An­tho­ny Wil­son

The theme of the 2013 bud­get, which was pre­sent­ed by Fi­nance Min­is­ter, Lar­ry Howai, was Stim­u­lat­ing Growth, Gen­er­at­ing Pros­per­i­ty, while the theme of the 2012 bud­get, de­liv­ered by for­mer Fi­nance Min­is­ter, Win­ston Dook­er­an, was From Steady Foun­da­tion to Eco­nom­ic Trans­for­ma­tion.

The shift in em­pha­sis from eco­nom­ic trans­for­ma­tion to the stim­u­la­tion of growth in the lo­cal econ­o­my was quite de­lib­er­ate: Prime Min­is­ter Kam­la Per­sad-Bisses­sar ob­vi­ous­ly felt that Mr Howai would have been bet­ter able to de­liv­er growth for the Peo­ple's Part­ner­ship ad­min­is­tra­tion than Mr Dook­er­an.

The cur­rent Fi­nance Min­is­ter, in the 2013 bud­get pre­sen­ta­tion, pro­ject­ed that T&T would achieve an­nu­al av­er­age growth rates of 2.5 per cent and in­fla­tion rates of 5.6 per cent in the 2013 to 2015 pe­ri­od, which is from Oc­to­ber 1, 2012 to Sep­tem­ber 30, 2015.

Mr Howai said the tar­get of 2.5 per cent growth over the three year pe­ri­od seeks to achieve four im­por­tant goals:

�2 It strikes an ap­pro­pri­ate bal­ance be­tween con­sum­ing, sav­ing and in­vest­ing en­er­gy rev­enue with a view to en­sur­ing the con­tin­u­a­tion of net sav­ings of en­er­gy wealth in of­fi­cial re­serves and for fu­ture gen­er­a­tions in the Her­itage and Sta­bil­i­sa­tion Fund;

�2 It seeks to put us firm­ly on track for achiev­ing a bal­anced bud­get by 2016 as well as for main­tain­ing debt sta­bil­i­ty. These ob­jec­tives would be achieved by a re­turn to growth, a grad­ual re­duc­tion in the fu­el sub­sidy and by strength­en­ing tax-col­lec­tion ef­forts through in­sti­tu­tion­al strength­en­ing and tech­no­log­i­cal en­hance­ments;

�2 It man­ages the com­mit­ment to trans­fers and sub­si­dies; through ap­pro­pri­ate screen­ing and tar­get­ing;

�2 It elic­its size­able pub­lic and pri­vate in­vest­ment from the en­er­gy sec­tor. For the pe­ri­od 2013-2015 av­er­age an­nu­al pri­vate en­er­gy in­vest­ment is pro­ject­ed at US$2.435 bil­lion and av­er­age an­nu­al pub­lic sec­tor en­er­gy in­vest­ment at US$581.0 mil­lion. In to­tal, this amounts to new in­vest­ments of US$3.016 bil­lion per year for each of the next three years. This is based on the da­ta pro­vid­ed­by com­pa­nies in the en­er­gy sec­tor. In TT dol­lar terms, this amounts to an an­nu­al in­vest­ment of ap­prox­i­mate­ly $20 bil­lion.

There are sev­er­al things that are no­tice­able about the growth tar­get and about the as­sump­tion that T&T would re­ceive US$9 bil­lion in new en­er­gy sec­tor in­vest­ment in the 2013 to 2015 pe­ri­od, com­pris­ing US$7.3 bil­lion from pri­vate sec­tor in­vest­ment and US$1.7 bil­lion from the pub­lic sec­tor:

1) The as­sump­tion that T&T would re­ceive over US$3 bil­lion in new in­vest­ment in the en­er­gy sec­tor in each of the three fis­cal years–2013, 2014 and 2015–is high­ly am­bi­tious and is more ap­pro­pri­ate for a new oil and nat­ur­al gas province such as Ghana or Tan­za­nia than one that is as ma­ture as T&T is;

2) In the con­text of de­vel­op­ments else­where in the world–in par­tic­u­lar, the de­vel­op­ment of the shale gas re­serves in North Amer­i­ca–the ex­pec­ta­tion that the pri­vate sec­tor would pro­vide 80 per cent of the in­vest­ment in the en­er­gy sec­tor over the next three years may not be re­al­is­tic.

T&T needs to be aware of the pos­si­bil­i­ty of some of the coun­try's most im­por­tant for­eign en­er­gy play­ers en­gag­ing in dis­in­vest­ment rather than new in­vest­ment in the coun­try. Al­ready, two Eu­ro­pean oil gi­ants, the French com­pa­ny, To­tal, and the Span­ish firm, Rep­sol, have sig­nalled that they wish to di­vest some of their lo­cal as­sets and GDF Suez, which is al­so a French com­pa­ny, sold its stake in At­lantic LNG in 2011, to a Chi­nese in­vest­ment fund;

3) Be­tween the pe­ri­od 2006 and 2011, T&T at­tract­ed for­eign di­rect in­vest­ment of US$6.3 bil­lion, ac­cord­ing to a study of in­vest­ment flows in­to the re­gion pub­lished in Jan­u­ary 2012 by the Eco­nom­ic Com­mis­sion of Latin Amer­i­ca and the Caribbean (ECLAC).

That study in­di­cates that for­eign di­rect in­vest­ment in­to T&T peaked in 2008 at US$2.8 bil­lion but de­clined every year since then to US$293 mil­lion for the first half of 2011. Of the 18 Caribbean coun­tries analysed by ECLAC, the Do­mini­can Re­pub­lic at­tract­ed the most for­eign di­rect in­vest­ment with US$12 bil­lion be­tween 2006 and 2011.

For T&T to achieve pri­vate in­vest­ment flows US$2.435 bil­lion a year over the next three years, it would have to com­plete­ly re­verse five years of de­clin­ing in­vest­ment and sus­tain that re­ver­sal;

4) The pub­lic sec­tor–which in­cludes the state-owned en­er­gy com­pa­nies–do not have a good rep­u­ta­tion for com­plet­ing in­vest­ments on time and with­in bud­get, as the ex­pe­ri­ence at Petrotrin over the years has demon­strat­ed. The odds are stacked against the cur­rent Petrotrin pres­i­dent Khalid Has­sanali in be­ing able to spend US$1.7 bil­lion in three years–al­though if there is any en­er­gy sec­tor ex­ec­u­tive who would be able to achieve this, he is the man;

5) The min­is­ter's pro­jec­tion of US$9 bil­lion in both pub­lic and pri­vate in­vest­ment in the en­er­gy sec­tor over the next three years makes no men­tion of pub­lic or pri­vate in­vest­ment in the non-en­er­gy sec­tor.

It could be that the om­mi­sion of non-en­er­gy sec­tor in­vest­ment was an over­sight on the part of the se­nior tech­nocrats at the Min­istry of Fi­nance or it could be that Mr Howai ex­pects lit­tle in­vest­ment in the non-en­er­gy sec­tor in the next three years;

6) If T&T were to achieve en­er­gy in­vest­ment of US$3 bil­lion a year in any fis­cal pe­ri­od be­tween now and 2015, what im­pact would that have on the rate of in­fla­tion in this coun­try? It is note­wor­thy that in 2008, the year in which T&T re­ceived the high­est for­eign di­rect in­vest­ment, was al­so the year in which the coun­try record­ed the high­est an­nu­al rate of in­fla­tion, 12.04 per cent, in the pe­ri­od 1991 to 2012. The rate of in­fla­tion in the con­struc­tion sec­tor in 2008 was sig­nif­i­cant­ly high­er than 12 per cent. Is achiev­ing a growth rate of 2.5 per cent, with an in­fla­tion rate of 5.6 per cent re­al­is­tic?

7) By stat­ing that the growth rate of 2.5 per cent and an in­fla­tion rate of 5.6 per cent "man­ages the com­mit­ment to trans­fers and sub­si­dies," Mr Howai is sig­nalling to the pop­u­la­tion that it should not ex­pect trans­fers and sub­si­dies to be capped at their cur­rent lev­els or be al­lowed to de­cline in the next three years.

If tax rev­enues ac­crue as pre­dict­ed, the ex­pec­ta­tion that trans­fers and sub­si­dies would con­tin­ue to rise in the fu­ture would be achiev­able. But what hap­pens to trans­fers and sub­si­dies if tax rev­enues de­cline in the medi­um term.

In my view, Mr Howai's em­pha­sis on a grad­ual ap­proach to achiev­ing a bal­anced bud­get by 2016 is wrong and ex­pos­es T&T to risk if there were to be a re­ver­sal of for­tunes for T&T's main rev­enue earn­ers. It would be much bet­ter for the econ­o­my and for the coun­try if the re­duc­tion in the fu­el sub­sidy and the strength­en­ing of tax-col­lec­tion ef­forts were im­ple­ment­ed more rapid­ly.

The most rel­e­vant ques­tion is, there­fore, if T&T does not achieve the rate of in­vest­ment that Mr Howai pre­dicts, what is go­ing to be­come of the growth rate es­ti­mate of 2.5 per cent? And if T&T does not achieve the ex­pect­ed growth rate, what be­comes of the rate of un­em­ploy­ment, the fis­cal deficit and the coun­try's to­tal debt.

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