Last month, this column raised the issue of whether T&T could afford to pay the nation's 33,000 public servants and employees of statutory authorities more than a five per cent salary increase for the three-year period January 1, 2008 to December 31, 2010. The line of questioning was based on the consistent rhetoric from Prime Minister Kamla Persad-Bissessar and Minister of Finance Winston Dookeran that the local economy simply could not afford to pay more than five per cent. According to a statement issued by the Ministry of Finance on March 1: "The new offer (of 2%-1%-2%) was made taking into consideration the current economic realities which face Trinidad and Tobago and the need to stabilise the economy and encourage growth." The argument, as it relates to the 33,000 public officers, is now moot because of the settlement arrived at between the Public Services Association, which is the representative trade union for public servants, and the Chief Personnel Officer, who negotiates collective agreements for the Government.
But the issue of whether T&T can afford to pay more than five per cent is alive for the other trade unions who represent state-paid workers. In that context, it would be interesting to note (and it may provide some information for both sides of this issue) that when the Minister of Finance presented the 2011 budget on September 8, 2010, he anticipated that the budget deficit would be $7.7 billion. This was based on the expectation that the Government would collect $41.3 billion in taxes and would commit to total expenditure of $49 billion. The projected fiscal deficit was estimated to be 5.48 per cent of T&T's GDP-based on a real GDP growth of 2 per cent. With respect to the financing of the deficit, the Minister of Finance said: "We have projected that 30 per cent of the financing requirement will be met by domestic sources, while the remainder will be sourced from multilateral and other external sources." By my calculation, Mr Dookeran was signalling that the Government would raise $2.3 billion from the local capital market and $5.4 billion "from multilateral and other external sources."
It is very interesting that T&T is in the seventh month of the 2011 fiscal year and the Government has not, since the start of the fiscal year on October 1, 2010, tapped the local capital market for one cent of the $2.3 billion it intended to raise to finance the $7.7 billion deficit. And, there is, as yet, no indication that the Government has any need to come to the local capital market in 2011 in order to raise the $2.3 billion. If this is true, it means that the Government has budgeted for a $7.7 billion deficit, but it is able, so far for the year, to finance its 2011 expenditure from the revenues that the country has generated. No doubt, Mr Dookeran will view the fact that the Government may not need to borrow to finance its 2011 budget as a mark of success. He would, wouldn't he? Mr Dookeran strikes me as someone who believes that balancing the budget is the be-all and end-all of his job-even more so than trying to stimulate the economy out of the economic doldrums and investment uncertainty that it is in.
But there are some negative consequences to the Government not borrowing on the local market to finance its 2011 budget:
• It is likely to lead to a deterioration in the standard of living of a significant percentage of the local working population. All things being equal, if public officers-who comprise about one-third of T&T's working population and include thousands of teachers, police officers, soldiers and other members of the military) receive a retroactive salary increase of five per cent when the rate of inflation is 11 per cent, that means that their income is not keeping pace with their expenditure and they will be required to make sacrifices;
• The failure by the Government to borrow on the local market is causing the country's pension plans, insurance companies, banks and high net worth individuals to be starved of new high-quality local, fixed income assets. This must be particularly difficult for pension plans and insurance companies, which are required by law to hold 80 per cent of their assets in TT dollars, as they collect money every month that needs to be invested in ways that generate a reasonable return. In my view, the dearth of high-quality investments in T&T dollars, including Government of Trinidad and Tobago bonds, is part of the reason that the demand for foreign exchange in the country's commercial banks continues to exceed the supply of foreign exchange. As was pointed out in this publication last week, the demand for foreign exchange cannot be explained only by reference to the country's imports.
• The fact that the Government may not choose to raise debt financing locally during the 2011 fiscal year means that T&T is missing out on an opportunity to access loan financing at a time when local interest rates are at historic lows. Now, it may be that Mr Dookeran plans to outline a plan to call in all of the TT dollar bonds that allow for early payment and refinance them at the current rates, but there has as yet been no indication that he is even thinking along these lines. It would be surprising if Steve Bideshi, the former top Citibank executive who now advises the Minister of Finance, were not advising Mr Dookeran that refinancing option could save the Government billions of dollars in the medium term.
And it would be even more surprising if the current Permanent Secretary of the Ministry of Finance, Alison Lewis-and permanent secretaries before her, Kamal Mankee and Monica Clement-did not insist that all bond agreements had early-payment clauses contained in their loan documentation. Is the Government going to wait until interest rates start to trend upward in order to resume raising funds on the local market? At the end of the day, how one views the economy depends on whether one perceives the glass as being half full or half empty. I perceive the glass as being half full and therefore would argue that the emphasis should be on restoring growth in the economy rather than attempting to "stabilise." The half-full glass theory is borne out by the fact that the actual budget deficit for 2010 was 0.22 per cent and T&T is likely to be operating a budget surplus at this point as a result of significantly higher energy revenues and the Government's "success" in suppressing expenditure.