GEISHA KOW­LESSAR-ALON­ZO

As the na­tion awaits with bat­ed breath for the un­veil­ing of the 2026 fis­cal pack­age by Fi­nance Min­is­ter Dave Tan­coo, two lead­ing econ­o­mists have weighed in on the chal­lenges ahead.

Dr Vanus James cau­tioned that it would be a for­mi­da­ble task for the gov­ern­ment to ful­fil its elec­tion promis­es with­in the con­straints of this bud­get.

Mean­while, Pro­fes­sor Roger Ho­sein em­pha­sised the ur­gent need to re­store eco­nom­ic growth, warn­ing that with­out a ro­bust re­cov­ery strat­e­gy, the coun­try risks stag­na­tion.

James ex­plained to the Sun­day Busi­ness Guardian that the new ad­min­is­tra­tion faces sig­nif­i­cant hur­dles in ful­fill­ing its am­bi­tious elec­tion pledges, pri­mar­i­ly con­strained by the dire eco­nom­ic cir­cum­stances in­her­it­ed from the pre­vi­ous ad­min­is­tra­tion and struc­tur­al lim­i­ta­tions.

He ex­pressed strong scep­ti­cism re­gard­ing the gov­ern­ment’s ca­pac­i­ty to de­liv­er on key promis­es such as a 10 per cent raise for pub­lic ser­vants, tax cuts and ex­pand­ed sub­si­dies, par­tic­u­lar­ly in the short term.

James ar­gued that the fun­da­men­tal re­al­i­ty is that all gov­ern­ment ex­pen­di­tures must be fi­nanced—in­clud­ing tax-re­lat­ed mea­sures such as the re­duc­tion of VAT and cor­po­rate tax rates.

He said if the Kam­la Per­sad-Bisses­sar led-ad­min­is­tra­tion in­tends to ho­n­our the elec­tion promis­es pre­vi­ous­ly out­lined, she faces two stark op­tions:

*Gen­er­ate ad­di­tion­al rev­enue – a prospect that ap­pears un­like­ly in the short-term, giv­en the cur­rent eco­nom­ic cli­mate;

*Ra­tio­nalise spend­ing by cut­ting oth­er ar­eas of cur­rent ex­pen­di­ture – a move that would be so­cial­ly painful, es­pe­cial­ly con­sid­er­ing that T&T’s bud­get has been stretched thin for over a decade. Even ad­just­ments in­volv­ing con­tract work­ers could trig­ger sig­nif­i­cant pub­lic back­lash.

A par­tic­u­lar point of con­cern is the promise of wage ne­go­ti­a­tions for pub­lic ser­vants that would start at a 10 per cent in­crease.

This, James said, would rep­re­sent a “per­ma­nent ad­di­tion to the es­tab­lish­ment” on the re­cur­rent ex­pen­di­ture side of the bud­get, mean­ing on­go­ing costs.

He strong­ly ad­vised the gov­ern­ment to ex­er­cise cau­tion, sug­gest­ing they must first “turn the econ­o­my around and grow ca­pac­i­ty to pay” be­fore in­sti­tu­tion­al­is­ing such a per­ma­nent cost in­crease.

“You have to let the pub­lic ser­vants hold strain un­til you could turn the econ­o­my around,” he said.

James al­so not­ed that even seem­ing­ly sim­pler mea­sures, like re­mov­ing VAT on thou­sands of food items, would equate to sac­ri­fic­ing a sig­nif­i­cant por­tion of rev­enue flow.

While pos­si­ble to im­ple­ment, he said it “wouldn’t be some­thing the gov­ern­ment could jump in and do now,” re­quir­ing a slow, phased-in ap­proach to avoid ex­ac­er­bat­ing the fis­cal deficit.

Ben­e­fits from high­er

labour force par­tic­i­pa­tion

In his analy­sis, Ho­sein fo­cused on three ar­eas as he ex­plained he would treat the bud­get as part of a four-year process to ef­fect change.

He not­ed that rais­ing T&T’s labour force par­tic­i­pa­tion rate is a crit­i­cal strat­e­gy for ac­cel­er­at­ing eco­nom­ic growth that di­rect­ly gen­er­ates for­eign ex­change.

“With par­tic­i­pa­tion lin­ger­ing around 55 per cent, the econ­o­my op­er­ates well be­low its pro­duc­tive po­ten­tial, lim­it­ing out­put in trad­able sec­tors that earn for­eign cur­ren­cy,” Ho­sein said.

Ex­pand­ing the pro­por­tion of work­ing age in­di­vid­u­als ac­tive­ly en­gaged in the labour mar­ket broad­ens the pro­duc­tive base he said. That would al­low the coun­try to pro­duce and ex­port more goods and ser­vices.

Fur­ther, he not­ed that high­er labour force par­tic­i­pa­tion rates mo­bilise un­der­utilised hu­man cap­i­tal in­to for­mal, rev­enue gen­er­at­ing work.

“This tran­si­tion will help to re­duce fis­cal de­pen­den­cy on trans­fer pro­grammes and will help to cre­ate more fis­cal room for the state to in­vest in in­fra­struc­ture, tech­nol­o­gy, and in­no­va­tion that fa­cil­i­tate ex­port growth. These fis­cal re­al­lo­ca­tions will help to am­pli­fy sup­ply-side ca­pac­i­ty and cre­ate stronger ex­ter­nal com­pet­i­tive­ness over time,” Ho­sein said.

Fur­ther, he said im­prov­ing the coun­try’s labour force par­tic­i­pa­tion rate is es­sen­tial for restor­ing growth and strength­en­ing for­eign ex­change in­flows as he ad­vised that this could be achieved by ex­pand­ing af­ford­able child­care and el­der­care sys­tems to in­crease fe­male par­tic­i­pa­tion, mod­ernising train­ing and re-skilling pro­grammes to align youth and un­der­em­ployed work­ers with ex­port-ori­ent­ed sec­tors, and for­mal­is­ing in­for­mal em­ploy­ment to raise pro­duc­tiv­i­ty and tax com­pli­ance.

Ad­di­tion­al­ly, Ho­sein sug­gest­ed that ex­tend­ing the ef­fec­tive par­tic­i­pa­tion age to 65 would fur­ther re­tain skilled, ex­pe­ri­enced work­ers in the econ­o­my, eas­ing pen­sion pres­sures while sus­tain­ing out­put in key in­dus­tries.

To­geth­er, he said, these mea­sures would broad­en the pro­duc­tive base, en­hance com­pet­i­tive­ness in trad­able sec­tors, and gen­er­ate more sta­ble, long-term for­eign ex­change earn­ings for the coun­try.

“Rais­ing T&T’s labour force par­tic­i­pa­tion rate from 54.8 per cent to 72 per cent, the same lev­el as The Ba­hamas, would rad­i­cal­ly trans­form the macro­eco­nom­ic land­scape. At the 2024 bench­mark of TT$237,000 in non-en­er­gy out­put per work­er, this shift would ex­pand the ef­fec­tive labour pool by near­ly 200,000 per­sons, lift­ing non-en­er­gy GDP from TT$134.2 bil­lion to TT$177.5 bil­lion. This TT$43 bil­lion in­crease rep­re­sents al­most one-third of cur­rent non-en­er­gy out­put, but as­sum­ing a 4.8 per cent un­em­ploy­ment rate,” he added.

Ho­sein al­so not­ed that the gain trans­lates di­rect­ly in­to new val­ue added rather than sta­tis­ti­cal arte­facts, adding that such an ex­pan­sion would move the econ­o­my clos­er to its pro­duc­tion pos­si­bil­i­ty fron­tier, sharply rais­ing po­ten­tial GDP and nar­row­ing the out­put gap.

He said to sus­tain this in­crease with­out push­ing un­em­ploy­ment above 5 per cent, the econ­o­my must si­mul­ta­ne­ous­ly ex­pand its cap­i­tal stock. This means scal­ing up in­vest­ment in in­fra­struc­ture, plant, equip­ment, and tech­nol­o­gy so that the en­larged work­force has com­ple­men­tary cap­i­tal to work with, there­by pre­vent­ing di­min­ish­ing re­turns to labour. Pub­lic in­vest­ment can crowd-in pri­vate cap­i­tal through tar­get­ted in­dus­tri­al poli­cies, mod­ernised ports and lo­gis­tics net­works, and re­new­able en­er­gy in­fra­struc­ture that low­ers pro­duc­tion costs.

At the same time, Ho­sein said re­forms to deep­en fi­nan­cial in­ter­me­di­a­tion would mo­bilise do­mes­tic sav­ings in­to pro­duc­tive in­vest­ment, while for­eign di­rect in­vest­ment in man­u­fac­tur­ing, ICT, and tourism can in­ject both cap­i­tal and tech­nol­o­gy.

“By align­ing labour mar­ket ac­ti­va­tion with cap­i­tal for­ma­tion, the econ­o­my en­sures that high­er par­tic­i­pa­tion trans­lates in­to sus­tained pro­duc­tiv­i­ty growth, job-rich ex­pan­sion, and macro­eco­nom­ic sta­bil­i­ty,” Ho­sein added.

Fis­cal bal­ance

Ho­sein al­so stressed that low­er­ing the non-en­er­gy fis­cal deficit is a macro­eco­nom­ic im­per­a­tive for restor­ing bal­ance, sta­bil­is­ing re­serves and dri­ving sus­tain­able, ex­port led growth, adding that a small­er non-en­er­gy deficit will help to curb im­port-in­ten­sive con­sump­tion and hence slow re­serve ero­sion.

This would al­low the state to treat volatile en­er­gy rev­enues as in­ter­gen­er­a­tional as­sets rather than re­cur­rent in­come, ster­il­is­ing a larg­er share in­to the Her­itage and Sta­bil­i­sa­tion Fund.

“This ap­proach sup­ports con­sump­tion smooth­ing by sav­ing wind­fall rev­enues dur­ing boom years and draw­ing them down dur­ing down­turns, there­by re­duc­ing pro­cycli­cal fis­cal shocks. This ap­proach would help delink pub­lic ex­pen­di­ture from com­mod­i­ty cy­cles, pre­serve wealth for fu­ture gen­er­a­tions, and sta­bi­lize macro­eco­nom­ic ex­pec­ta­tions, cre­at­ing a more pre­dictable en­vi­ron­ment for trade, in­vest­ment, and for­eign ex­change man­age­ment,” Ho­sein ex­plained.

He sug­gest­ed nar­row­ing the deficit would force re­source al­lo­ca­tion ef­fi­cien­cy, al­low­ing pub­lic funds to shift from re­cur­rent trans­fers to pro­duc­tiv­i­ty en­hanc­ing in­vest­ments, this is where we have fall­en sharply in the last 25 years.

In this re­gard, ra­tio­nal­is­ing sub­si­dies and non-per­form­ing state en­ter­pris­es is es­sen­tial. Fu­el, trans­port and util­i­ty sub­si­dies dis­pro­por­tion­ate­ly ben­e­fit high­er-in­come groups while ab­sorb­ing fis­cal space that could in­stead sup­port ex­port di­ver­si­fi­ca­tion and SME de­vel­op­ment. The cur­rent gov­ern­ment is on record as say­ing they want state-owned en­ter­pris­es to be prof­itable and went so far as to give CAL a two-year year time­line to get its busi­ness in or­der.

Ho­sein main­tains that fis­cal con­sol­i­da­tion is not aus­ter­i­ty.

“By align­ing ex­pen­di­ture with ex­port po­ten­tial and re­duc­ing the de­pen­dence on en­er­gy rents, the coun­try can start to re­build a re­silient growth mod­el an­chored in macro sta­bil­i­ty, pro­duc­tive in­vest­ment, and stronger for­eign ex­change gen­er­a­tion.

“We MUST start our own In­ter­na­tion­al Mon­e­tary Fund-type pro­gramme if we don’t want to go to the IMF. Man­a­tee will help (a bit) on the rev­enue side, but a lot of the con­sol­i­da­tion is on the ex­pen­di­ture side,”.

Grow non-en­er­gy sec­tor

Ho­sein said that of course, the most cred­i­ble path to re­build­ing ex­ter­nal re­silience and stim­u­lat­ing sus­tained growth is to in­crease non-en­er­gy ex­port rev­enues.

Ho­sein not­ed that over-re­liance on the en­er­gy sec­tor has left the econ­o­my ex­posed to glob­al price volatil­i­ty, while re­gion­al de­mand with­in Cari­com has ex­pand­ed rapid­ly, cre­at­ing sig­nif­i­cant room for fur­ther trade dri­ven di­ver­si­fi­ca­tion.

He said the com­bined GDP of Caribbean economies, ex­clud­ing T&T, ex­pand­ed from rough­ly US$1.9 bil­lion in 1960 to more than US$109 bil­lion in 2024, while the pop­u­la­tion more than tripled from 3.9 mil­lion to 11.8 mil­lion.

He al­so added that stronger non-en­er­gy ex­ports en­hance the cur­rent ac­count, sta­bilise the ex­change rate, and re­duce de­pen­dence on volatile hy­dro­car­bon rents.

Not­ing that Cari­com im­ports cur­rent­ly ac­count for just 8.5 per cent of T&T’s to­tal food im­ports in 2024, well be­low the 25 per cent tar­get agreed by CARI­COM mem­ber states for 2025, Ho­sein said meet­ing this bench­mark would al­low the coun­try to source about US $315 mil­lion in food from with­in the re­gion in­stead of the cur­rent US $107.8 mil­lion.