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Thompson sees seventh heaven despite deficit, imminent Property Tax and RATT

The budget presented by the Honourable Colm Imbert, minister of finance in the current PNM administration, is his seventh such offering. Not for the first time, he has offered the country a deficit budget, to the tune of $TT9.096 billion, resulting from expenditure in the sum of $TT52.429b and revenue of $TT43.333b.

These numbers were predicated on assumptions of average prices of $US65 per barrel of crude oil and $US3.75 per MMBTU of natural gas.

Photo: A motorist hangs up a gas pump.
(Copyright Africa TVC News)

But the budget is also predicated on another factor, namely, the re-opening of the economy and the relaxing of the restrictions required by the Covid-19 pandemic. If Covid-19 gets out of control and the authorities are forced to lock down once again, one must always bear in mind that these economic measures all come to nought.

Let us begin with a close look at some of the key economic indicators at the end of the fiscal year September 2021, or put another way, in plain English, the situation facing the country.

Our Foreign Reserves stand at $US7,126.1 million, the equivalent of 8.7 months’ import cover. Having been boosted by the IMF’s TT$450.3m SDRs, the equivalent of $US644m, the Balance of Payments thus registered a surplus for the first eight months of 2021.

As at 10 September 2021, the net asset value (NAV) of the Heritage and Stabilisation Fund (HSF) was $US5,590.1m compared to $US5,731.8 as at 30 September 2020. That represents a decline of $US141.7m.

The Ministry of Finance’s forecast is for a contraction of -1.0% in the country’s GDP. This follows a contraction of -7.4 in 2020, doubtless as a result of the Covid-19 restrictions. Before that, the rate of contraction had decelerated from -6.0 in 2016 to -0.2 before the pandemic.

Photo: Minister of Finance Colm Imbert.
(Copyright Office of the Parliament 2021)

Total General Government Debt stands at $TT137.192b, up from $TT130.469b. Domestic debt represents 75% of the total while the external debt level stands at 25%.  Total debt is estimated to reach 84.8% of GDP by the end of fiscal 2021, up from 79.6% at the end of fiscal 2020. I wish to point out here, that with such a ratio of domestic to external debt we are literally borrowing from ourselves. If it were the other way around then we would be in some serious trouble!

With respect to budget deficits, budget outturns had begun to decline in 2014, only to be interrupted in 2016 and 2017. In 2018 and 2019, they declined again with the still provisional figure for 2020 being $TT13.741b. Imbert’s projected deficit in 2021/2022 is only $TT9.096b, almost 25% down from the 2020 figure.

Table:1             Central Gov’t Budget Outturn
Fiscal Yr End  Rev($TTMn)  Exp ($TTMn) Deficit
2011            7,500.6        48,602.5     (1,101.9)
2012         49,277.9         51,474.7     (2,196.8)
2013         52,760.1         57,668.6     (4,908.5)
2014         58,378.4         62,820.5     (4,442.1)
2015         57,233.8         59,943.6     (2,709.8)
2016         44,972.6         52,944.7     (7,972.1)
2017         36,180.6         49,712.1   (13,531.5)
2018         43,169.7         48,866.5     (5,696.8)
2019         46,748.6         50,777.5     (4,028.9)
2020         34,059.7         50,831.7   (16,772.0)
2021*p         37,052.6         50,794.2   (13,741.6)
2022e         43,333.0         52,429.0     (9,096.0)
Source: Central Bank of TT
* review of the economy 2021
p provisional
e Estimate: Min of Finance
Photo: The Dr Eric Williams Financial Complex  brightens up the Port-of-Spain horizon.
(Copyright Investt.co.tt)

The commercial banks’ average excess liquidity at the Central Bank totalled $TT7,973.2b for September 2021, well down from the September 2020 figure of $TT13,363.7b.

Where foreign exchange is concerned, conditions on the local market continued to be tight, with net sales of foreign exchange amounting to $US1,164.3m for the 11 months running from October 2020 to August 2021. This was 6.4% lower than the figure for the previous 11-month period.

Since 2017, the TT/US exchange rate has stood steady at $TT6.78. The exchange rate arrangements see the authorities managing the supply of $US to maintain a parity at the desired level. Since this “managed float” was introduced in 1993, the authorities have allowed the rate to slide from $TT5.725 to its current level.

Headline Inflation has crept up to 2.2% as at July 2021. Due to increases in both the Core and Food Inflation categories. These increases have largely been occasioned by issues in global supply chains resulting from the Covid-19 pandemic.

Third quarter fiscal 2020 (April-June)[1] data show that the unemployment rate was 5.1%, up from 4.2% in the previous quarter. The labour force participation rate continues to decline, standing at 56.5% for 2020 as compared to 60.6% in 2015.

Photo: A San Fernando barber wears his mask during the Covid-19 lockdown.
(Copyright Ghansham Mohammed/GhanShyam Photography/Wired868)

Over his seven budget presentations, Imbert has been brave and courageous. And fortune favours the brave! Whether he has achieved all that he set out to is another matter but there is no denying that he has stuck to his guns, keeping the exchange rate, for example, at $6.78.

He is moving steadily, steadfastly, resolutely I daresay, towards implementing the Property Tax and establishing the Revenue Authority of Trinidad and Tobago, ignoring the obstacles and challenges being mounted in his path.

There are many who seem to be vex like hell that, as part of its global pandemic mitigation effort, the IMF has allocated T&T 450.3 million SDRs—thus giving the government extra room to manoeuvre around the pandemic pitfalls.

Against the backdrop of steady and improving economic fundamentals, the country now seems able to afford the many tax incentives to encourage SMEs, provide the impetus for agriculture, non-oil exports, digitisation and so on. At the same time, it can provide support to the vulnerable as adjustments to utility rates and liberalisation of fuel prices loom large on the horizon.

Photo: Tilling the soil, planting the land…
(Copyright Office of the President)

The presentation contains no surprises. It is a continuation of policy objectives espoused over several recent budgets. Thus the people have been and continue to be given ample notice and time to adjust. But, we must all rest assured, the long-term structural adjustments i.e. removal of subsidies, growth and development of non-oil exports; reduction of food imports/increase in domestic consumption, liberalisation of fuel prices at the retail level, the Revenue Authority, and Property Tax, are coming.

Sooner rather than later!

It was heartening to see the Minister take the time to explain the IMF, presumably in an attempt to ensure that all and sundry understand Trinidad and Tobago’s relationship with that global institution.

Here is what he said;

“We have no real or potential balance of payments difficulties nor does the Government have any difficulty accessing financing, locally or internationally, nor have we run out of foreign exchange. Nor is our currency under threat”. (My emphasis)

Photo: Minister of Finance Colm Imbert (right) talks to Minister of Planning and Development Camille Robinson-Regis in Parliament on 5 October 2021.
(Copyright Office of the Parliament)

Further, the Minister seems to have a firm grasp of liquidity issues and the state’s obligation to intervene. Hence, there is the initiative to merge the Trinidad and Tobago Mortgage Finance Company Limited and the Home Mortgage Bank. Government’s Net Fiscal Operations (the main driver of excess liquidity) resulted in fiscal withdrawals which lowered excess liquidity significantly to its September 2021 level of just under $TT8bn.

The package of incentives contained no encouragement to investors, businesses and consumers for converting to renewable sources of energy like solar and wind. The greater the use of renewables for domestic energy consumption, the greater the opportunity to monetise hydro-carbon resources and thus earn the much-sought-after hard currency.

Perhaps the best way for me to end is with a paraphrase—without comment—of a short story from a Khalil Gibran book of prose called ‘The Madman’:

Once, a wicked wizard threw a poisoned potion into the well which stood in the centre of the city. And all the denizens of the city drank of the well and promptly went mad. All, except the King and his Lord Chamberlain.

The next day, they all said, “The King and his Lord Chamberlain have surely gone mad!”

Eventually, the King and his Lord Chamberlain did drink of the well and they also went mad…

…and all was well in the Kingdom again.

About Warren Thompson

Warren Thompson is a Tobagonian by birth, a life-long student of cricket by preference and an economist by profession. His formal training came at QRC, The UWI and the University of Wales but the assets/skills of which this father of three girls is proudest come from the School of Hard Knocks.

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