An­tho­ny Wil­son

In a com­men­tary last week, for­mer PNM min­is­ter of trade, Mar­i­ano Browne, stat­ed that T&T is "ex­pe­ri­enc­ing a per­sis­tent struc­tur­al deficit as re­flect­ed by the growth in the debt-to-GDP ra­tio. In short, we are bor­row­ing to fi­nance cur­rent ex­pen­di­ture."

As ev­i­dence for his propo­si­tion, Mr Browne, who al­so served as min­is­ter in the Min­istry of Fi­nance un­der Karen Tesheira, opined that T&T's ex­pen­di­ture was grow­ing at a much faster rate than rev­enue, lead­ing to per­sis­tent deficits and a grow­ing debt-to-GDP ra­tio, which he pre­dict­ed would in­crease from 47 per cent at Sep­tem­ber 30, 2012 to 61 per cent at Sep­tem­ber 30, 2013. In dol­lar terms, the for­mer min­is­ter be­lieves that T&T's debt could bal­lon from $71.6 bil­lion at the end of the 2012 fis­cal year to be­tween $94 and $101 bil­lion at the end of the 2013 fis­cal year (the range is a func­tion of dif­fer­ent GDP as­sump­tions).

Where to start?

First of all, it is not true that T&T is ex­pe­ri­enc­ing "a per­sis­tent struc­tur­al deficit." As the ta­ble in­di­cates, in the six years be­tween 2007 and 2012, T&T ex­pe­ri­enced three years of fis­cal sur­plus­es and three years of deficits.

Fis­cal year

Ac­tu­al rev­enue

Ac­tu­al ex­pen­di­ture

Fis­cal deficit

Per cent of GDP

2007

$40.064

$37.765

+$2.298

+1.7%

2008

$56.847

$44.715

+$12.132

+7.5%

2009

$39.044

$45.730

-6.686

-4.9%

2010

$43.862

$43.674

+0.188

+0.1%

2011

$47.500

$48.602

-$1.102

-0.8%

2012

$48.949

$52.062

-3.113

-2.02%

Source: Mon­e­tary Pol­i­cy Re­ports; Jan 2013, Jan 2012, Jan 2011, Jan 2010

The record is clear that last three min­is­ters of fi­nance (Karen Tesheira, Win­ston Dook­er­an and Lar­ry Howai) chose to record fis­cal deficits as a means of stim­u­lat­ing the T&T econ­o­my out of the slump it got in­to af­ter the fi­nan­cial cri­sis in the US in 2008.

The min­is­ters opt­ed not to im­pose mea­sures that would have quick­ly re­turned T&T to fis­cal bal­ance, in­clud­ing the elim­i­na­tion or scal­ing back of fu­el sub­si­dies; the re­duc­tion of oth­er sub­si­dies, the reg­u­lar­i­sa­tion of the prop­er­ty tax regime or in­creas­ing the mar­gin­al tax rate on in­di­vid­u­als.

In fact, Prime Min­is­ter Kam­la Per­sad-Bisses­sar's de­ci­sion to elim­i­nate VAT on a large num­ber of food items last Sep­tem­ber is an ex­am­ple of Gov­ern­ment in­creas­ing trans­fers to a pop­u­la­tion rather than de­creas­ing them.

As to whether T&T is run­ning a struc­tur­al deficit, that term sug­gests the T&T econ­o­my is op­er­at­ing at or near-full ca­pac­i­ty and that the Gov­ern­ment is un­able to cur­tail its spend­ing to match its rev­enues. Nei­ther of those propo­si­tions is true at this point.

It is patent­ly un­true that T&T is "bor­row­ing to fi­nance our cur­rent ex­pen­di­ture." If T&T this were so, T&T's to­tal cur­rent ex­pen­di­ture would ex­ceed to­tal cur­rent rev­enue. In fact, T&T record­ed cur­rent sur­plus­es in the 2010, 2011 and 2012 fis­cal years.

For the 2010 fis­cal year, cur­rent rev­enue was $43.632 bil­lion and cur­rent ex­pen­di­ture was $37.275 bil­lion. In 2011, cur­rent rev­enue was $47.213 bil­lion and cur­rent ex­pen­di­ture was $41.649. For 2012, cur­rent rev­enue was $48.875 bil­lion and cur­rent ex­pen­di­ture was $43.871 bil­lion. (Source: Var­i­ous edi­tions of the Cen­tral Bank's Eco­nom­ic Bul­letin).

If T&T is bor­row­ing at all, it is to fi­nance cap­i­tal ex­pen­di­ture and the CL Fi­nan­cial prob­lem NOT to pay pub­lic ser­vants' salaries or to sub­sidise gaso­line.

Deficits in T&T, then, are NOT struc­tur­al and per­sis­tent, but op­tion­al and po­lit­i­cal.

Sec­ond­ly, it is note­wor­thy that the last four bud­get pre­sen­ta­tions have pre­dict­ed fis­cal deficits in ex­cess of about $7.6 bil­lion, but the ac­tu­al out­turn has been much more favourable.

In pre­sent­ing the 2010 bud­get, Karen Tesheira pro­ject­ed a deficit of $7.7 bil­lion or 5.3 per cent of GDP, where­as the ac­tu­al fis­cal out­come was a small sur­plus.

In de­liv­er­ing the 2011 bud­get, Win­ston Dook­er­an pre­dict­ed an over­all fis­cal deficit of $7.7 bil­lion (5.48 per cent of GDP), where­as the re­al­i­ty was a deficit of less than one per cent of GDP.

In the 2012 bud­get, Mr Dook­er­an's pre­dic­tion was for a deficit of $7.6 bil­lion (4.89 per cent of GDP), where­as the re­al­i­ty, ac­cord­ing to the state­ment de­liv­ered by the cur­rent Min­is­ter of Fi­nance Lar­ry Howai in Par­lia­ment last month, was a deficit of $3.1 bil­lion or 2.02 per cent of GDP.

And in pre­sent­ing the 2013 bud­get, Mr Howai pro­ject­ed a deficit of $7.6 bil­lion, but in his first quar­ter re­port, first pub­lished in the Busi­ness Guardian of Feb­ru­ary 28, he an­nounced the fis­cal ac­count was "gen­er­al­ly in bal­ance," with rev­enue and ex­pen­di­ture at $10.5 bil­lion.

As Mr Browne well knows, most in­ter­na­tion­al agen­cies don't start rais­ing deficit red flags un­til this ra­tio goes past three per cent on a con­sis­tent ba­sis.

While T&T may have ex­pe­ri­enced good for­tune with buoy­ant en­er­gy and petro­chem­i­cal prices, the tech­nocrats at the Min­istry of Fi­nance, led by the re­doubtable Al­i­son Lewis, ob­vi­ous­ly have the abil­i­ty to de­lay, cur­tail, vary, slash and se­quester spend­ing in or­der to ar­rive at more favourable out­comes.

Bal­loon­ing debt?

Third­ly, on the is­sue of T&T's na­tion­al debt, Mr Browne ex­pects it to in­crease from 47 per cent at the end of the 2012 fis­cal year to 61 at the end of 2013 as a re­sult of the In­ter-Amer­i­can De­vel­op­ment Bank (IDB) "loan" of US$1.5 bil­lion, the fi­nanc­ing of the $7.6 bil­lion deficit and the fi­nanc­ing of ad­vances to the Cli­co pol­i­cy­hold­ers.

Ac­cord­ing to the for­mer min­is­ter: "Al­low­ing for debt ser­vice (re­pay­ment of cap­i­tal), the na­tion­al debt should amount to rough­ly 61 per cent by Sep­tem­ber 2013. It is gen­er­al­ly ac­cept­ed by var­i­ous in­ter­na­tion­al agen­cies that a debt-to-GDP ra­tio in the range of 60 to 70 per cent rep­re­sents a dan­ger zone un­less the econ­o­my is grow­ing. And the T&T econ­o­my is not grow­ing."

Now, it is well es­tab­lished, and be­yond dis­pute, that the prin­ci­pal rea­son for the sharp in­crease in T&T's debt in 2012 was be­cause the Gov­ern­ment brought the $19.7 bil­lion spent on bail­ing out CL Fi­nan­cial on­to the State's books. It al­most com­plete­ly ex­plains the fact that the T&T's debt jumped by $21.4 bil­lion to $71.6 bil­lion at the end of the 2012 fis­cal year.

Mr Browne's es­ti­mate of a debt-to-GDP ra­tio of 61 per cent–which could amount to as much as $101 bil­lion–is sim­ply un­re­al­is­tic as the 2013 deficit is like­ly to be sub­stan­tial­ly less than $7.6 bil­lion and the State's re­cov­ery of the $19.7 bil­lion used to bailout CL Fi­nan­cial will be much clear­er by the end of Sep­tem­ber.

Book­ing loans

Al­so, it ap­pears that Mr Browne ar­rived at the 61 per cent debt-to-GDP ra­tio by as­sum­ing that all of the US$1.5 bil­lion ($9.6 bil­lion) from the IDB will be booked in 2013. This is high­ly un­like­ly as the US$1.5 bil­lion from the IDB is not a sin­gle loan, but a pro­gramme of en­gage­ment be­tween GORTT and the IDB from 2011-2015.

Sub­ject to cor­rec­tion, up to now US$516 mil­lion has been ap­proved by the IDB un­der the pro­gramme in the fol­low­ing loans: US$160 mil­lion–for 2012 bud­get sup­port; US$50 mil­lion–To­ba­go wa­ter project; US$246.5 mil­lion–sew­er­age up­grade; US$60 mil­lion–al­ter­na­tive en­er­gy (com­pressed nat­ur­al gas); US$0.15 mil­lion–cor­po­rate gov­er­nance and US$0.26 mil­lion–in­creas­ing com­pet­i­tive­ness.

Ac­cord­ing to the con­tract for the US$246.5 mil­lion Phase 1 of the Mul­ti-Phase Waste­water Re­ha­bil­i­ta­tion Pro­gramme, which was signed on Jan­u­ary 19: "The first in­stal­ment shall be due on the ex­pi­ra­tion date of the 66-month pe­ri­od af­ter the date of en­try in­to ef­fect of this con­tract," which means that the first in­stall­ment of the loan's prin­ci­pal is due on Ju­ly 19, 2018. In­ter­est pay­ments be­gin from Ju­ly 2013.

Would the Gov­ern­ment have booked the en­tire US$1.5 bil­lion from the IDB if it had on­ly re­ceived just over US$500 mil­lion up to now?

Sub­sidy in­fla­tion

Fi­nal­ly, with­out cit­ing his sources so that his facts can be ver­i­fied, Browne al­so states that trans­fers and sub­si­dies have grown from 40 per cent of GDP in 2007 to an es­ti­mat­ed 47 per cent of GDP in 2013.

Ac­cord­ing to the Oc­to­ber 2010 MPR, at Ta­ble Vc on Page 51, the amount of mon­ey spent on trans­fers and sub­si­dies in 2007 was $16.78 bil­lion, which was 12.7 per cent of GDP. This was pro­ject­ed to in­crease to $29.014 bil­lion in the 2013 fis­cal year, which ac­cord­ing to the Oc­to­ber 2012 Mon­e­tary Pol­i­cy Re­port (at Ta­ble IVj on Page 50) would be 17.4 per cent of GDP.

The more ap­pro­pri­ate com­par­i­son for the in­crease in trans­fers and sub­si­dies, there­fore, would be from 13 per cent of GDP in 2007 to 18 per cent in 2013, NOT from 40 per cent to 47 per cent. To put this in con­text, T&T's to­tal es­ti­mat­ed ex­pen­di­ture of $58.4 bil­lion in 2013 is pro­ject­ed to be 35 per cent of GDP.