Economists believe Government will have to manage the economy very carefully going forward in light of Finance Minister Colm Imbert’s announcement of a massive $15 billion budget deficit due to the COVID-19 pandemic and crash in oil and gas prices on Monday.
Economist Dr Roger Hosein advised the Government to find a way to cut its expenditure by $5 to $7 billion.
“I am not surprised at all that the budget deficit is $15 billion,” Hosein said in a telephone interview.
“I am not sure of the coming fiscal year in terms of expenditure, but on the assumption that expenditure will remain similar as it did in the last few years, then we would continue to run a fiscal deficit. My advice to the state is to find a way to cut expenditure by a further five to seven billion and to pursue the measures it has raised in the past to raise revenues.”
He added, “There was a precipitous fall in the price of oil and the price of gas, as well as the production of oil seems to have been in the decline and the production of gas as well.”
Hosein said while things may improve, we should not expect too much too soon. Hosein sees an uptick in the economy by the end of the year and stabilisation within two years.
“Economic growth returning, certainly at a slow pace in the coming quarters but not back to what it was previously. So that the trough of this current recession, added on to the depression of 2016, 17, 18 and 19 would see us probably in positive economic growth by the fourth quarter of 2020 and out of the depression by 2022,” he said.
“Our chances of rebounding exist. Of course we would rebound at some point in time, the dilemma is that it will take some time.”
However, he said a massive deficit means the country will have to incur more loans.
“I think our debt can increase both internal and external and if this continues it would limit the amount of fiscal space that the state has remaining and in so doing, via the existence of interest payments, eat in to the capacity of the state to make investments in capital goods that are urgently needed,” Hosein said.
He said the State has done a good job dealing with the COVID-19 crisis and he expects drawdowns from the Heritage and Stabilisation Fund (HSF), but said expenditure before the crisis and plans for spending after it is a cause for concern.
“The state has been doing a good enough job with the health crisis. They had to draw down on the HSF so we cannot fault the Government in that regard. Where there is room for improvement is the amount of expenditure that we undertook prior to COVID-19 and the amount of expenditure that we plan to undertake after COVID-19,” he said.
Hosein said he was also not sure what to expect in the next budget.
Fellow economist Subhas Ramkhelawan, founder and managing director of Bourse Securities, agreed with Hosein to an extent.
“There was a $5 billion deficit in the original budget and on top of that there is another $10 billion because of current market issues and so on in terms of the Government grant and support,” he said.
“It is not an overall increase in the deficit, it is the increase inclusive of the $5 billion budget deficit that existed.”
He agreed the country was currently in a challenging situation.
“But this is not unique to us across the board,” he said.
“When you start to look at what it means in terms of the deficit relative to the GDP (Gross Domestic Product) and so on, when you start to look at some of the indicators analysts would look at, it is a significant deficit.
“The projections for GDP, looking ahead for T&T, the GDP would be in negative territory by about four and a half per cent.”
However, Ramkhelawan said it’s not all bad news.
“We are fortunate to have a reasonably sized HSF, so drawing upon it to the extent that has been reported would essentially make up for the $5 billion deficit,” he said.
“The question really is what is going to happen with things like credit rating and credit quality and what is going to happen to the reserves.”
Ramkhelawan said when there is a drawdown from the HSF on a US dollar balance and when that money is used to pay TT dollar obligations, the Forex reserve would go up by $1.5 billion.
“That now has to be countered by a significant reduction in foreign exchange earnings because of the price of our major export, oil and gas,” he said.
However, he said predictions and forecasts about the country’s economic future would be better when there was more information.