The Mid-Year Bud­get Re­view by the Min­is­ter of Fi­nance brings with it the ex­pect­ed com­men­tary about the state of the lo­cal econ­o­my. My sug­ges­tion to the many econ­o­mists and an­a­lysts now pon­tif­i­cat­ing on the T&T econ­o­my is sim­ple: choose your words care­ful­ly.

When we say the coun­try is “head­ing to­wards” a debt cri­sis, or that neg­a­tive eco­nom­ic out­comes are “rapid­ly gain­ing mo­men­tum,” we cre­ate the im­pres­sion that some­thing new has sud­den­ly ap­peared. That is not quite right. We have been liv­ing with fis­cal and for­eign ex­change stress for years.

We al­ready have for­eign ex­change short­ages. We al­ready have a debt-to-GDP ra­tio that is un­com­fort­ably high. We al­ready have ex­ter­nal debt vul­ner­a­bil­i­ties. What is chang­ing now is not the ex­is­tence of the prob­lem. What is chang­ing is that some of the oblig­a­tions pre­vi­ous­ly un­ac­count­ed for based on tim­ing are now com­ing to book. In ad­di­tion, there is the re­al­i­ty that some­times things have to get worse in or­der for it to get bet­ter.

Ap­pre­ci­ate that if we mis­di­ag­nose our sit­u­a­tion, it cre­ates a pre­scrip­tion for ac­tion that may cause more prob­lems than it solves. The is­sue isn’t that we have sud­den­ly be­come frag­ile. The main is­sue is that we are fi­nal­ly recog­nis­ing the full bal­ance sheet of our eco­nom­ic fragili­ty. Now the true ex­tent of what lies ahead can be tack­led with courage and alacrity.

This is where a ba­sic un­der­stand­ing of the con­cept of stock and flow be­comes es­sen­tial. Stocks are mea­sured at a point in time. Let me give you some ex­am­ples: out­stand­ing pub­lic debt, for­eign re­serves, Her­itage and Sta­bil­i­sa­tion Fund bal­ances, gov­ern­ment de­posits, ex­ter­nal li­a­bil­i­ties. Flows hap­pen over time: fis­cal deficits, in­ter­est pay­ments, for­eign ex­change earn­ings, im­port pay­ments, Cen­tral Bank in­ter­ven­tion, new bor­row­ing and debt re­fi­nanc­ing.

A debt stock does not ap­pear out of nowhere. It is built by years of fis­cal flows. A for­eign ex­change re­serve stock does not dis­ap­pear in one bud­get cy­cle. It is de­plet­ed by re­peat­ed for­eign ex­change flow im­bal­ances. A con­tin­gent li­a­bil­i­ty is in­vis­i­ble on the ac­count­ing records on­ly for it to be­come vis­i­ble on the day it is paid and an ac­count­ing event has fi­nal­ly forced recog­ni­tion.

This is the lens through which the present mo­ment should be read.

Off-bal­ance sheet

Over the years, right up to to­day, the Min­is­ter of Fi­nance is able to pro­duce arith­meti­cal­ly cor­rect re­port­ing but still un­der­state the State’s eco­nom­ic oblig­a­tions be­cause that’s the prop­er ac­count­ing treat­ment.

Take pub­lic sec­tor wages. By 2022, ne­go­ti­a­tions for the 2014 to 2019 pe­ri­od were still un­re­solved across much of the main­stream pub­lic ser­vice and wider State sec­tor. Ac­cord­ing to the Min­isty of Fi­nance, the then Gov­ern­ment’s 4 per cent of­fer was es­ti­mat­ed to gen­er­ate ap­prox­i­mate­ly TT$2.4 bil­lion in back­pay for the main­stream pub­lic ser­vice by June 2023, ris­ing to TT$4.6 bil­lion when ex­tend­ed to the en­tire State sec­tor. It al­so im­plied an ad­di­tion­al re­cur­rent cost of about TT$500 mil­lion an­nu­al­ly for the main­stream pub­lic ser­vice, or rough­ly TT$1 bil­lion an­nu­al­ly for the wider State sec­tor.

Those costs did not orig­i­nate in 2022. The bar­gain­ing pe­ri­ods had al­ready passed, and the em­ploy­ees work had al­ready been per­formed. What re­mained un­re­solved was the price the State would even­tu­al­ly have to pay for labour it had al­ready re­ceived.

Since then, en­hanced set­tle­ments of­fered to cer­tain bar­gain­ing units by the cur­rent ad­min­is­tra­tion, have in­creased the fis­cal cost. There is, of course, a le­git­i­mate po­lit­i­cal and eco­nom­ic ar­gu­ment about af­ford­abil­i­ty. A coun­try with con­strained rev­enues, high debt and for­eign ex­change pres­sure can­not be cav­a­lier about wage set­tle­ments. But af­ford­abil­i­ty is not the on­ly ques­tion. There is al­so the ques­tion of what is just, what is prop­er, and what the State’s own de­lay trans­ferred on­to its em­ploy­ees.

When pub­lic of­fi­cers live for years on salaries that have not been ad­just­ed for the pe­ri­od al­ready worked, they are not mere­ly wait­ing for a ne­go­ti­a­tion to con­clude. They are, in eco­nom­ic sub­stance, ex­tend­ing in­vol­un­tary cred­it to the State. The Gov­ern­ment pre­serves cash in the short term be­cause the wage ad­just­ment is de­ferred. The em­ploy­ee car­ries the cost in the mean­time.

That cost is not ab­stract. It ap­pears in low­er sav­ings, post­poned in­vest­ment, in­creased bor­row­ing, de­plet­ed house­hold buffers and, in many cas­es, the ero­sion of liv­ing stan­dards. It was es­pe­cial­ly acute dur­ing the Covid pe­ri­od, when house­holds en­dured pro­longed re­stric­tions, re­duced eco­nom­ic ac­tiv­i­ty and, soon af­ter, the in­fla­tion­ary surge that fol­lowed. A de­layed wage set­tle­ment is there­fore not cost­less sim­ply be­cause it has not yet ap­peared in the cash ac­counts of the Gov­ern­ment. The cost has mere­ly been car­ried else­where. Fur­ther it is car­ried by peo­ple who have a fi­nite work­ing life on be­half of a State that is ex­pect­ed to op­er­ate to per­puity.

This is why the present fis­cal im­pact should not be treat­ed as if it sud­den­ly emerged. Dif­fer­ent in­car­na­tions of the last ad­min­is­tra­tion al­lowed pub­lic sec­tor wage set­tle­ments to re­main out­stand­ing for ex­tend­ed pe­ri­ods, as seen in the back­log that per­sist­ed in­to 2010 and again in the un­re­solved 2014 to 2019 set­tle­ments that dom­i­nat­ed the pe­ri­od from 2022 on­ward. The li­a­bil­i­ty was not cre­at­ed when it was fi­nal­ly set­tled. It ac­cu­mu­lat­ed while it re­mained un­re­solved.

The fun­da­men­tal point is that pub­lic ser­vants were, in ef­fect, help­ing to fi­nance the State through de­layed com­pen­sa­tion. Now that this im­plic­it fi­nanc­ing is be­ing recog­nised, con­vert­ed in­to back­pay, and added to the re­cur­rent wage bill, the im­pact ap­pears as a jolt to the pub­lic fi­nances. But the jolt is not ev­i­dence that the oblig­a­tion is new. It is ev­i­dence that an old oblig­a­tion has fi­nal­ly reached the State’s books.

The same log­ic ap­plies to VAT re­funds. A ver­i­fied VAT re­fund is mon­ey owed. If pay­ment is de­layed, the State’s cash po­si­tion may look bet­ter, but the oblig­a­tion has not van­ished. Busi­ness­es be­come in­vol­un­tary lenders at ze­ro in­ter­est to the Gov­ern­ment. When re­funds are paid, net VAT col­lec­tions fall and the cash deficit wors­ens. When VAT bonds are is­sued, the oblig­a­tion changes form, from un­paid re­fund to ex­plic­it debt in­stru­ment but the com­pa­ny has to ac­cept a dis­count to con­vert this bond to cash. Again, the prob­lem was not cre­at­ed on the date of pay­ment, it was on­ly be­lat­ed­ly in­clud­ed in­to the ac­count­ing records.

The Na­tion­al In­sur­ance Sys­tem is dif­fer­ent again. It is not a bond ma­tu­ri­ty or a wage set­tle­ment nor is it a tax re­fund. It is an im­plic­it or qua­si-con­tin­gent fis­cal li­a­bil­i­ty aris­ing from a so­cial in­sur­ance sys­tem whose long term ac­tu­ar­i­al po­si­tion has been weak­en­ing. The State may not have record­ed the full ac­tu­ar­i­al short­fall as cen­tral gov­ern­ment debt, but no se­ri­ous per­son be­lieves that a fu­ture gov­ern­ment could sim­ply walk away from the na­tion­al pen­sion sys­tem if re­serves be­came in­ad­e­quate. The re­sponse to­day is high­er con­tri­bu­tions, lat­er re­tire­ment and mod­i­fied ben­e­fits. High­er con­tri­bu­tions draw from the cof­fers of work­ers and em­ploy­ers and is an­oth­er “catch up” mo­ment that has an ef­fect on the flows with­in the econ­o­my which was un­at­tend­ed and un­record­ed for a decade.

Ap­proach

These are not se­man­tic dis­tinc­tions. They are cen­tral to any se­ri­ous analy­sis of the coun­try. Now, you should un­der­stand why the present num­bers can ap­pear to be ac­cel­er­at­ing. Some of what is be­ing record­ed now is the cost of de­ci­sions not tak­en ear­li­er. Some of what is be­ing fi­nanced now is the ar­rears of pre­vi­ous years. We need to make a dis­tinc­tion be­tween de­layed recog­ni­tion and de­te­ri­o­ra­tion.

That does not mean the cur­rent po­si­tion is com­fort­able. It is not. The IMF’s lat­est as­sess­ment does not sup­port an im­mi­nent sov­er­eign de­fault nar­ra­tive. T&T still has mar­ket ac­cess, mean­ing­ful re­serves, a large Her­itage and Sta­bil­i­sa­tion Fund, a large­ly do­mes­tic debt struc­ture and a bank­ing sys­tem ca­pa­ble of ab­sorb­ing Gov­ern­ment pa­per. The suc­cess­ful US$1 bil­lion in­ter­na­tion­al bond is­sued in Jan­u­ary 2026, which ad­dressed the Au­gust 2026 ex­ter­nal ma­tu­ri­ty and ex­tend­ed the ex­ter­nal debt pro­file, is not what a near de­fault cred­it typ­i­cal­ly looks like.

But “not near de­fault” is not the same as “safe”. The more ac­cu­rate de­scrip­tion is vul­ner­a­ble, not in­sol­vent; stressed, not dis­tressed. The prop­er eco­nom­ic con­text is that T&T is pol­i­cy de­pen­dent, not doomed. This means that we need to be pre­pared to re­view and de­bate cur­rent pol­i­cy be­cause that is how we get from where we are to where we want to be.

This is where the econ­o­mists and the me­dia should cen­tre the na­tion­al de­bate and step away from the hy­per­bole and in some cas­es the po­lit­i­cal­ly charged rethor­ic. If you ac­cept the fact that in the short term pol­i­tics will trump eco­nom­ics and that this price will be paid over the longer term, then you should very much ap­pre­ci­ate that politi­cis­ing the eco­nom­ic pol­i­cy de­bate will shift the dis­cus­sion more to­wards the short term us­ing up fis­cal space that we sim­ply do not have.

All of us have a choice in how we ap­proach things from here. Let’s see how it goes.

Ian Nar­ine is a fi­nan­cial con­sul­tant who prefers to write with econ­o­my. Please send your com­ments to ian@ian­nar­ine.com