TT economy hangs in the balance… as 2017 budget mid-year review looms

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The Keith Rowley Administration will go to Parliament this Wednesday (10 May 2017) with the Mid-Year Review of the 2017 budget, amidst growing anxiety over worsening economic conditions and widespread resistance to the Property Tax.

And while Government might have expected relief at the announcement of a $10 billion cut in expenditure, analysts are asking whether the decreased spending has actually exacerbated decline conditions by cutting productive spending in key sectors and public services.

Talk from Government on the state of the national economy now seems to routinely attract expert divergence, with many questioning the truth, validity and pellucidity of data, figures and the true nature of the energy and non-energy sectors.

Cut-backs fueling decline?

At the post-Cabinet press-briefing last Thursday, Finance Minister Colm Imbert spoke of the Auditor General’s Report of for financial year 2016.

The report was laid in the Parliament on Friday entitled “Public Accounts of the Republic of Trinidad and Tobago for the Financial Year 2016” stated total approved expenditure for the year was $66.967 billion.

The actual expenditure for the period was $56.57 billion – a difference of $10.39 billion less than the approved amount. The saving was attributed to ‘belt-tightening’.

Revenue, however, according to Treasury documents, reflected $60.31 billion for 2016 – which points, all things being equal, to a surplus of $3.74 billion.

With ‘savings’ of $10.3 billion, which has effectively delivered a budget surplus for fiscal 2016 of almost $4 billion, why then has the economic slide accelerated. Perhaps the answers lie in the specific cuts, and the impact on productivity and gross domestic output.

The answers also lie in Imbert’s revelations about the Government’s capital expenditure programme.

A quick glance of the Imbert side of the story gives some insight. Of $60.31 billion:

·         Tax revenue accounted for 48% or $28.99 billion;

·         Non-tax revenue amount to 19% or $11.40 billion;

·         Capital revenue amount to 6.32% OR $3.81 billion,

·         Borrowing represented $13.60 billion

·         Extraordinary receipts accounted for 26.7% or $16.1 billion (including withdrawals from the Heritage and Stabilisation Fund).

The Government also accessed $16.18 billion from the sale of assets, dividends and from the HSF.

A surplus of $3.74 billion may be some reason to celebrate, but not if cuts in spending have effectively impaired the productive capacity of the economy, and negatively impacted GDP.

Imbert said that of the 78 heads of expenditure, none spent more than their approved estimates and hastened to add that the Finance Ministry ‘led from the front’ by recording the greatest variance between total approved spending and actual expenditure.

Aside from the fact that ‘leading from the front’ is hardly a statement a Minister would make when he has suspiciously acted as Prime Minister with Keith Rowley’s many forays abroad for holidays, breaks and stress relief, with a bit of negotiations squeezed in their somewhere.

According to Imbert, the top spending slashers were:

·         Finance’s approved estimates for 2016 was $7.4 billion, but spent $2.3 billion less;

·         The Office of the President spent just under $800,000 less that his approved estimate;

·         The Office of the Prime Minister spent $175 million less than it was approved – out of total approved of $390 million, the actual amount spent was $215 million (perhaps because he’s only holiday more than he’s at the office);

·         National Security was approved $6.52 billion, but spent $5.08 billion a difference of $1.43 billion.

On borrowing, some weeks before, in answer to a question from former Planning and Sustainable Development Minister, MP for Caroni Central, Dr Bhoendradatt Tewarie, Imbert said that: “Since assuming office on September 2015, had borrowed US$1 billion (“in the road show”) and TT$9.16 billion.”

Imbert said it was noteworthy that Government had also repaid $4.2 billion since September 2015.

It was unclear whether this included the bond raised by the Government last December to the tune of $1 billion, or the two draw-downs from the HSF.

At no point on the discussion of spending cuts were issues of Energy Sector expansion, non-energy support, Foreign Direct Investment, Public Infrastructure Projects and a local economic stimulus strategy mentioned.

It leads one to believe that the Rowley PNM has become content with simply managing the decline of Trinidad and Tobago, rather than inspiring re-birth, growth and sustainable expansion.

Rampaging Rowley

Ahead of the 2017 budget mid-year Review, the holiday-making Prime Minister took to a PNM platform, lashing incoherently at all comers for condemning his move to adopt the Property Tax despite widespread opposition.

At a PNM Political Meeting in Diego Martin on 02 May 2017, Rowley told a moderate crowd: “The Government could have opted to forgo the property tax and instead devalue the Trinidad and Tobago currency to TT$10 to US$1, remove subsidies on water and electricity rates and retrench public servants.”

Aside from the serious danger of a Prime Minister suggesting the possibility of a devaluation of the TT dollar by more than 50%, especially in light of a new phenomenon of public company shareholders demanding dividend payments in US dollars over TT dollars, as happened at the recent NGL shareholders meeting, Rowley’s rampage might just have case more doubt on the state of the economy than he intended.

For an economy to arrive at a point of considering such unconscionable measures to save itself from bankruptcy and a permanent impairment of the operations of the economy speaks volumes of the competence of Government and the options available to a once powerful economy.

According to reports following the meeting, Rowley also told party supporters: “He was not saying that devaluation was a “bad or impossible thing”, but just like the International Monetary Fund (IMF) was a lender of last resort, devaluation was a last option “when all else fails”.

Post-meeting reports also stated: “Rowley said between 2014 and 2016 Government subsidised water to the tune of $6 billion (“as bad as the service is”); petroleum subsidy in the same period was $13 billion; The UWI-$2 billion, UTT-$1.2 billion between 2014 and 2016; GATE-$1.98 billion; the public service wage bill- $20.7 billion; social programmes such as URP and CEPEP in 2014 to 2016 cost the Treasury $12 billion.”

Rowley continued: “Because the same people telling you devalue the dollar will be in front of the line shouting ‘inflation gone up, a tin of milk was $5 and now is $10. Oh God, Rowley bad! The PNM bad’. We ain’t take them on.”

Brace yourselves

With at least one previous budget mid-year review bringing increases in fuel prices, and the Finance Minister saying that since there was no rioting, he would consider raising fuel prices again, citizens, business leaders and political watchers are looking on nervously.

Some experts reported in the local daily print media have suggested that the Mid-Year Review deal specifically with the Trinidad and Tobago Revenue Authority; cuts in the Government’s annual wage bill; reduced spending on transfers and subsidies and a reduction in Value Added Tax (VAT) for the local construction sector.

Former Unit Trust Executive Director, Clarry Benn, said he was particularly interested in Government’s report on the disparity between expenditure and revenue, and the functioning of the economy on lower revenue streams.

Former Trade, Industry, Investment and Communication Minister, Vasant Bharath, was more interested in the Government’s plans to protect jobs, prevent further job losses and generate new employment opportunities.

Bharath also emphasized the importance of withdrawing the Property Tax, because of the burden it will place on an already struggling business sector, and families.

UWI Economist, Valmmikki Arjoon said the Government would do well to re-ignite private sector confidence by not only engaging businesses, but also workin
g with them to create a better sync between policy and the business environment.

Arjoon also looked forward to hearing of Government’s capital expenditure programme.

The Rowley Administration, in almost two years of office has so far only launched the much-maligned Tarouba Stadium, which started in 2006 by a previous PNM Government, and went over-budget from $178 million to over $1.1 billion without being completed.

Dismal prospects

At the Central Bank, its March 2017 Economic Bulletin summarized the economic environment saying: “In Trinidad and Tobago, production indicators of real economic activity monitored by the Central Bank suggest weaker performances in both the energy and non-energy sectors in the latter half of 2016.”

The Economic Bulletin also stated: “Available data suggest that non-energy output may not have been strong in the third quarter of 2016. Construction activity appears to have been subdued as indicated by large declines in local sales of cement and retail sales of hardware and construction materials. The decline in the Index of Retail sales for the third quarter of 2016 also points to marked contractions in distribution activity.”

On the State of Government’s finances, the Central Bank report stated: “Provisional data provided by the Ministry of Finance suggest that the central government recorded a deficit of $2.5 billion for the first quarter of FY2016/17. This was financed through domestic borrowing comprising of Government draw-downs on the overdraft facility with the Central Bank and the issuance of a $1.0 billion domestic bond in December 2016. Notwithstanding new borrowing by the Central Government, the public sector debt outstanding declined to $87.4 billion (56.6 per cent of GDP) at the end of December 2016 from $88.3 billion (60 per cent of GDP) at the end of September 2016 owing to repayments on contingent debt.”

On conditions in foreign exchange availability to the business sector, the Central Bank report stated: “With falling inflows from the energy sector, conditions within the domestic foreign exchange market remained tight during the first six months of 2016. In order to support the market, the Central Bank sold US$706.6 million to authorized dealers in the first six months of 2016. The financial account registered a net inflow of US$573.0 million, which was a reversal of the net outflow of US$429.0 million in the similar period in 2015.”

This means that the Foreign Reserves account is experiencing decline whereas before there was sufficient FOREX replacement, and net surpluses.

Provisional data shows that the economy declined by 2.3% for 2016, with a huge 9.6% contraction in energy and decline of 1.8% in the non-energy sector.

Between 2015 and 2016, unemployment moved from 3.4% to 4.1% in a labour force of 640,900 persons.

So while Finance Minister Imbert prepares what will amount to another tirade on the lack of virtue of the previous Government, citizens await a firm, clear account of how Trinidad and Tobago will navigate out of hardship into prosperity.

Wednesday’s Parliamentary sitting will, no doubt, attract a significant amount of attention, particularly with many anxious citizens and some well-placed political watchers expecting yet another increase in transport fuel.

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