Economist Dr Vaalmikki Arjoon says the mid-year budget review delivered by Finance Minister Colm Imbert indeed suggests that the macro-economy finally has some breathing room especially after six long years of negative economic performance, worsened by the pandemic.
However, while this is encouraging, the country’s real GDP performance is still not better than pre 2020 levels, Arjoon added.
He noted that T&T’s fiscal space has now deepened given the dramatic increase in global hydrocarbon commodity prices, bringing a surplus of $1.98 billion at the end of April 2022.
This, Arjoon said, is encouraging especially since the economy’s Real GDP would have declined by over 11 per cent from 2016 to 2021, with a total deficit of $63.9 billion in that period.
“With such a deficit, we naturally didn’t save, and therefore, had to borrow to meet our fiscal spending responsibilities, bringing the debt burden to over $130 billion at the end of 2021,” Arjoon added.
Using the IMF’s projections, he also noted that the economy’s Real GDP is projected to grow by 5.47 per cent in 2022, with a value of $149 billion.
This, however, Arjoon added, is still lower than 2019’s value of $154.6 billion but higher than the Real GDP for 2020 and 2021.
Additionally, he noted that it is also very encouraging that the debt to GDP ratio has fallen to 72 per cent, which he added will certainly be looked upon favourably by the credit rating agencies, together with the increase in revenues.
However, according to Arjoon, the key reason that the debt to GDP value has fallen by such a substantial amount is not due to a meaningful fall in the public debt, but because of the denominator, nominal GDP, which according to the Minister of Finance increased to $180 billion.
“This value has increased primarily due to price increases, more so than production increases recall that prices as a whole have increased as the prices of all raw materials used in the production process and imported goods have risen sharply due to global supply chain complications together with the cost of shipping and, most of all, energy prices,” Arjoon said.
He explained this means that nominal GDP, which is the total value of goods and services produced at current prices, will naturally be much higher, therefore causing the debt to GDP value to fall.
Arjoon advised that it would be more meaningful to explore the revenues to debt ratio, as state revenues are needed to service the national debt.
In fiscal 2016, Arjoon noted, revenues to debt ratio was 50.9 per cent, “suggesting that 50.9 per cent of our debt could have been covered by fiscal revenues.”
This value fell to 28.3 per cent in fiscal 2020 but is projected to increase to 37 per cent in this fiscal period given the Finance Minister’s estimates of revenues.
“If we are careful, the surge in revenues from the energy sector can help with better debt repayment capabilities, but these additional revenues must be invested to build our productive capacity and generate attractive returns to not just pay off the debt but also re-invest in national development,” Arjoon added.
Also, he said the additional supplementary funds to be paid as arrears to contractors and contract workers, wages to WASA employees and grants such as the senior citizens grants will certainly help the recipients to cope with the increased cost of living brought on by the higher prices of consumables and fuel costs.