BUDGET WATCH 2018 – Part IV Nearing mid-term:

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Weakening financial and social stability

In this fourth part of the TTWhistleblower series monitoring the Rowley Administration’s budget execution performance, we look at Trinidad and Tobago’s increasing financial and social instability, and question what the 2018 budget will bring to address these issues.

Financial stability

Another critical factor that will have to be addressed by the 2018 budget when it is delivered shortly is the financial stability in the Financial Services Sector, and broader economy of Trinidad and Tobago.

The Central Bank’s 2016 Financial Stability Report has warned that: “The Trinidad and Tobago economy continues to slowly adjust to the terms of trade shock occasioned by the decline in international energy prices since 2014. This has translated into a reduction in foreign exchange inflows and an erosion of fiscal buffers.”

The report further stated: “The contraction in economic activity has negatively affected private credit demand. At the same time, the Government has increased domestic financing.”

There is a stark correlation between the Government’s failure to maintain its capital expenditure programme and a slowing of private sector credit demand. Businesses partly reliant on the pursuit of Government projects have scaled down operations and its demand for private sector credit through loan facilities is virtually drying up.

As if to emphasize its warning to the Government about growing financial stresses in the private sector as well as among citizens, the report also warned: “There was a marked increase in credit card usage and the pace of debt consolidation has doubled. On the other hand, business lending continued to be flat.”

In addition to people becoming more reliant on credit cards and debt consolidation, the Bank also explored the issue of the increasing impact of economic collapse on families, citing: “At the same time there was some increase in past due loans in a few categories of business (notably construction) and consumer loans, prompting banks to strengthen their debt collection efforts.”

In other words, as some people are trying to consolidate debts into one payment, while servicing recurrent expenses, loan defaults have increased, and the banking sector has, perhaps a bit mercilessly, stepped up debt collection operations.

The Central Bank also warned of the deterioration of the Foreign Exchange Reserves and availability of FOREX to local businesses.

Its stark findings including: “Purchases of foreign currency from the public by authorized dealers (mostly commercial banks) declined by 13.2 per cent in 2016. While foreign exchange sales have also fallen by 21.8 per cent from 2015, demand remains robust. Sales of foreign exchange by the Central Bank to the authorized dealers amounted to US$1.8 billion in 2016, and net official foreign reserves declined from US$9.9 billion at the end of 2015 to US$9.5 billion at the end of 2016.”

The most recent figures for Foreign Exchange Reserves, according to the Central Bank’s online data centre is worse than the end of 2016.

Reserves have fallen further and is currently at US$8.950.1 billion giving this country less than 10 months of import cover.

Note that the report states FOREX Reserves falling to US$9.9 billion by the end of 2015. This is despite the fact that in September 2015, Foreign Exchange Reserves stood at US$10.4 billion and 12 months of import cover.

The Central Bank’s online Data Centre calculates import cover in relation to foreign reserves starting January 2006 when Foreign Exchange Reserves stood at US$4.190 billion, or 8.3 months of import cover.

In the time since then, import cover reached as low as 7.7 months in March 2007 under the Manning Administration.

In the past decade, the lowest import cover carried by Trinidad and Tobago’s Foreign Exchange Reserves amounted to 8.7 months in January 2008.

Given that FOREX reserves have tumbled so quickly in just under two years, one wonders how long it would take to set a new record low for the decade in Trinidad and Tobago’s import cover, which is a key financial buffer that helps to form this country’s credit rating.

The Central Bank report also looked at Trinidad and Tobago’s declining credit standing, highlighting three major global agency findings:

1. S&P downgrade of T&T’s sovereign credit rating to BBB+: “The downgrade reflected the further deterioration in the economy’s debt burden.”

2. Moody’s downgrade of T&T’s sovereign credit rating to Ba1: “Declining production from maturing energy fields coupled with limited investment prospects, in a context of low energy prices, materially undermined growth prospects.”

3. CariCris downgrade of T&T’s sovereign credit rating to CariAA+: “Fiscal performance has been severely impacted by low oil and gas prices.”

Consumer loans and credit showed troubling findings when compared on a five-year scale as shown below:
Consumer Loan Purpose
December 2011
December 2016
Credit Cards
$1.884 billion
$2.720 billion
Refinancing
$1.492 billion
$1.938 billion
Debt consolidation
$1.352 billion
$1.844 billion
Other reasons
$3.024 billion
$3.446 billion

When all categories are included, a sliding economy has seen a huge jump in consumer loans and credit, which totaled $21.012 billion by December 2011, and $30.638 billion by December 2016.

As economic challenges increase, unemployment grows, food prices swing upwards, small businesses shut down, and loan defaults spike, the consumer is living on credit at an unprecedented level.

Education and Poverty

Despite its many commitments to pursuing aggressive education targets, the 2017 PSIP showed a decrease in spending on scholarships for 6th form students intending to pursue tertiary education.

It is noted at page 81 of the Estimates of Development Programme Expenditure that: “The Scholarships Division of the Ministry of Education will receive an allocation of $155.1 million in fiscal 2017 [2016 – $171,750,000m]. The funds will be provided for the payment of tuition and compulsory fees, personal maintenance allowance, books, special equipment, salary, allowances and payment of tuition fees to scholarship recipients.”

The Estimates state that: “Scholarships will be awarded in the following fields: Medical Science, Natural Science, Social Science, Physical Science, Education, Mathematics, Law, Engineering, Finance, Information Technology, Arts and Humanities, Philosophy, Drawing and Painting, Accounting, Economics, International Relations, Youth Studies and Community Work, Environmental and Occupational Health, Cinematic Arts, and Physical Education.”

With students already having reported serious problems in receiving disbursements, and some having reported facing cold weather without food because of late payments of scholarship funds, one questions whether students abroad and at home will have even more serious challenges with a cut in the scholarship allocation.

In poverty alleviation, the Government’s Social Sector Programme claims to be focused on “the eradication of poverty and economic and social marginalization.” In pursuit of this goal, the Government allocated a total of $45.4 million.

An allocation of $15 million was committed to the National Commission for Self Help (NCSHL) to continue implementation of community projects and provision of various grants to provide financial assistance through three major grant facilities:

· Minor Repairs and Reconstruction Grant (MRRG)
· Low Cost Housing Grant (LCHG)
· Emergency Repair/Reconstruction Assistance Grant (ERRAG)

A commitment has also been made in the way of: “Additionally, funding will be provided for infrastructure projects such as construction of retaining walls, drains, roads, recreational facilities, bridges, steps and repairs to school, caregiving institutions and places of worship.”

By the time the 2018 budget is delivered, we all wait to see whether this critical area of Government service was able perform any better, given the severe hardships being faced by the poor in a time of economic collapse.

The TTWhistleblower will continue monitoring promises, performance, delivery and expenditure to keep the public informed, and to ensure the Government stays true to its commitments to the people of Trinidad and Tobago.

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