GEISHA KOWLESSAR-ALONZO
geisha.kowlessar@guardian.co.tt
Economist Dr Ronald Ramkissoon is recommending that small countries such as T&T should adopt fiscal rules, which will ensure they do not spend more money than they can afford.
His comments came in wake of the World Bank’s Global Economic Prospects report released on Tuesday in which the international financial institution noted that small states face significant fiscal challenges arising from common vulnerabilities.
The report noted that many small states are tropical islands, and highly exposed to costly natural disasters, particularly storms and other weather-related events that have become more frequent with climate change.
The report said natural disasters and global recessions weaken small states’ fiscal and debt positions, even more than in other emerging market and developing economy (EMDEs), adding that these challenges are further exacerbated by highly volatile revenues and large spending needs, including to invest in climate-change resilience.
The report further stated that between 2011 and 2023, average government debt in small states increased by about 11 percentage points of GDP, with the average debt-to-GDP ratio standing at 61 per cent in 2023, higher than in other EMDEs.
Ramkissoon said the report spoke a lot about some small states remaining vulnerable to climate change and to international shocks.
“They compare that with other developing or what they call emerging economies and they found that since COVID, our performance has been even worse than other developing countries...so they indicated that since we tend to have dealt with the impact of international events by borrowing and by increasing fiscal deficits by necessity, then have had to spend more with borrowed money.
“So, what the report has found is that the fiscal deficits have been larger and external borrowing or debt to GDP ratios have been higher. That is not a good place for SIDS (Small Island Developing States) and when we reflect on T&T, we see this economy has been running deficits for several years now and this debt has been rising for most of the period, although it fell in the 22/23 period,” Ramkissoon explained.
He noted that the IMF, in one of its recent reports, recommended that countries such as T&T have fiscal rules to keep a check of their spending. This is especially the case for commodity producers like T&T that should not increase expenditure when export prices are high.
“The idea is we save more than what we have been saving. We do have a buffer that is the Heritage and Stabilisation Fund (HSF) but the recommendation by the IMF is the fiscal rule, so everyone would be aware that we are attempting to have a balanced budget or close to it overtime,” Ramkissoon added.
Economist Indera Sagewan, who also commented on the report, said the issue of small states vulnerability certainly applies to the Caribbean. She said the issue of high indebtedness has plagued the region for well over 15 years.
She noted that before the pandemic significant work was being done in the small islands, however COVID created an anomaly which set back most of the islands in the Caribbean with respect to debt-to-GDP ratios resulting in the escalating of indebtedness.
She noted that fiscal prudence is an issue that has come up repeatedly in particular, stronger revenue-generating efforts through taxation.
Sagewan said while she understood this is the simplest method of reducing the fiscal deficit, as well as finding a source of income to deal with what is owed and reducing the need to borrow for things like recurrent expenditure, it is an extremely difficult task.