After listening to Finance Minister Colm Imbert’s 2023 budget presentation last September, I felt a certain disquiet that I have not been able to deal with satisfactorily. Something did not feel right about what he was telling the country but precisely what it was kept eluding me.
Contemplating the performance of the West Indies Test team in South Africa on the morning of Tuesday 28 February, I suddenly realised what was wrong. Thanks largely to Alzarri Joseph and his fast-bowling mates, the penny has finally dropped for me.
After completely wasting the new ball in the opening session of the First Test against South Africa, the West Indies bowling attack came back well with the old ball after the tea interval, bowling a much better line and length after the shine had gone.
Then, after the batsmen conceded a sizeable first innings lead, the five-pronged pace attack bowled Kraigg Brathwaite’s side back into contention, leaving the game wide open at the end of Wednesday, Day Two.
That performance reminded me very much of the minister’s handling of the financial situation as he tried to outline the way forward for fiscal 2022/23.
See if you spot the similarities.
A budget is not ‘good’ or ‘bad’. It is not Afro, Indo or otherwise, nor is it red, yellow or green! It is either surplus or deficit and, in rare cases in our country, balanced. It is the socio-economic policy statement for the next fiscal year.
Mr Imbert’s 2023 Budget is yet another deficit budget, albeit featuring a much smaller deficit than in previous years. The drop in size is the result not only of recent shrewd management of the economy but also mainly by factors external to Trinidad and Tobago, namely supply chain problems resulting from the Covid-19 pandemic and fallout from the proxy war between the USA and Russia via the Ukraine.
A minister of finance is also a politician. So, when earlier last year, after six months of the fiscal year 21/22, the Finance Minister found that he could—with unbridled glee—report a cash flow surplus, he unwittingly put himself in trouble.
His opponents sniffed blood!
There were no real surprises in the budget statement, not at least for me. To me, the critical question was this: would he or would he not interfere with the fuel subsidy? He sent the signals—he has been doing so over the last three budget presentations or so—and he had signalled it in his ‘Spotlight on the Economy’ address a couple weeks prior to the Budget Speech.
I can recall no budget presentation that came in for more vicious criticism; even the ’87 to ’91 NAR IMF/World Bank budgets do not come close. Perhaps mindful of their academic training, some analysts and commentators could not bring themselves to criticise the budget. They copped out, saying that “this is not the time”!
When is the time? When will it ever be the time?
Let us look at dollars and make some sense: What do the numbers say? The projected deficit is TT$1.5b, down to the level of the 2011/12 actuals. In fact, barring the pandemic and external shocks, the deficits have been coming down.
With the provisional 2022 estimates figure at TT$54.07b, 2023’s budgeted TT$57.7b (rounded) is a projected increase of approximately TT$3.6b. This is a reversal of the downward trend in expenditure from TT$63b in 2014 to approximately TT$50b in 2017. From 2017 to 2021, as the data in figure 1 show, expenditure hovered around TT$50b or so.
So why the uptick in expenditure? Table 1 shows that there are projected increases in the Development Programme and Transfers and Subsidies heads of expenditure. Compared to TT$3.07b actual in 2021, Development Programme is projected at TT$6.16b for fiscal 2023.
Transfers and Subsidies is projected at TT$33.3b for fiscal 2023 compared to TT$25.4b actual in 2018. The Development Programme estimate is approximately 11% of the budget compared to the average of 7% for the period 2016 to 2022. It is worth noting that, in 2015, the Development Programme share of total actual expenditure was 13%.
|Table 1: Central Government Fiscal Operations|
|Wages & Sal||10,077.1||9,601.9||9,937.8||9,094.4||9,137.2||9,248.0||9,093.5||9,273.0||9,177.3*|
|Source: Review of the Economy 2021,22|
|* Ministry of Finance: Draft Estimates of Revenue for the Financial Year 2023
For 2023, Education, Health, National Security and Social Grants in that order received the lion’s share of allocations.
I was pleasantly surprised, after following the debates closely, to discover how many grants are available to the vulnerable in the society. Almost TT$5.5b is a hefty sum, signalling the government’s clear intention to seek to ease the burden of adjustment for those who can least afford to bear it.
In all earnestness, I have no real issues with the 2023 presentation. My concern from the day the Budget was presented has been the premise upon which it is predicated. The Honourable Minister of Finance quoted his usual sources for price forecasts, which served him well in the past!
He referenced 2023 forecasts by; a) the US Energy Information Association (EIA) of US$90.91 and US$96.91 for WTI and Brent respectively, b) The IMF at US$91.07, c) the World Bank at US$92 and d) Fitch at US$100.
He also referenced the EIA forecast of US$6.00 per MMBtu for natural gas in 2023. As a result, he placed his bets on oil and gas price assumptions of US$92.50 and US$6.00 respectively.
In so doing, he left himself little if any room to manoeuvre. Of course, by using oil and gas price assumptions at the upper end of the forecasting spectrum, he virtually eliminated any chance of triggering the mechanism that transfers revenues earned as a result of oil and gas prices, in excess of the budgeted prices, to the Heritage and Stabilisation Fund.
That did, however, provide him with the wherewithal to present a larger budget while at the same time reducing the projected deficit. This bothered me no end!
Even before we had the price data that are now available, I thought the Minister was taking a gamble. If push comes to shove, of course, he can hedge his bets on the HSF and take back what he put in last year, taking us back to square one!
Contrary, perhaps, to a widely held view, (often spouted when the unions and opposition forces do not get their way), I don’t think the good Minister of Finance is crazy. Or wicked. Or against poor people.
As fiscal 2022 made the transition into fiscal ’23, Trinidad and Tobago was faced with the reality of; a) having to jump-start the economy whose GDP had contracted after two years of pandemic lockdowns, and b) unions whose patience had run out and who were eager to have outstanding wage negotiations settled to their satisfaction.
The burning question was, what to do with the little extra cacada accrued from the oil price windfall in 2022? The answer was to be seen, of course, in the larger budget presented for 2023 with strategic increases, which I have alluded to above.
Mr Imbert was quite correct to point out that a windfall is a lump sum and not a sustainable stream of income. It took cojones grandes to tell the unions, and the rest of the country for that matter “No!”
Natural Gas prices have been averaging US$4.98 from October 2022 to month-end February 2023 and oil prices have only exceeded US$90 on two occasions in the same period. In fact, the charts show WTI consistently below US$82 since December and Brent consistently below $88 for the same period. Both have hit lows in the mid US$70s.
My rough calculations are that, from October 2022 to 21 February 2023, buoyed by higher prices in October and November, the daily average for WTI was $US81.03 and for Brent $US86.52. However, since December, the picture is a little different. WTI’s daily average is $US77.27 and Brent’s $US82.04
Mr Imbert’s calculations for the second half of the fiscal year must hinge on his reading of the international geopolitics around the Ukrainian war. How will it affect oil and gas prices? And perhaps, whether international petrochemical product prices will offer any budgetary support to the direct returns from oil and gas.
The current trend is not encouraging.
Therefore, by the mid-year review of 2023, what will the situation be? The deficit will be larger than projected at that point. What adjustments can be expected when that time comes?
Here are two options that he may use singly or in combination:
- Adjust expenditure downward in line with the new revenue reality and maintain the $1.5b deficit
- Maintain the level of projected expenditure and draw down on the HSF to compensate for the revenue shortfall.
Whichever he chooses, he must give careful consideration to the following:
- Reallocating funds among the ministries with a view to enhancing export earnings in the non-energy sectors in the immediate short term
- Fast-tracking the domestic use, growth and development of renewable sources of energy so that we maximise the monetisation of whatever little hydrocarbons we still produce.
- Paying real attention to food production, which means, inter alia, dealing severely with praedial larceny offenders and
- Fixing the roads—this also improves productivity.
I await the outcome, like thousands of West Indies supporters.