Finance Minister Colm Imbert played it too safe with the national budget and instead needed to make some “daring moves” to generate the growth needed in the economy, former finance minister and former central bank governor Winston Dookeran has said.
“He has used all of the wiggle room, wiggle space that was available to him in the current scenario but he needed to take some daring moves beyond that to generate growth because it is growth in the end that will take us out of our problems not balancing the books and therefore you have to take some chances to pursue growth,” he said.
Dookeran said Imbert put together a package that achieved several immediate short term goals and as such have steadied the situation but more needed to be done.
“The budget will not achieve the growth potential even on its own platform without more resources. And although he is vying toward living within the resources that he can see, the situation in which we are now both in terms of the pandemic, in terms of the global slowdown in the world economy, in terms of the uncertainties on the price of gas and oil you have to take some chances,” Dookeran said.
The budget was missing the initiation of a “growth factor,” Dookeran argued.
Dookeran raised the notion of a catalytic role for the state.
He said turning around an economy often requires a shift from the step-by-step process of conventional models towards new approaches based on capturing strategic options.
“The conditions for such a shift are more likely to emerge during a crisis—like riots, natural disasters and pandemics. The role of the state in economic development has been a central question for leaders, as they always seek a balance between ‘ideology’ and ‘strategic’,” Dookeran stated.
He said rapid economic growth requires a new look at the role of the state in economic development.
“A shift towards a catalytic role for the state, where the state will act primarily as a catalyst for economic development and there are examples in the past where this has happened. The obstacles to the growth process lie in the undue reliance on the state and its outdated controls and systems,” he stated.
“Major economic costs are incurred. But, market forces by themselves will not suffice to protect the public good. Perhaps, we should embrace the notion of a catalytic role for the state in economic development; a role that causes change. This notion is strategic and was employed by Prime Minister of Singapore Lee Quan Yew in promoting state investment at the time into global ventures in shipping, finance and air and sea travel. The circumstances are different today, but the logic of a catalytic role of the state could change the calculus of state economic activities,” Dookeran stated.
Dookeran lauded Imbert for his creativity of getting some of the benefits of a devaluation without actually having to devalue the dollar.
“He was able to very creatively get some of the benefits of a devalued currency without devaluation by virtue of adding taxes to a number of high valued goods including cars and food etc which is going to reduce the importation of hopefully the expenditure of foreign exchange and that is one of the perceived benefits that could have come with a change in the exchange rate,” Dookeran said.
“But he rightfully decided not to pursue that course because the net impact of the devaluation would have been more negative than positive,” he said.
During the budget presentation, Imbert announced plans to rationalise the new and used markets for the importation of new and used vehicles.
He said at close to one million vehicles, there are simply far too many cars on the nation’s roads.
“As a country, we spend $2.5 billion per year or US$400 million per year importing an average of 25,000 motor vehicles per year, at least two-thirds of which relates to private motor cars,” Imbert said.
“This has created a serious leakage of foreign exchange. To correct this unsustainable situation, and suppress demand, as opposed to an outright prohibition, we propose to remove all tax concessions on the importation of private motor cars. All private motor cars will now attract customs duty, motor vehicle tax and Value Added Tax, with the lowest rates of duty and tax being imposed on hybrid cars, electric cars, CNG cars, and small engine cars below 1,500cc, to encourage their use,’ he said.
Tax concessions will remain in place for commercial and industrial vehicles and public transport vehicles.
These measures are to take effect on October 20.
In addition to this Imbert said that the permissible age of imported foreign used cars will be reduced to three years and the quotas for the importation of used cars reduced by 30 per cent.
He said a quota system will also be introduced for the importation of new cars in January next year.
Dookeran also said that Imbert needed to do much more to jolt the agriculture sector.
“I think the agricultural sector needs much more than what he has proposed in order to jolt it into activity it is not a matter of survival, in that case, it is a question of jolting it and jolting it requires much more resources than he has applied either in terms of tax-free status or in terms of $500 million incentive,” Dookeran said.
“It is clearly in the right direction but it is woefully inadequate in terms of the resources,” he said.
During the budget presentation Imbert said that for the next five years, the government is placing expansion of our domestic food supply at the top of its national policy agenda.
Imbert said the decision has been made to make agriculture in all its facets a tax-free industry and will build on that.
A $500 million Agriculture Stimulus Package will also be established and funded in addition to the normal budgetary allocation to the Agriculture Sector, Imbert said.
Dookeran said Imbert needed to take some chances.
“I am not of the view that the debt to GDP ratio even at 80 per cent is something to be worried about. I would, in fact, take the jump and move to a 100 per cent of GDP debt and the additional funds that I will get will give the jolt to the agricultural sector,” he said.
“Monetary policy has done what it can do within the old order but this is a new order and therefore we need to take some risks and increase the debt burden providing we utilise that excess debt and direct it to catalytic growth,” Dookeran said.
Former finance minister Karen Nunez-Tesheira during an interview with CNC3 said she was glad that the government did not go the route of introducing harsher fiscal measures in the budget despite the bleak outlook before the country.
“I am glad to see that there were not tougher measures. I think the government understood we are looking at COVID-19 whether you want to say they didn’t do what they were supposed to do, which they didn’t and that may account for the scepticism going forward,” Nunez-Tesheira.
Nunez-Tesheira said she was pleased with some of the ideas proposed in the budget but the issue of implementation continues to remain a bugbear for the government.
All in all, she said agriculture was the “big winner.”
“I think the government tried to balance health because health has gotten a large part of the budgetary allocation, they tried to balance it with education and a huge winner this year which shows in my view their seriousness about agriculture which I was happy to see was the allocation made for agriculture,” she said.
“And I think the government this time around is going to be serious about food security as also using food on a high-end sense in the chocolates which the Machel Montanos of this world are doing right now in order to produce foreign exchange,” she said.
“I think they also made a right decision in terms of cars I think that is something it can implement, it does not need a number of players in order to ensure that happens,” she said.