Last update: 05-Dec-2013 8:03 am
Thursday, December 05, 2013
Trinidad & Tobago Guardian Online
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Economy in need of shock therapy
Addressing a news conference yesterday to launch the April Monetary Policy Report (MPR), Central Bank Governor Ewart Williams called on the Government to ramp up its infrastructural spending in order to ensure that T&T does not experience a third year of marginal growth or even negative growth. Mr Williams, a very experienced economist who spent most of his professional life at the International Monetary Fund, made it clear that if the Government were to increase its infrastructural spending to the levels envisaged in the 2011 budget, T&T might be able to eke out marginal economic growth of between one and two per cent.
If the Government opts not to increase infrastructural spending, the Governor expressed the fear that the economy could slip into decline—the consequence of which would be lower incomes, increased poverty and a negative psychological impact on the population, according to Mr Williams. Based on the statistics, the Ministry of Finance would be well advised to heed the Governor’s admonition about the need to loosen the stranglehold on the Treasury. According to the MPR, the central government recorded a fiscal deficit of a miserly $207 million, which is less than half of one per cent of T&T’s gross domestic product, for the six months between October 1, 2010 and March 31, 2011. This deficit of 0.15 per cent of GDP compares with the deficit of $3.278 billion (2.5 per cent of GDP) that was envisaged in the 2011 budget.
“The pace of central government spending was much slower than anticipated during the first six months of 2010/2011. Total expenditure amounted to $20.226 billion, which was $3.378 billion lower than the budgeted level,” indicated the Central Bank report, which added that the shortfall in spending was “especially pronounced” in spending on goods and services, interest payments and capital expenditure.
The report stated that “it is expected” that the problems that constrained expenditure during the first half of the fiscal year would be “corrected” in the second half of the year “such that the overall deficit will be broadly in line with the budget projection for the year as a whole.”
This means that the Central Bank appears to expect that the Government would be able to mobilise quickly enough to be able to spend close to $5 billion in capital projects in less than four months to the end of the fiscal year on September 30, compared with the $2 billion in expenditure for the first six months of the 2011 fiscal year. This expectation of the Central Bank is clearly unrealistic as is the institution’s insistence that “the Government’s intention is to maintain the expansionary fiscal stance to support economic recovery and job creation.” While the words from Minister of Finance Winston Dookeran may indicate some support for the concept of an “expansionary fiscal stance,” the minister’s actions paint him as a fiscal conservative—someone who is more concerned with balancing the budget at the end of the fiscal period than in supporting economic recovery and job creation. While balancing the budget has its place and time, the place is not T&T and the time is not 2011.
The times call for some shock therapy to be applied to the heart of the T&T economy to ensure that the economy does not flatline—slip back into the doldrums where deposits in commercial banks were rising and loans by commercial banks were in freefall. The Government needs to add to the national road repair programme outlined by the Minister of Works and Transport by accelerating the procurement of the highways, hospitals, schools, houses and police stations that were outlined in the 2011 budget. Infrastructural expenditure will put money in the hands of thousands of workers and will contribute to kick-starting the economy. But even as it accelerates the procurement procedures, Government needs to ensure that the recommendations outlined in the Uff Commission of Enquiry Report and the White Paper on Public Procurement are completely followed. There is no reason why accelerating infrastructural expenditure must necessarily mean cutting corners.
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