At Sunday’s formal launch of the Tobago Organisation of the People’s campaign for the January 21 Tobago House of Assembly election, Prime Minister Kamla Persad-Bissessar promised that the national budgetary allocation for Tobago would be increased from the existing level of between four per cent and six per cent to between 6.9 per cent and eight per cent.
The Prime Minister was careful not to say when this promise would become effective or whether it was dependent on the outcome of the elections in less than three weeks time.
According to the 2013 budget delivered by the Minister of Finance, Larry Howai, on October 1 2012: “The budgetary allocation for the Tobago House of Assembly for fiscal 2013 is $2.356 billion of which $2.006 billion would be for recurrent expenditure and $350.0 million for capital expenditure.
“Further Tobago will receive an additional $874.9 million under the various other heads of expenditure.”
This means that that the amount of money that the Government of T&T proposes to spend on Tobago during the 2013 fiscal year—which began on October 1, 2012 and runs until September 30, 2013—is $3.231 billion.
The allocation of $3.231 billion to Tobago for the 2013 fiscal year means that the government proposes to spend 5.53 per cent of the total estimated expenditure of $58.4 billion on Tobago.
The current allocation to Tobago means that the Tobago House of Assembly gets to spend 3.94 per cent of T&T’s total recurrent expenditure of $50.9 billion and that Tobago will receive 4.66 per cent of the total capital expenditure of $7.5 billion. It also means that Tobago’s recurrent and capital expenditure of $2.356 billion would account for 4.03 per cent of the total spend in those areas.
In money terms, if Tobago’s allocation from the central government is increased from 4.03 per cent to 6.9 per cent, the island will receive and additional subvention of $1.673 billion. And if the subvention is increased to eight per cent, the island would receive $2.316 billion more.
In percentage terms, the Prime Minister’s political promise would mean that the subvention for Tobago’s recurrent and capital needs (excluding the allocation under various other heads of expenditure) would increase by 71 per cent at the lower 6.9 per cent increase level to 98 per cent at the higher eight per cent level.
The Prime Minister’s political promise, which was made at the Old Market Square in downtown Scarborough, raises several issues pertinent to the economic development of Tobago:
Is Tobago deserving of a higher allocation?
It seems to me that the rationale of the allocation of about four per cent of the national budget to Tobago is based, even if notionally, on the island’s population. Tobago has a population of about 54,000 people. The nation of T&T has about 1.3 million people. This means that Tobago’s population accounts for about 4.15 per cent of the total population of the twin-island.
The total allocation of 5.53 per cent, or $3.231 billion, of the total estimated expenditure of $58.4 billion on an island that accounts for 4.15 per cent of the total population—this calculation includes the subvention of $874 million under the various other heads of expenditure—seems more than adequate and fair to the smaller island.
Increasing the total subvention for Tobago means that the island would receive more money than envisaged under the carefully worked-out calculation in which the allocation for Tobago is notionally based on its population.
A decision to increase the subvention to Tobago could be justified if there were some large, overweaning need for more money on the island. But most thinking people who have spent some time in Tobago would quickly conclude that its main problem is not a lack of money but a deep-seated issue of project implementation and the need to ensure that adequate funds are set aside for the marketing of the island’s many virtues, increasing airlift into Tobago and improving its hotel stock.
On paper, the Government seems to be doing much of what is necessary to revitalise Tobago’s tourism product.
In delivering the 2013 budget, Mr Howai said that between July and September last year, the Government had established a company called Trinidad and Tobago Tourism Business Development Limited. This corporate body was set up to administer the Tobago Tourism Development Fund, which was designed to provide a Government guarantee to be accessed by both existing hotel properties as well as new property developers.
The Tobago Tourism Development Fund was originally funded with $100 million in order to provide guarantees for two major business categories of the tourism sector in Tobago:
• debt restructuring for tourism and tourism-related businesses; and
• the upgrade and maintenance of hotels of below 50 rooms and ancillary businesses.
In delivering the 2013 budget, the minister of finance said: “The Government has capitalised the loan guarantee fund for the tourism-related sector, including hotels with a room stock of under 50 rooms, with an additional $100 million with two further annual injections of $50 million.”
One must assume that the reference to “an additional $100 million,” means that the Tobago Tourism Development Fund now has $200 million.
With a loan guarantee fund already in place for hotels with under 50 rooms (which is the majority of hotels in Tobago), Mr Howai also said in his budget presentation that the Government was addressing the financial needs of those hotels in excess of 50 rooms and that the Government through public-private- partnerships would seek to establish 1,000 new rooms through branded hotels.
The question, of course, is whether any hotels in Tobago have benefited from the Tobago Tourism Development Fund or whether bureaucracy has stymied that useful policy.
In terms of improving the speed of implementation of projects on the island, Mr Howai said: “The Government will support the efforts of the THA to develop the human and social capital, the physical infrastructure and enterprise in Tobago.”
Can the T&T government afford to increase the recurrent and capital subventions to Tobago from the current level of 4.03 per cent (or $2.356 billion) to 6.9 per cent (which would amount to $4.029 billion) or to 8 per cent (which would provide Tobago with $4.672 billion)?
The answer to that question is that the Government is already projecting that it will spend $7.669 billion more during the 2013 financial year than it will receive in revenues. The projected budget deficit of $7.669 billion is equal to nearly five per cent of T&T’s gross domestic production and is 13 per cent of the total budget of $58.405 billion.
Additional expenditure of between $1.673 billion and $2.316 billion on Tobago would simply add to T&T’s existing budget deficit or would lead the Government to make cuts in Trinidad-related expenditure in order to accommodate the extra spending in Tobago.
Adding to T&T’s already large fiscal deficit or cutting Trinidad-related expenditure to ensure that a campaign promise to Tobagonians is fulfilled would be both fiscally imprudent to the nation’s future prospects and unfair to the 95.85 per cent of the population of T&T that lives in Trinidad.
Also, in the context of the volatility of the international prices of T&T’s main exports of oil and natural gas, it is quite likely that increasing expenditure would prove not only fiscally imprudent but also risky.
In its December 21 affirmation of T&T’s foreign and local currency sovereign credit rating at A/A-1, the rating agency Standard and Poor’s made it clear that it would lower the country’s rating if the following scenario came to pass:
“A protracted slowdown in the energy sector, along with poor implementation of the government’s own investment plans, could result in prolonged low economic growth and persistent fiscal deficits, weakening the country’s fiscal and external profiles.”
The clear inference from the Standard and Poor’s rating agency is that the country’s fiscal and external profiles could also be weakened if the Government embarks on a series of unbudgeted expenditures that will cause a ballooning of the country’s deficit and an additional burden on T&T’s domestic and external debt.
In other words, adding up to $2.316 billion in expenditure for the benefit of Tobago may lead to the downgrade of T&T. Anyone who is in doubt about this conclusion need only speak with the Barbados Minister of Finance or his counterparts in Grenada or St Vincent or Jamaica.
Would increased spending in Tobago be good for the Tobago economy?
Given the fact that the current rate of unemployment in Tobago is relatively low, it is quite likely that additional expenditure in the island will simply drive up the rate of inflation (especially the cost of hardware supplies), cause bottlenecks in the supply of goods from Trinidad and reduce the quality of life in Tobago.
Apart from these negative consequences, a higher subvention for Tobago is not sustainable, would not add to the island’s capacity or its infrastructure and would increase Tobago’s dependence on Trinidad.
Higher subventions for Tobago bring more downside than upside for the island and while it may tip the scales politically for the People’s Partnership administration, the political gain is likely to be outweighed by the negative economic consequences.
Is the promise of more money for Tobago a promise worth keeping?