Mariano Browne
A government should have at least two major goals: to maintain law and order and to achieve sustainable economic growth which benefits all of its citizens. T&T faces five critical obstacles to achieving sustainable economic growth. The first is the secular decline in natural gas production; second, the high level of national debt; third, the scarcity of foreign exchange; fourth, the need to develop a credible strategy to reduce economic dependence on natural gas; and fifth, the effect of an ageing population on social expenditures. How does the budget address these five obstacles?
Translating grandiose statements into action requires targeted fiscal measures to promote growth in areas that diversify economic output away from dependence on natural gas. The budget speech includes thirty-four (34) fiscal measures. The first ten measures are meant to raise revenue and protect the tax base. These measures are expected to generate $1 billion in revenue, or 1.5 per cent of total budgeted revenue. Twenty-three of the other measures have no connection to any initiative to transform the economy and reduce the impact of these revenue measures by $0.6 billion.
One measure associated with revitalising the agricultural sector will train 100 individuals as part of the effort to build “the next generation of agricultural entrepreneurs and professionals.” This is tokenism. Farmers are already entrepreneurial. They want better prices, more agricultural land and better access roads. Building more factory shells for agro-processing is an empty gesture. Agroprocessing needs much larger volumes than currently produced. For example, commercial pepper sauce production uses imported pepper.
Furthermore, the funds allocated to the Ministry of Agriculture, at $.987 billion, are enough to pay salaries and undermine grandiose statements about improving agriculture. Similarly, it is not enough to say that tourism will grow from six per cent to 12 per cent of GDP by 2030. How will this happen?
The Minister of Finance gives an impressive list of natural gas projects, most of which are expected to begin producing somewhere in 2027. Yet he avoids projecting natural gas output in 2027. The implicit suggestion is that natural gas production will increase sharply in 2027. This is unlikely. If the minister were confident, he would have given an estimate of projected output. The likely outcome is that the projects he enumerated would increase natural gas production, but not enough to restart idled plants. What matters is how the gas will be allocated as the country gets relatively more money from petrochemical companies than from LNG exports.
So why does taxation revenue increase by ten per cent? The answer is that even though natural gas output has fallen and Atlantic LNG and the petrochemical companies are producing lower volumes, prices for LNG, urea, ammonia, and methanol are all higher because of the combined effect of the wars in the Middle East and Ukraine. Scarcity has increased prices.
But wars end, and higher prices do not last forever. After seven lean years, tax revenues recovered in 2022 and 2023, and then declined in 2024 and 2025. The real difficulty is that expenses keep expanding despite the revenue volatility. As a result, deficits have continued, and the national debt has risen to about 89 per cent, well above the 70 per cent prudential maximum. The complication is that international interest rates are rising and are higher than the economy’s growth rate. Debt service payments are rising faster than the capacity to generate tax revenue, and the country is borrowing to repay its debts.
In this context, the minister’s comments are cavalier. Whilst he recognises the dangerous fiscal position, he kicks the can down the road. He “will explore the development of a National Fiscal Responsibility and Resilience Framework and give serious consideration to publication of an annual Fiscal Strategy Statement that sets out Government’s medium-term fiscal objectives, the economic and fiscal assumptions underpinning those objectives, the expected path for revenue, expenditure, the fiscal balance and public debt, and the principal risks that could affect that outlook.” This is a comfort to a fool.
The danger is real. An ageing population is leading to an increase in social expenditures. Similarly, a key subsidy is diesel. Diesel fuel usage is at least 500 million litres annually. A conservative estimate is that the fuel subsidy exceeds $1 billion, not the $290 million mentioned in the speech. Subsidies and transfers now account for approximately 56 per cent of expenditure. To address this, the minister is “betting” on buoyant commodity prices, future natural gas production, and spending discipline that has so far been absent. This means the budget deficit is underestimated and will again exceed projections in 2027.
Oversubscription of a bond issue is not a measure of a country’s economic success. The real measure of economic performance is an economy that demonstrates robust growth. Strong economic growth will generate the necessary foreign exchange and cash to spend on priorities.
In summary, there are no measures to reduce the dependency on natural gas production as the country’s economic mainstay. While the minister can be excused for not addressing the foreign exchange rate mechanism directly during a budget speech, there is little to suggest that the matter has received serious consideration. Similarly, the decision to withhold backpay entitlement to public servants is the main reason for the low deficit. In summary, the budget speech contains a piecemeal patchwork of measures that do not address the key structural issues.
Mariano Browne is the Chief Executive Officer of the UWI Arthur Lok Jack Global School of Business
