Noble: Heritage Stabilisation Fund Vibes—context needed urgently

Grave fiscal irresponsibility!” was former Central Bank governor Jwala Rambarran’s characterization of the announcement of a US$900 million loss by the Heritage Stabilisation Fund (HSF).

Invoking a dog whistle, he continued by saying that this spoke to the “incompetence of the Board”.

Roodal Moonilal reminded us of Mrs Kamla Persad-Bissesar’s indictment: “Rowley and the PNM had gotten their claws on the HSF and were determined to raid the fund as daylight bandits.”

Oropouche East MP Dr Roodal Moonilal.

He went further: “(Covid-19) gave them an excuse to raid the HSF. The citizens cannot find anything to show where this over $6 billion went. Many are without social support, and countless businesses closed as a result of absolutely no help from the government during the Covid-19 period.”

The trigger? The Express had reported the delayed Ministry of Finance’s posting of the Fund’s performance. The Express carefully stated that Minister of Finance Colm Imbert laid the HSF annual report in Parliament on 3 February. The outrage was, therefore, also much delayed. The timing of the incident demonstrates how lax we are with matters of national concern.

It is appropriate to examine the HSF and its performance. Correctly understanding the HSF and its governing mechanisms will help us act in ways that benefit us and our children and preserve our long-term future. Without this appreciation, we will be reluctant to postpone our spending so that our children’s future will be secured.

The media is a significant buffer against careless or corrupt spending of HSF funds. Its reporting drives politicians not to waste the funds but to preserve them for future generations.

Prime Minister Dr Keith Rowley (left) and Minister of Finance Colm Imbert.
(via Trinidad Express)

It removes the impulse to spend money on frivolous investments or for the benefit of a few. It contributes legitimacy and credibility to the Fund.

The Express faithfully reported the Board Chairman’s remarks in the last Annual Report. The rapid posting of the updated performance by the Ministry of Finance demonstrates the importance of such reporting.

The burden is on the Ministry to keep its reporting current and be transparent about the management of the Fund. In 2007, Mr Ewart Williams said: “The Norwegian Petroleum Fund is recognized as the benchmark for transparency and disclosure of information.

“The Norwegian Ministry of Finance reports to Parliament on all important matters relating to the Fund, such as the size of petroleum revenues, the outlook for fiscal sustainability, any planned changes in investment strategy and the Fund’s performance, risks and costs.

Image: A satirical take on falling oil prices.

“The HSF Board and the Ministry of Finance will need to work out the scope of our information and disclosure policy.”

We are still waiting.

The HSF Fund is a mechanism for nations like ours to ensure steady cash flow and provide for long-term investments. We have no control over oil and gas prices and are perpetually on a revenue roller coaster.

We can spend it all when we receive a windfall from unexpectedly high prices. If we do, we will fall victim to what economists call the “Dutch disease”.

We can consider the Norway 1970 – 80 experience, where money was spent propping up dying business sectors, raising wages to uncompetitive levels and lining the pockets of friends, families and bureaucrats. When the oil prices plunged, chaos ensued since the Government no longer had money to support all its plans.

Late public servant Gene Miles takes the stand in a 1967 commission of enquiry into the corrupt granting of gas station licenses.

Does any of this sound familiar?

It is critical in our economy, heavily influenced by energy prices, to set the context for the HSF in a broader policy framework. Oil and gas taxation, tariffs, foreign investment, knowledge transfer, and development policies affect how the HSF should be managed.

While we witness skirmishes in Parliament about the gas price to be used in setting the budget, we appear not to connect that decision to our HSF funding in an explicit manner. But these dots are connected.

Mr Ewart Williams, in his 2020 Annual Report, made this connection and urged that we should do so:

Independence Day 2022 celebrations in Tobago.
(Copyright THA Info Dept)

“Even before the Covid-19 pandemic, Trinidad and Tobago’s public finances were being challenged by the new lower level of oil prices and the reduction in energy revenues. With the public debt burden rising to over 80 per cent of GDP in 2020 as a result of the pandemic, the Government has expressed a commitment to reduce the debt-to-GDP ratio to a more sustainable level of 65 per cent by fiscal 2024.

“This will clearly need a comprehensive fiscal adjustment programme. However, to spread the adjustment over time, consideration could be given to the new approach being proposed whereby the HSF is no longer considered as a stand-alone institution but as a fiscal policy tool fully integrated into the country’s macroeconomic management. Of course, the details of such a significant change will need to be clearly worked out.”

The current rules which govern the deposits into the Fund are based on the gas price estimates in the budget, and different administrations at different times can manipulate the outcome.

Prime Minister Dr Keith Rowley (right) and Opposition Leader Kamla Persad-Bissessar.
(Copyright Newsday)

What, then, ought we to make of the reported loss? Mr Imbert, like Mr Williams, pointed us to the global picture. Anyone who checked out these claims would acknowledge the reality. And there are others, including Korea—the fourth largest such fund.

We were not unique. To speak of fiscal irresponsibility is to be reckless and inflammatory. The facts do not bear out that charge.

To accuse the present Government of using Covid-19 as a ruse is to ignore the words of Ms Marla Dukharan. In August 2021, she said: “There is probably no country on earth that hasn’t had to find the fiscal space to respond to this crisis, and most have resorted to some combination of borrowing, printing, and drawing down on reserves/assets.”

A police officer receives the Covid-19 vaccine in 2021.
(via TTPS)

She went on to identify our unique handling of the Covid experience and its associated funding among 14 Caribbean countries.

“Trinidad and Tobago is the only country where the Government has outlined spending that exceeds the (pandemic-related, disclosed) amount being received by about US$120 million.

“We congratulate T&T’s Minister of Finance for his level of disclosure thus far, and we look forward to him fully accounting for the remaining US$1.48 billion (US$1.5 billion less US$15.7 million in vaccines) in pandemic-related spending—the highest in the Caribbean.”

She correctly assumed that the shortfall from external funding came from the HSF. She also identified that the Government had initiated a comprehensive stimulus package, which needed funding.

The global marketplace and Covid-19.
(Copyright Hedgeye)

Ms Dukharan correctly raised the issue of the allocations employed by the HSF. However, she did not remark on the comments and reports of the preceding boards. Had she done so, that SAA challenge would have been identified since the 2014 Report.

“Such deviations occurred as a result of changes in assets’ market values. Throughout the financial year, the Fund had an overweight allocation to US Core Domestic Equities and Non-US Core International Equities.”

In 2015, this was the then Board note: “During the financial year ended September 2015, the asset classes of the Fund deviated from their Strategic Asset Allocation (SAA), and at certain times, these deviations were outside the allowable range (+/- 5 per cent) stipulated in the investment policy statement.

“Such deviations occurred as a result of changes in assets’ market values. Throughout the financial year, the Fund had an overweight allocation to US Core Domestic Equities and Non-US Core International Equities.”

Minister of Finance Colm Imbert.
(Copyright Office of the Parliament 2022)

In 2021: “Following continuous reviews, the Board concluded that extreme financial market volatility would likely persist given the high uncertain outlook. Against this backdrop, the Board determined that it would be appropriate to rebalance the HSF to help mitigate potential downside risks to the Fund.

“A US$250 million rebalancing exercise was successfully completed in August, which achieved the main goal of reducing the Fund’s allocation to risky equity investments in favour of safer and more liquidity short-duration market positions in the fixed-income mandates.

“To support the goal of the rebalancing exercise, the mandate weights were allowed to deviate from the approved SAA deviation limit of +/- 5.0 per cent.”

The successive Boards have managed the external challenges manfully and made appropriate adjustments.

That rainy day is here. Are you ready?
(Copyright UK Telegraph)

In closing, it may be helpful to reflect on the words of Mr Williams in 2007 about losses: “We need to manage expectations in line with market realities since there are going to be questions about whether we are taking too little or too much risk or if the Fund is earning enough.

“A successful long-term investment strategy is not incompatible with one or two years of low returns. In such circumstances, open communication could serve to maintain support for the Fund and its objectives.”

Our leaders and would-be leaders are just vibing down the place and expect us to fall in line. How sad! Where do we find salvation?

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One comment

  1. The opposition and their agents know how/what to say to catch the attention of those so inclined to believe their hype. The question is when are we going to approach these issues of national importance in a mature manner that benefits T&T? Rather than seeing such issues as an opportunity to score cheap political points and to sow further anxiety and discord, why not attempt to educate and uplift the people. Especially those among us who in this case do not quite understand how investments/ financial markets sometimes behave (as summed up in the second to last paragraph). As usual thanks for another sobering review of a matter of critical national interest.

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