Faced with a 13 per cent shortfall in revenue and rising public debt, former finance minister and Central Bank Governor and Professor of Practice at the University of the West Indies, Winston Dookeran believes now is the time for T&T to engage in discussions with international financial institutions to perhaps pave a better way forward for the country’s economy.
At a recent press conference Finance Minister Colm Imbert noted that the official budget estimate of revenue for the period October 1, 2020 to January 31, 2021, ie the first four months of the fiscal year, was based on all available information at the end of September 2020 and was $13.823 billion.
He said primarily as a result of the adverse effects of the pandemic, the actual revenue collection for the four-month period was $12.020 billion, a negative variance of $1.803 billion or 13 per cent less than the estimates.
Notably, royalties on oil and gas were down by $806 million, or 49.2 per cent, again as a result of depressed oil and gas prices and lower than expected production volumes. Extraordinary receipt from oil and gas companies was also down by $100 million or 98 per cent.
Dookeran said he was not surprised by these figures as the trends in gas output and prices have been evident from all reports.
He said the country is in a “financial crunch and it’s quite grave,” adding that T&T will need to get some support beyond what the minister suggested which is borrowing and using reserves particularly the Heritage and Stabilisation Fund as a stop-gap measure to bring about some financial stability.
“Beyond that there will be the need to open discussions with international financial institutions including the IMF on a larger programme of support, Dookeran said, adding that discussions should also be held with the World Bank, the IDB, the CAF institution,” Prof Dookeran explained.
He advised within those talks there are many different avenues which are open including access to the IMF funds via the quota that is allocated to T&T that could be accessed without any additional conditionalites.
“But on top of those funds that are available to be accessed they should be coupled with funds from the leading financial institutions and more particularly the IDB and CAF to provide a growth oriented strategy for the T&T economy as opposed to a consumption oriented strategy.
“And even that is not a long term solution but at least it provides a platform for such a solution to emerge,” Dookeran said.
He also noted that the most difficult part of Imbert’s presentation was the daunting energy sector in which the finance minister had outlined that much of the revenue expectations are not being realised.
Dookeran said this therefore made the situation somewhat grave.
He also noted that Imbert had alluded to the fact that the Prime Minister had some international dialogue with energy companies and even some of those expectations were not realised.
“It would seem to me that it would be appropriate now to reopen that dialogue given the situation. It is not all gloom because the world energy sector could rebound and therefore will open that dialogue in a very constructive way,” Dookeran said.
He said the only issue which provides a “little light on the
horizon” is the expectation that the oil market will increase in prices.
Noting that the issue remains finding a way for the economy to grow Dookeran said due to the revenue crunch there will now be a special window to accelerate the process of restoring the rest of the economy other than energy with the necessary credit or grant facilities as the case may be to regain some kind of growth potential.
“And what shocked me is that appears to be flat as well,” Dookeran added.
However, Dookeran said he believed the country was not running out of fiscal space in the current fiscal framework but noted that fiscal space remains tight.
“The real challenge is how to harness finance to avert a ‘free fall,’ and generate invest funding,” he advised.
Over optimistic and boastful
When asked whether he was surprised by the 13 per cent shortfall in revenue former finance minister Selby Wilson described Imbert’s 2020/2021 budget as over optimistic and boastful.
“He (Imbert) said only the PNM can turn round the economy and it’s going to be a prosperous year when in fact what he’s now discovering what he should have discovered at the time he was doing the budget.
“Those numbers and that information is available to the ministry of finance all the time and to the ministry of energy so it should be no surprise now and he should not be blaming low production now. He should have known that when he presented his budget in October but it didn’t suit his purpose then,” Wilson said.
On whether T&T was running out of fiscal space, Wilson said the country was “certainly borrowing a hell of a lot,” noting that it was also certainly using its Heritage reserves to basically support recurring expenditure.
“I know part of the Heritage Fund is to take care of shocks in the economy but there comes a point in time when you have to use a little more judgement and wisdom to determine at what rate you are going to draw out of the fund,” Wilson said.
He advised that Government ought to stop playing politics with the economy noting that “when it suits them the economy is hokey-dory.”
“When it doesn’t suit them they look to blame others and paint a picture that things are not good,”Wilson said.
He added that Government has not been very innovative in its management of the economy.
According to Wilson the Government has taken the easy route out of maintaining recurrent expenditure at levels which may not be sustainable.
Noting that the country’s debt to GDP continues to be fairly high, Wilson said Government must be wary of this, reiterating that Government has not done enough to encourage growth in the economy.
Wilson said the Government still has a high level of transfers and subsidies which it maintains.
“The real performance of the economy is still being masked by the debts that are owed but not yet paid, all these do not form part of the fiscal deficit because Government operates on a cash basis.
“They only take into consideration cash outflows and not accrued expenses for which they have an obligation to pay ultimately,” Wilson said, noting that the country’s fiscal space is even more difficult than it appears on the surface.
On whether he believed a lack of technical expertise at the finance ministry plays a part in these challenges Wilson said he would not paint the brush so broadly.
Rather, he said, it was more the desire to ‘politicise’ the performance of the Government rather than addressing the real fundamentals of the economy.
“And that must fall firmly in the lap of the minister and not technocrats in the ministry of finance,” Wilson added.