Failing on all fronts
The TTWhistleblower has noted with alarm recent news of a plunge in Government revenues for the first quarter of the 2017 fiscal year by nearly 29 per cent to $7.98 billion. This has caused severe anxiety for the private sector as well as business analysts.
The revelation came with the March 2017 issue of the Central Bank of Trinidad and Tobago’s Economic Bulletin. At the Bank’s online data centre, checks revealed that revenue for the same period in 2015 stood at over $11.2 billion.
This means that in two years, quarterly revenue for the October to December fiscal period collapsed by more than half, a situation that has worsened fears of already apprehensive private sector stakeholders and foreign investors alike.
Deeper fears have been triggered by the fact that the collapse in revenue was largely because of poor performance in the non-energy sector.
Oil and gas have also taken severe hits from output and price factors, causing budget cuts and a widening deficit.
Without any immediate signs of recovery, the economy’s reliance on the non-energy sector is now at risk, with a huge quarterly decline to $6.3 billion for the period reported by the Central Bank.
The non-energy sector
The Bank’s Economic Bulletin cited declines in Government revenues for the October to December 2016 period in both energy and non-energy sectors. Non-energy revenue fell by 29.1% to $6.3 billion from $8.3 billion “largely on account of a significant falloff in non-tax revenue.”
Understanding the revenue ratio of energy to non-energy that supports the economy, and further, the composition of the non-energy sector reveals good reason for the deepening fears about Trinidad and Tobago’s stability and short and medium term outlook.
The Trinidad and Tobago economy relies heavily on the energy sector for its survival: oil and gas account for about 40% of Gross Domestic Product, estimated at US$22.1 billion in 2016 by investTT. Oil and gas also accounts for approximately 80% of exports, but provides less than 5% of employment in a work force estimated at over 640,000 people.
(GDP is the measure of a nation’s total economic activity and represents the monetary value of all goods and services produced within a certain period.)
The non-energy sector is what makes up the other 60% of Government revenues, in an environment where economic diversification remains a challenge.
While the Central Bank’s Economic Bulletin put the decline in energy revenue by approximately $283.4 million, “primarily on account of lower domestic energy sector output,” a decline to $6.3 billion or over 29% in non-energy revenue is what is sounding alarm bells.
The non-energy sector comprises Services, which includes Financial Services and Real Estate; Tourism; Manufacturing; Transport; Distribution; Creative; Agriculture and Maritime. These sectors have been the stomping ground for economic diversification talk and initiatives, and declines in these sectors in the face of a consistently declining energy sector, in an environment where the Government has not fully articulated an economic recovery and expansion strategy means trouble for the Trinidad and Tobago economy.
However, more than just a global percentage view, citizens are becoming more and more anxious about how the different sectors comprising non-energy have been impacted, and what it means for the fate of their jobs and incomes.
According to the Government’s own Review of the Economy 2016: “Unemployment moved upward to 3.8 percent in the second quarter of fiscal 2016, up from 3.6 percent the previous year. The number of persons unemployed rose from 22,300 in 2015 to 24,100 in 2016.”
The March 2017 Economic Bulletin, however, stated: “The unemployment rate increased to 4.4% in the second quarter of 2016 from 3.2 per cent in the corresponding quarter of 2015.”
Non-energy sub-sector performance
According to the Central Bank’s March 2017 Economic Bulletin, economic activity in some non-energy sub-sectors, such as Distribution, Construction and Manufacturing, contracted in the third quarter of 2016.
Construction showed a significant decline when compared with the same period one year ago and the Economic Bulletin attributed this to a fall-off in Government spending under the Public Sector Investment Programme.
Economic activity in the Distribution sector contracted by 8.2% (year-on-year) caused largely by a fall in the retail sales of motor vehicles (27.3%) and the retail sales of construction materials and hardware (30.4%).
Manufacturing declined by 4.3%, and production in the chemicals and non-metallic minerals sub-sector declined by 12.9%.
The Finance, Insurance and Real Estate sub-sector rose only marginally by 0.8 per cent because of an increase in commercial banking activity (deposits, loans and investment).
Economic activity in the Agriculture sector increased negligibly by 0.4 %.
The Bank’s Economic Bulletin put the deficit at $2.5 billion or about 6.4 per cent of T&T’s gross domestic product (GDP), compared to a deficit in the first quarter of the 2016 fiscal year of $775.1 million (annualized 2.1 per cent of GDP).
The twin-island’s GDP in dollar terms, which stood at approximately US$22.1 billion or about TT$148 billion in 2016, has also taken significant hits. In 2014 and 2015, there was 0.6 percent decline, followed by a jump of 6.7% for the first half of 2016, and a debilitating 8% decline in the second quarter of 2016, recorded as the worst in this country’s history.
As these fears culminate, analysts have also kept a sharp eye on the debt to GDP ratio, which is the ratio between a country’s Government debt and its gross domestic product (GDP) (measured in years). A low debt-to-GDP ratio indicates an economy that produces and sells goods and services sufficient to pay back debts without incurring further debt.
The 2016 Review of the Economy stated: “Net Public Sector Debt Stock is anticipated to increase by 16.2 percent from $76,541.3 million in fiscal 2015 to $88,964.2 million by the end of the current fiscal year, based primarily on a US$1 billion bond raised in July 2016.”
“Based on revised Nominal GDP as provided by the CSO, Net Public Sector Debt as a percentage of GDP is estimated to rise from 50.9 percent in fiscal 2015 to 61.0 percent by the end of fiscal 2016.”
“The CSO’s 2014 and 2015 Nominal GDP has been revised from $174,756.9 million to $167,764.3 million in 2014 and from $165,286.1 million to $150,246.6 million in 2015. The 2016 Nominal GDP is now estimated by the CSO to be $145,910.7 million.”
In December of 2016, the Government floated another TT$500 million, six-year bond.
This means that as activity in the major non-energy sub-sectors declines, or remains stagnant, the Government is borrowing is pushing the public debt higher, weakening the nation’s credit rating position by global agency standards.
Reserves and Savings
The public debt is also affected by a TT dollar that appears to be continuously weakening in value against major world currencies.
In addition to the loss of value against the US$ pushing the exchange to over TT$6.70 to US$1, the Review of the Economy 2016 stated: “The TT dollar depreciated by 6.8 percent against the Canadian dollar, and 5.8 percent against the Euro. The TT dollar, however, appreciated by 8.4 percent against the Pound Sterling over the eleven-month period ending August 2016, in the aftermath of the ‘Brexit’ referendum in June 2016.”
One of the buffers used to safeguard the Trinidad and Tobago economy from global shocks, the Heritage and Stabilisation Fund (HSF) which stood at almost US$5.8 billion in 2015, also took a hit when in May 2016 the Government, withdrew US$377.5 million (TT$2,498.4 million).
Foreign Exchange Reserves (FOREX) has also taken a beaten with declines being recorded almost immediately as the PNM Government took office. During the Mid-Year Review of the 2016 Budget, Dr Keith Rowley told the Parliament that ‘since taking office, the foreign exchange reserves did not move an inch’, spurred on by his Finance Minister, Colm Imbert.
However, the truth was that the FOREX account declined by approximately US$1 billion mere months after the PNM took office. This is cause for worry when it is noted that FOREX reserves increased by as much as 22% during the term of the previous People’s Partnership Government.
According to the Central Bank Economic Bulletin for March 2017, gross official reserves showed a confirmed total decline for 2016 to US$9.4 billion, or 10.5 months of prospective imports cover.
On a quarterly basis, gross foreign reserves reached a frightening low of US$9.3 billion in January 2017, or 10.3 months of import cover. This represents a drastic change in position from September 2015 when gross foreign reserves stood at US$10.5 billion, or 11.9 months of import cover.
What is the PNM spending on?
All of these facts taken together begin boiling over when it is noted in the Central Bank Economic Bulletin for March 2017 that expenditure on the capital programme waned by 44 per cent to $325.8 million.
Trinidad and Tobago’s global competitiveness rating slipped five notches from 89 to 94 out of a total of 138 countries this year according to the 2016/2017 Global Competitiveness Report citing poor work ethic as the number one factor impeding business in Trinidad and Tobago.
Discretionary spending has been cut by approximately $1 billion which ultimately will impact on small and medium sized businesses providing those goods and services.
Transfers and subsidies fell by 16.1 per cent to approximately $6.2 billion largely because of lower subventions to statutory boards and similar bodies, leaving these authorities less funding to provide necessary services to people and communities.
And while unemployment has increased to a current 4.4%, from a historic low of 3.2%, the PNM Government’s expenditure on wages and salaries grew to $2.3 billion in the first three months of the 2017 fiscal year.
The situation as it stands now therefore is the public debt to GDP ratio has jumped to over 60%; more people are unemployed; the energy sector is declining in output and investment; the non-energy sector is contracting; the diversification conversation is silent; Government revenue is collapsing, and capital expenditure has been cut by almost half (44%)!