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What should be in the mid-year review?

Thursday, April 13, 2017

Ideally, the mid-year budget review should provide the population of T&T, and its other stakeholders, with a clear sense of how the Minister of Finance is progressing in meeting the goals and targets that were outlined in original budget.

The updates that the mid-year should strive for include:


1. Fiscal update

The most important aspect of the budget review that Mr Imbert is due to present later this month is to provide an update of T&T’s fiscal situation, based on the actual and projected revenue and expenditure situation for the first six months (October 1, 2016 to March 30, 2017) of the 2017 fiscal year update.

The 2017 budget predicted that T&T would collect $47.4 billion in revenue during the 2017 fiscal year, while spending $53.4 billion, which would leave a fiscal deficit of $6 billion.

If the projection for total revenue in fiscal 2017 is $47.4 billion, the mid-year budget review should identify actual or projected revenues of $23.7 billion for the first six months of the fiscal year.

In the Central Bank’s March 2017 Economic Bulletin, the projection for the amount of revenue collected in the first quarter of the fiscal year (from October 1 to December 31, 2016) was $7.9 billion.

For T&T’s revenues to be on track at $23.7 billion after the first half of the 2017 fiscal year, therefore, the Ministry of Finance would have to collect—or projected that it would collect—$15.8 billion in the second quarter (from January 1 to March 31, 2017).

Based on a simple average, T&T should have collected $11.85 billion during the first quarter ($47.4 divided by four), which means that revenue collections during that period were about 33 per cent less that budgeted.

With regard to expenditure, the indication is that the central government should have spent, or committed to spend, $26.7 billion between October 1, 2016 and March 31, 2017 (which is half of the total budget of $53.4 billion for the fiscal year).

For the first quarter of the current fiscal year, the central government estimates that it spent, or committed to spend, $10.45 billion. This means that its expenditure in the first quarter was 22 per cent less than budgeted.

Mr Imbert projected a 2017 fiscal deficit of $6 billion. If in the first quarter, the government collected $7.98 billion but spent $10.45 billion, that means the deficit in that period was $2.47 billion.

If the revenue and expenditure numbers remain the same in the second quarter as in the first, it means the projected deficit for the first half of the fiscal year would be $4.94 billion ($2.47 billion X 2) which is significantly higher (50 per cent) than the projected deficit of $3 billion for the first half.


Conclusion: In analysing the first quarter fiscal performance, the Central Bank reported that total receipts in that period declined by 28.8 per cent year on year, “owing to the sharp fall off in non-energy receipts and energy revenue. Non-energy revenue fell by 29.1 per cent to $6.3 billion largely on account of a significant fall off in non-tax revenue.”

Non-tax revenue fell to $897 million in the first quarter of 2017, compared with $2.3 billion during the same period in 2016. This decline the bank attributed to the revenue from the Initial Public Offering of shares in Phoenix Park at the start of the 2016 fiscal year.

But, more worryingly, the Central bank said: “revised data also point to a slowdown in other categories of non-energy receipts, including collections on goods and services and international trade.”

Mr Imbert may be able to include the additional Public Offering of First Citizens, from which he hopes to collect $1.5 billion—in his mid-year review—although he would have collected that money in the third quarter and not in the second.


2. Explain variance

If the fiscal situation is weaker than the original budget estimates indicate, Mr Imbert needs to spend a great deal of time explaining the slippages.

He needs to explain, for example, why the projections for non-energy revenue are not coming up to the expected mark.

He also needs to provide much more information than he did in the 2017 budget, or in the 2016 mid-year budget, with regard to the projected decline in the economy for the period under review.

It would also be helpful if he provided the nation with the updated information on the extent of the central government’s total debt position and some analysis on the extent to which the decline in the non-energy sector is impacting on his revenue collections.


3. Update vision

In presenting the 2017 budget, Mr Imbert said that the reduction in current revenue to $37 billion in 2016 from $57 billion in 2014 public meant that “by no stretch of the imagination, can we continue to spend money that we do not have, without regard for consequences? In these difficult times, it cannot be business as usual.”

He said in the government’s first year in office, it had “stabilised the economy and we have brought our expenditure profile into better alignment with revenue” notwithstanding the $20 billion decline in current revenue.

“In this our second budget, the adjustment process needs to be continued but, at the same time, the government intends to accelerate its public sector investment programme (PSIP), and to enhance and improve its collaboration with the private sector in order to stimulate economic recovery and transformation.”

Mr Imbert needs to tell the population the extent to which the fiscal situation has allowed him to accelerate the PSIP and the extent to which he has enhanced and improved the collaboration with the private sector “to stimulate economic recovery and transformation.”


Conclusion: Mr Imbert has done a good job in reducing T&T’s expenditure to bring it more in line with its revenues.

Where he has been weak is in engaging the private sector “to stimulate economic recovery and transformation.”


4. Clico resolution?

Both the 2017 budget and the previous mid-year review failed to provide enough information concerning the government’s ongoing efforts to resolve the Clico collapse, which is in its ninth year.

Given the fiscal importance of the Clico resolution to the government’s non-tax revenues, it is hoped that Mr Imbert provides the population with an update on the negotiations with the CL Financial shareholders—who own 51 per cent of Clico—and the government’s proposal to purchase lands at Golden Grove and Buccoo in Tobago from Clico for the proposed Sandals development.


Remembering Sandra…


Two years ago yesterday, on April 13, 2015, Guardian associate editor Sandra Chouthi was taken from this realm, after succumbing to a long battle with cancer.

The passage of time has not dulled the pain that all of us on the business desk felt at Sandra’s passing.

She cared and looked out for us in many small and kind ways.

On behalf of Natasha, Raphael and Nadaleen—who enjoyed her daily fellowship in her last role at the Guardian—and also on behalf of her the entire Guardian family and her many friends in the corporate world and elsewhere, we join with her family in paying continuing tribute to Sandra for her many contributions to making T&T a better place.


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