federal Emergency Management Agency Community Disaster Loan.
Bureau of Economic Research Director Donnie Dorsett said the storms were likely to harm the tourism economy in the medium term. Before the storms, visitor volumes for the fiscal year had dropped by 10.2 percent from 1.61 million to 1.25 million, with cruise visitors dropping 15.3 percent while air visitor arrivals grew 4.9 percent, from 403,876 in 2016 to 423702 over the same time the previous year.
The federal government will be able to keep the Virgin Islands going for a little while through disaster relief loans, but those loans of course are effective bailouts since with the territory’s economy destroyed and already tottering on the edge of a default, there is no chance at all that any disaster relief loans will be repaid.
The bottom line is that the tourist industry in the Virgin Islands is now ruined, leaving them with rum production in St. Croix as the only remaining major economic activity. That won’t keep the territory afloat.