Friday's signal from Finance Minister Larry Howai–at a special cabinet meeting called to discuss the 2015 national budget–that the Government will focus its financial package for the next fiscal year on reducing T&T's debt to GDP ratio and its fiscal deficit is appropriate and to be commended.
Mr Howai's comment on the reduction of the country's debt and deficit is a clear reference to the resolution in the upcoming fiscal year of the CL Financial debacle. This is expected to lead to the repayment, from the sale of the group's assets, of about $20 billion that the State spent to bail out CL Financial.The extent of debt reduction at this point is uncertain, because it is predicated on three developments over which the Government has no control.
These are the value placed on CL Financial's methanol companies by an arbitration tribunal (now expected by the end of October), the amount of money generated by the sale of Clico's traditional insurance portfolios and the divestment of a large stake in Republic Bank. That stake could be as much as 42 per cent.
Given the significant increase in asset values in the 66 months since the collapse of the empire that was built, to a large extent, on related-party debt by CL Financial founder Lawrence Duprey, Mr Howai can be optimistic that the resolution will close off this distressing and debilitating period in T&T's post-Independence financial history.
That the Minister of Finance has previously committed to using the proceeds from the sale of CL Financial assets to reduce T&T's sovereign debt is laudable, as this would position the country to be upgraded by its credit rating agencies, as well as to increase its contributions to the Heritage and Stabilisation Fund.
If these possibilities come to pass, that would set the stage for a new phase of development in the local economy, which could very well be underpinned by a newly confident domestic private sector that would be freed at last from the psychological shackles of the CL Financial collapse.
Beyond the fiscal tabulations, national budgets in a small, open, energy-driven economy must be cognisant of the international context in which the fiscal measures are being outlined. That context points to downward price pressure on all of T&T's petrochemical exports that, when added to the continuation of natural gas curtailments, makes the revenue picture for T&T in 2015 both uncertain and potentially volatile.
The revenue uncertainty should focus the Government's collective mind on the need to increase domestic tax generation.In this context, the minister needs to pay much closer attention in the next fiscal year to implementing unfinished business from previous budgets: the introduction of a new regime of land and building taxes; the reform of the fiscally burdensome fuel subsidy; the regulation and increased taxation of casinos; the revisions to the system of taxation; and long-overdue reforms to the pension system.
Finally, given the fact that the September 8 budget is likely to be the last one before next year's national election, there is little doubt that Mr Howai will be under huge pressure from his colleagues–despite his public warning on Friday that his budget will not be filled with election goodies–to ramp up populist spending with an eye to political success.
As someone whose profession made him aware of the dangers of fiscal imprudence, it goes without saying that Mr Howai must exercise great caution with regard to additional and unsustainable spending.