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Dear Editor: Budget observations; we may be on track, but we’re not there yet

“[…] While they are yet to put it squarely to the population, for those who have eyes to see and ears to hear, it is clear that, quietly but consistently, the finance minister has been weaning the population off the comfortable, subsidised standard of living we have steadily come to enjoy …”

The following guest column on the 2021 national budget was submitted to Wired868 by Warren Thompson. The final part will appear on Wednesday 28 October. Part one appears below:

Image:Prime Minister Dr Keith Rowley with Minister of Finance Colm Imbert. (via Trinidad Express)

Consistent and methodical, the great West Indies cricket opening pair of Gordon Greenidge and Desmond Haynes applied themselves to putting Clive Lloyd’s great WI team of the 70s and 80s in position to score impressive and often unlikely victories. To the partnership of that pair of heroes, I liken the one between Prime Minister Dr Keith Rowley and Finance Minister Colm Imbert.

If the post-Budget 2021 comments from some experts and John Public alike are any evidence, the Rowley/Imbert partnership is currently winning many friends. We already have the consistency, it is now up to Dr Rowley to put together the equivalent of a four-pronged pace attack from among his cabinet and/or the private sector. Should he manage that, this administration might just eventually return T&T to an economic era reminiscent of the West Indian pre-eminence of the last quarter of the 20th century.

We may be on track, but we’re not there yet.

In response to the minister of finance’s mid-year budget review in May 2018, I wrote:

“It must be already clear to the minister that the state can no longer postpone a decision about its role and function in the economy and they must put this squarely to the population.”

Photo: Minister of Finance Colm Imbert.
(Copyright Office of the Parliament 2020)

While they are yet to put it squarely to the population, for those who have eyes to see and ears to hear, it is clear that, quietly but consistently, the finance minister has been weaning the population off the comfortable, subsidised standard of living we have steadily come to enjoy.

The upshot of at least four full decades of state intervention and direct participation in the economy is that the line between state largesse and entitlement has become blurred, indeed, it has arguably disappeared entirely.

Since Independence, we have long enjoyed a level of development and a standard of living we now take for granted. This could not have been achieved without direct state intervention and participation in the development process via subsidies. To the subsidies in education, housing, utilities and transport, we must add the negative listing of, and quotas for, certain imports, the creation of state-owned enterprises and, latterly, special purpose companies,

But times have changed! Nowadays, as I wrote some two and half years ago: ‘[…] decisions by individuals and businesses on how to allocate their resources will be determined more and more by the economic costs and benefits associated with them.’

Budget 2021 is perhaps the clearest indication yet of the government’s intention to alter the status quo. Has the prime minister not alerted us on numerous occasions to the excessive motor vehicle population and the growing productivity-sapping congestion of the road network?

Photo: Traffic on the highway.

Did the finance minister not warn in an earlier budget presentation (2018, I believe) that he was contemplating the deregulation of the liquid petroleum products sector? And has he not now indicated in simple, clear, unambiguous language that tariff reviews are coming for WASA and T&TEC?

The weaning, it is clear, will continue. In my considered opinion, it should.

For fiscal year 2020/21, total expenditure is projected at TT$49.5bn, down from the TT$50.8bn outturn for 2019/20. Along with the estimates for 2021, the chart below shows the trend in actual expenditure and revenue for the last six years.

There is a clear downward trend in both variables. The problem is that revenues have declined at a faster rate than expenditure, thus leaving an ever-growing hole to fill.

Image: Graph of government expenditure v revenue. (Source: Review of the Economy 2020)

To fill that hole, the minister has been selling assets, drawing down on the HSF and borrowing from both the local and foreign capital markets. As a result of this last factor, the debt-to-GDP ratio has now climbed to about 80%. Mercifully, the exchange rate is still TT$6.78 to US$1.00.

As at September 2020, foreign reserves stand at US$7.3bn or 7.5 months’ import cover. As at March 2020, inflation is negligible at 0.4% year-on-year. Unemployment stands at 3.9% as at the end of 2018. (It is completely indefensible, completely unacceptable, that the latest available data for this important indicator should date from 2018!)

The liquidity situation demands comment. For the period January to December 2019, commercial banks’ excess reserves averaged TT$3.993bn. By comparison, for the period January to August 2020, the daily average was $7.3bn.

As part of the Covid-19 stimulus package, in March this year, the Central Bank reduced the reserve requirement of commercial banks from 17% to 14% to make more funds available to the business community. The repo rate was also lowered by 150 basis points to 3.50 in order to allow for lower commercial interest rates. Yet, at the end of September 2020, excess reserves exceeded TT$13bn.

There has been an upward thrust in average excess reserves from March 2020.

Image: Graph showing excess liquidity of commercial banks. (Source: Central Bank of Trinidad and Tobago)

The Central Bank Economic Bulletin of July 2020 reported that:

“The main thrust of this set of actions was to amplify systemic liquidity with the aim of facilitating lower commercial interest rates.”

Interest rates did, in fact, go down, as did the interest rate spread. Other short-term interest rates also declined. But the report also mentions that, compared with the same period in 2019, growth in private sector credit has been sluggish over the period up to June 2020. It was driven mainly by debt consolidation and refinancing.

In other words, even though we have some runs to play with, nutten ain’t happenin!

The time is right, it seems, for the skipper to do something different with the bowling.

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