T&T’s public sector debt is now the equivalent of every man, woman and child in this country owing over $95,000 each.
But T&T’s government will continue borrowing as it deems necessary, mindful of not falling into the debt trap, Finance Minister Colm Imbert has said.
According to the Central Bank of T&T, this country’s gross public sector debt outstanding was $133.8 billion for the first quarter of the 2021 fiscal year.
Ten years ago, at the end of March 2011, this country’s public sector debt was $71.5 billion.
So over the past decade, this country’s public sector debt has increased by 87 per cent.
T&T’s public sector debt now accounts for 90.6 per cent of the country’s gross domestic product.
At the end of December 2020, T&T’s public sector debt outstanding (excluding debt issued for sterilisation purposes) reached $122.2 billion.This accounted for 82.7 per cent of T&T’s gross domestic product.
That figure at the end of last month was $124.73 billion, Imbert said. At the end of September 2020 it was $121.3 billion or 80.9 per cent of GDP.
On Tuesday Opposition Senator Wade Mark brought a motion to the Parliament calling for the Government to “reconsider its borrowing policy in light of this country’s rising debt-to-GDP ratio and the possible negative impact of same on the country’s socio-economic development.”
In response, Imbert said the government was operating in a fiscally responsible manner to help the country and if that means more borrowing then so be it.
“Every country in the world is resorting to borrowing to keep its economy moving. Any country that did that (follow Mark’s suggestion) in the face of COVID would collapse. We will not fall to that trap,” Imbert said.
“Developing countries are doing it, middle-income countries are doing it, advanced economies are doing it, and they all know that this is what we have to do,” he said.
Imbert likened the current approach adopted by the Government to the New Deal strategy enacted by President Franklin D Roosevelt in the United States during the Great Depression in the 1930s.
“He (Roosevelt) created jobs, he spent money, the only way you can drive an economy in terms of an economic shock is to keep it moving. If I were to follow the advice of Senator Mark and stop borrowing money we would not be able to advance this economy, we would not be able to help businesses, we would not be able to do construction projects, we would not be able to help manufacturers, we are not going to fall into that trap,” he said.
“But we will also not fall into a debt trap, we are very, very careful in the Ministry of Finance in terms of what we do. Very careful, we take advice, we have expert advisers from all over the world and in T&T and the only way this country will survive is if the Ministry of Finance provides the necessary cash flow to keep people alive during this pandemic, to keep businesses alive and the only source of cash flow at this point in time outside of tax revenue is the Heritage (and Stabilisation fund) and loan financing,” he said.
“So I reject absolutely this motion from Senator Mark,” he said.
Imbert said the current balance of the HSF is US $5.7 billion
“With all that we went through last year we had to withdraw US$900 million just to keep the country afloat with all that we went through last year, as of today the balance in the Heritage and Stabilisation Fund is US$5.7 billion it is more than it was when we came into office in 2015 so all of this scaremongering about the Heritage and Stabilisation is nothing but that scaremongering,” he said.
Imbert said the T&T Government will be prioritising concessional financing from multilateral institutions such as the Development Bank of Latin America and the Inter-American Development Bank because the funding that comes from them usually has flexible payback terms.
“One has to be always mindful that you don’t allow your external debt to GDP ratio to get out of whack so you have to keep your eyes on that. But once there are opportunities to borrow from multilateral institutions with long tenures, grace period, moratoriums, low-interest rates it is something we in the Ministry of Finance will keep under constant review,” he said.
The Central Bank said T&T’s public sector debt increased over the first three months of this fiscal year mainly on account of Central Government’s domestic borrowing.
“Central Government domestic debt outstanding (excluding sterilised debt) amounted to $57.9 billion (39.2 per cent of GDP) at end-December 2020, up from the $56.5 billion recorded at the end of September 2020.
“In contrast, Central Government external debt outstanding decreased marginally to $31.5 billion (US $4,691.7 million) in December 2020, from $31.6 billion at the end of September 2020. Contingent liabilities amounted to $32.8 billion (22.2 per cent of GDP) in December 2020, reflecting a decline from the September 2020 position,” it stated.
The Central Bank said for the three months ended December 2020, the Water and Sewerage Authority of T&T (WASA) and the Urban Development Corporation of T&T (UDeCOTT) contracted new loans for $200 million and $102.9 million, respectively, while loans for refinancing amounted to $420 million and $213 million, respectively.
“The short-term outlook for T&T will be dictated by the evolution of the coronavirus. The public sector will continue to face the balancing act of maintaining much-needed support to the vulnerable, shoring up the health services and keeping up priority investments, while assuring that debt remains sustainable,” the Central Bank stated.
“This will require careful expenditure and financing choices aimed not only at macroeconomic stability, but also at facilitating business activity and strengthening the flexibility of the economy in the medium to long run,” it stated.
Last month Finance Minister Colm Imbert painted a gloomy economic picture of this country as he gave the update on the actual fiscal outturn for T&T for the first quarter of 2021.
Imbert said like all oil and gas-based economies T&T was hit hard by the COVID-19 pandemic.
Economist Dr Vaalmikki Arjoon said in the pre-COVID period, debt increased by $35.5 billion from Dec 2015 to March 2020.
“While the vast majority of other countries have also borrowed to cushion the COVID fallout, it is reckless to not be concerned about our worsening debt because we, like the rest of the world, have to repay our debt,” he said.
“This debt is rising at a fast pace amid declining revenues and GDP because we haven’t used our debt to meaningfully build productive capacity and generate revenues to repay the debt. While we could refinance a portion given that interest rates globally are low, this is a temporary fix and is only deferring more to be repaid by the future generation, who is at serious risk of falling off a debt precipice as they may have no incoming revenues to repay it,” Arjoon said.
A 2013 study by the World Bank found that if the debt-to-GDP ratio exceeds 77 per cent for an extended period, it slows economic growth.
Every percentage point of debt above this level costs the country 0.017 percentage points in economic growth.
T&T’s gross public service debt to GDP ratio has consistently been over 75 per cent since 2016.
The World Band said emerging markets are even more sensitive to debt-to-GDP ratios and that in such markets, each additional percentage point of debt above 64 per cent will slow growth by 0.02 percentage points each year.
Economist Marla Dukharan in her research paper titled T&T Balance of Payments Risk stated that in T&T not only do we run consistent fiscal deficits we also carry primary fiscal deficits.
“Meaning we are already in deficit even before we pay the interest on our existing debt. This means that essentially, we are borrowing to pay interest on existing debt,” Dukharan stated.
“On average, between FY 2008/2009 and Fy 2018/2019, we were $1.24 billion per year in the red before paying the interest on our debt, which is not sustainable,” she stated.
Dukharan said T&T’s year on year gross public sector debt rose by 4.4 per cent before COVID-19 and grew 82 per cent since March 2011.
“This means we are taking on, on average, an additional $1.6 billion in debt every three months,” she said.
Research from the Inter-American Development Bank suggests the sustainability threshold of debt in the Caribbean is around 56 per cent of GDP and that after this point, every dollar of additional debt causes the economy to contract.
“This threshold calculated in TTD would be just over $90 billion so we are about $40 billion beyond that,” Dukharan stated.