Mar­i­ano Browne

Re­cent de­vel­op­ments high­light the mul­ti­ple chal­lenges fac­ing cit­i­zens. In the re­cent past, the bud­get be­came more of a pub­lic re­la­tions ex­er­cise than a tool for eco­nom­ic change. Fi­nance Min­is­ter Dav­en­dranath Tan­coo is in the same dif­fi­cult po­si­tion as his pre­de­ces­sor. His In­de­pen­dence Day mes­sage called for uni­ty in the face of the sac­ri­fices the coun­try must make. Will he take tough de­ci­sions to make the nec­es­sary ad­just­ments, or will he, like Mr Colm Im­bert, say that all is well and kick the can down the road?

Cen­tral Bank in­di­cat­ed last week that the econ­o­my de­clined by 2.1 per cent in the first quar­ter. Avail­able ev­i­dence sug­gests that this de­cline con­tin­ued in the sec­ond quar­ter. The nat­ur­al gas pro­duc­tion has weak­ened, as has the per­for­mance of the petro­chem­i­cal sec­tor. Of­fi­cial for­eign ex­change re­serves have con­tin­ued to de­cline, mir­ror­ing the coun­try’s eco­nom­ic per­for­mance. The 11th ac­tu­ar­i­al re­port on the Na­tion­al In­sur­ance Sys­tem and the Stan­dard and Poor’s rat­ing re­port added ad­di­tion­al in­for­ma­tion, mak­ing the pic­ture bleak­er.

Since 2005, NIS ac­tu­ar­i­al re­ports have con­sis­tent­ly in­di­cat­ed that the fund is un­sus­tain­able with­out sig­nif­i­cant changes be­cause few­er work­ers are en­ter­ing the work­force to con­tribute to an ever-in­creas­ing pool of re­tirees. The lat­est re­port (com­plet­ed in 2024 but on­ly made pub­lic last week) says that the NIS Fund will be ex­tin­guished by fis­cal year 2033-2034, un­less sig­nif­i­cant in­ter­ven­tions are made … now.

The rec­om­men­da­tions to cor­rect this sit­u­a­tion are well known. The first is to in­crease the re­tire­ment age to 65, and do that now be­cause of the time tak­en to im­ple­ment the rec­om­men­da­tion. The sec­ond is to in­crease the con­tri­bu­tion rate. The third is to freeze pen­sions. The fourth is to re­duce the pen­sion for those re­tir­ing be­fore the rec­om­mend­ed pen­sion­able age.

These changes are nec­es­sary but un­pop­u­lar. And every gov­ern­ment and union leader since 2005 has lacked the po­lit­i­cal will to con­front this un­pop­u­lar re­al­i­ty. Will this ad­min­is­tra­tion, which has so many trade union­ists as min­is­ters, be any dif­fer­ent?

Sim­i­lar­ly, S&P’s 2025 rat­ing re­port iden­ti­fied key weak­ness­es in T&T’s eco­nom­ic per­for­mance. On bal­ance, it rates the T&T out­look as neg­a­tive, in­di­cat­ing that this “re­flects the pos­si­bil­i­ty of a down­grade ab­sent mean­ing­ful and time­ly steps to strength­en the sus­tain­abil­i­ty of pub­lic fi­nances, en­sure bal­anced eco­nom­ic growth, and main­tain the coun­try’s strong ex­ter­nal pro­file”. The re­port notes that there is a 33 per cent prob­a­bil­i­ty that S&P “could low­er the rat­ings over the next six-24 months”.

The re­port suc­cinct­ly states S&P’s con­cerns. First, the fis­cal and ex­ter­nal buffers have been weak­en­ing over time. Sec­ond, the long-term eco­nom­ic growth has been low. Third, there has been on­ly lim­it­ed progress by pre­vi­ous ad­min­is­tra­tions in di­ver­si­fy­ing the econ­o­my, leav­ing it vul­ner­a­ble to volatile en­er­gy prices. Fourth, out­put from the oil and gas sec­tor has been de­clin­ing. S&P al­so asked for more time­ly da­ta. There can be no ar­gu­ment with the re­quest, as there is no rea­son why GORTT can­not make the nec­es­sary im­prove­ments to en­sure that da­ta col­lec­tion and dis­sem­i­na­tion are im­proved.

Why does this rat­ing an­nounce­ment mat­ter? First, S&P is the on­ly rat­ing agency that gives T&T an in­vest­ment-grade rat­ing. Sec­ond, rat­ings mat­ter, as a sub-in­vest­ment grade rat­ing means that the in­ter­est rate paid on T&T’s for­eign loans would in­crease. Whilst it is tempt­ing to think high­er in­ter­est rates would on­ly ap­ply to new loans, all our for­eign loans are repriced pe­ri­od­i­cal­ly. This means that debt ser­vice pay­ments could in­crease. Were this to ma­te­ri­alise, oth­er ex­pen­di­tures would have to be cut to com­pen­sate for the in­creased debt ser­vice pay­ments.

Every­thing S&P re­ports has been said re­peat­ed­ly by oth­er com­men­ta­tors. The re­al ques­tion is, how will these mat­ters be ad­dressed in the up­com­ing bud­get speech? The fis­cal deficits have in­creased since the 2014 de­cline in en­er­gy prices. The in­ter­na­tion­al out­look for nat­ur­al gas prices to 2030 is for low­er prices as ca­pac­i­ty ex­ceeds world de­mand. There­fore, even if the Man­a­tee project im­proves gas pro­duc­tion, the fis­cal im­pact is like­ly to be lim­it­ed. Fur­ther, Exxon ex­ec­u­tives damp­ened any ex­pec­ta­tion that T&T could be an­oth­er Guyana.

The de­cline in for­eign ex­change re­serves was sin­gled out for spe­cial men­tion. If the for­eign ex­change earn­ings con­tin­ue to de­cline, this will af­fect the coun­try’s abil­i­ty to pay its in­ter­na­tion­al debt ser­vice oblig­a­tions. Low­er gas prices make this a like­ly sce­nario. A heav­i­ly man­aged ex­change rate (ie, a fixed rate at too low a price) sug­gests the cur­rent sys­tem is ham­per­ing a nor­mal ad­just­ment process. Noth­ing that has been said or done to date in­di­cates that this ad­min­is­tra­tion is pre­pared to ad­dress the im­bal­ance by im­ple­ment­ing a mar­ket-based ap­proach.

The tech­niques to ad­dress the de­fi­cien­cies iden­ti­fied by S&P are straight­for­ward. First, the deficit could be re­duced or elim­i­nat­ed over time by in­creas­ing tax­es, ei­ther by rais­ing in­come tax rates or by in­tro­duc­ing new tax­es. Sec­ond, the gov­ern­ment’s op­er­at­ing ef­fi­cien­cy could be im­proved, in­creas­ing out­put with­out in­creas­ing ex­pen­di­ture. Last week, Min­is­ter Tan­coo said that the ad­min­is­tra­tion would im­prove rev­enue col­lec­tion by im­prov­ing In­land Rev­enue but did not iden­ti­fy wider ef­fi­cien­cy mea­sures. Third, it could cut ex­pen­di­ture.

These are dif­fi­cult op­tions and ex­plain the min­is­ter’s In­de­pen­dence Day mes­sage. Ex­plain­ing and ar­tic­u­lat­ing the op­tions, ac­tions, op­por­tu­ni­ties and chal­lenges to con­vince cit­i­zens of the need for tough mea­sures is the po­lit­i­cal chal­lenge. There are no quick fix­es.

Mar­i­ano Browne is the Chief Ex­ec­u­tive Of­fi­cer of the UWI Arthur Lok Jack Glob­al School of Busi­ness.