T&T will end up in an International Monetary Fund-supported programme by next year, economist Marla Dukharan has predicted as she said the $15.5 billion deficit being projected by Finance Minister Colm Imbert may just be the tip of the financial iceberg facing the country.
“We will have to go to the IMF by next year just like Barbados had to,” the economist said.
Dukharan made the statement as she anticipated that the size of this country’s fiscal deficit may realistically be even $5 billion more than the latest projection by Imbert.
Speaking in the Parliament on Monday, Imbert said that this country’s fiscal deficit for 2020 is now expected to expand to $15.5 billion.
“Accordingly, our fiscal deficit for fiscal 2020, which was originally estimated at $5.3 billion, is now expected to expand to $15.5 billion, $10.2 billion higher than was envisaged in our FY 2020 Budget,” Imbert stated.
In terms of international financial assistance to address the unprecedented financial demands of COVID-19, the country is sourcing US$300M (TT$2B) from various multilateral agencies – US$20m from the World Bank, US$130m from the IADB and US$150m from the Development Bank of Latin America (CAF), Imbert said.
He said the country is also pursuing a further US$500m ($3.4b) for budgetary support from other external sources.
In addition to this the country has also taken steps to allow for emergency drawdowns from the Heritage and Stabilisation Fund (HSF), not exceeding US$1.5 billion ($10 billion) in any given year, for budgetary support in exceptional circumstances, such as the current pandemic, Imbert said.
The current value of the HSF is US$6.1 billion.
Imbert said so far the government has not withdrawn a dollar from the HSF.
“I wish to assure all concerned, therefore, that drawdowns will be made from the fund in a structured manner, only as and when required, and not arbitrarily or by vapse,” he said.
But Dukharan insisted the way Imbert calculates the deficit does not paint the real picture, as his figure usually includes financing items such as the sale of assets and the raising of bonds and not just revenue items.
Without the financing items, Dukharan said the true size of the original fiscal deficit facing T&T for 2020 would have been around $8 billion.
With those things being considered Dukharan said the deficit the country will be facing this fiscal could be closer to $20 billion.
“And that’s a huge figure,” Dukharan said.
Dukharan argued now is not the time for the government to worry about debt to GDP ratios or possible downgrades.
She said the focus should be stabilising the economy and ensuring that we can recover properly when the time comes.
“Now is the time to worry about feeding people, and making sure that when we come out of this we have an economy that can recover,” she said.
Dukharan added that while the country needs to put measures in place to ensure the spread of the COVID-19 is stopped, if the situation is not handled properly it can actually destroy the private sector.
“Right now it is about keeping the patient alive but we have to ensure that when the blood starts flowing in the system again the patient is in as good as possible a position to recover,” she said.
Dukharan opined that the government needs to also look at that figure than the private sector requires in order to keep the lights on.
So the figure that is facing us as a country is the fiscal deficit plus the figure needed to help the private sector recover, she said.
One way the government can address this financial iceberg is by raising a high valued bond domestically in TT dollars with a 15-year duration since we are not going to come out of this predicament any time soon, she said.
Dukharan suggested that this bond should be in denominations as small as $1,000 each to ensure that there are many bondholders.
She argued this would not be restructured if and when we enter the IMF-programme.
“We will have to go to the IMF and say please help us and if we do this (raise this bond) it will bide us some time,” she said.
“We need to do this now, we need to borrow big, borrow hard, or go home. We have to try everything behind this,” she said.
Dukharan said the bond will take excess liquidity out of the banking system and also sap up some of the liquidity on the exchange rate since we will be facing a balance of payment crisis.
The economist anticipated the country we will run out of foreign exchange in the next eight to ten months.
Apart from the COVID-19 pandemic the drastic fall in oil prices has hit T&T hard.
“This results in a projected loss of revenue in fiscal 2020 of $9.2 billion, to which must be added another net $1 billion in extraordinary expenditure. Within that $9.2 billion revenue loss, we estimate a loss of $3.8 billion in taxes on Incomes and Profits, and losses of $750 million in Business Levy and Green Fund Levy, $600 million in taxes on Goods and Services and International Trade, $2.5 billion in Royalties and Production Sharing and $1.2 billion in Profits from State Enterprises, among other areas,” Imbert said.
“There is no question that fiscal 2020 will be exceptionally difficult even if the pandemic fades in the second half of the year thus allowing for a gradual lifting of the containment measures and a re-opening of the economy. Indeed, the April 2020 World Economic Outlook envisages a partial recovery in 2021. However, there is tremendous uncertainty around the outlook, given that it can get worse,” he said
Economist Dr Vaalmikki Arjoon said that the “whopping” $15 billion deficit currently being forecast by Imbert maybe even worse than that.
Imbert said that the country will be basing its budget on a “conservative” oil price of $25 per barrel for oil for the rest of the year and $1.80 per MMBTU for natural gas.
Arjoon said this oil price is “still too high”.
“From my perspective US$25 is still yet a bit too high but it is more in line with where prices are averaging right now,” Arjoon said.
“If it were me I would have dropped that price that he is predicting it on. I would have used a more conservative value of US$20,” he said.
Arjoon said in the last four fiscal years T&T would have spent $202 billion but only received $171 billion in revenue leaving us with a total deficit of $31 billion.
“And now with this additional $15 billion deficit that’s going to take us to a grand total of $46 billion in deficit in five years,” Arjoon said.
Arjoon said, unfortunately, the country did not institute measures to ensure that the non-energy sectors were sufficiently developed to provide us with more revenue.
He argued the government needs to not only look at saving lives but also saving livelihoods.