The state has great power and explains why officeholders are seen as being both powerful and influential. As a result, businessmen, regardless of their personal political orientation tend to accommodate themselves to any party forming the government. This is pragmatic as there a myriad of ways in which new business projects can be facilitated, or frustrated, by a government. Conversely, “austerity” caused by weak revenues and a poorly structured expenditure profile is a word which is disliked by politicians as it limits spending and therefore, their influence.
The sharp decline in energy revenues has limited the capacity of the current administration throughout its term of office. It has been unable to maintain the expenditures of its predecessors on social programmes leading to dissatisfaction on the “ground”. This is one reason why the previous administration has been vilified for its expansive and unsustainable expenditure programme in every budget speech. Indeed, the Finance Minister has sought to portray these expenditure cuts as “savings”, evidence of business acumen and financial wizardry.
Unfortunately, savings are generally associated with positive cash balances. Instead of positive cash balances, the country has experienced rising public debt, declining foreign exchange reserves, and an increasing deficit on the consolidated fund at -$24 billion on last publication. The 2021 budget offers little prospect of positive change to these variables. Oil and Gas prices remain becalmed and the latest results announced by the new chairman of the NGC suggest little prospect of improvement.
The financial position, therefore, requires a defensive posture, tight fiscal measures for the most part and a search for efficiencies in the administrative structures. The one-off financial payment by Shell in respect of prior period tax disputes kills any aggressive tax intent by Inland Revenue without improving their capacity to deal with the ills complained of by the finance minister. It is simply impossible to achieve efficiency if business processes remain unchanged or are not streamlined to become fit for purpose.
Recurrent expenditure (salaries, purchases of goods and services) and subsidies and transfers accounted for 96 per cent of revenue (including asset sales) in 2018 and were budgeted at 103 per cent for 2019. Debt repayments accounted for 10 per cent of revenue. That left nothing for expenditure on development projects without borrowing. Education, health and national security account for the lion’s share of government’s expenditure. Since these remain national priorities, the only thing that can change is to change the way the country does business.
Significant changes of that kind have never been attempted in an election year. More realistically we can expect more borrowing. But government borrowing to maintain government expenditure, including subsidies which encourage the current resource allocation is what got Jamaica and Barbados into trouble with only the IMF as their rescue partner.
The reality is that T&T must export to survive, but gas has a cold and the oil has pneumonia.
Even if the energy sector recovers, the energy world is changing. The USA is now the largest oil producer, and gas is being found in more copious there, and elsewhere. As a result, Shell and BPTT are reconsidering their options in the face of the competition and the new opportunities. Capital will only go to those jurisdictions that give the biggest return.
T&T’s only option is to make better use of existing resources. A key device remains the floating rate mechanism adopted in 1993. If we continue on the current path as suggested by the finance minister, trouble beckons. The USD $1 billion decline in foreign exchange reserves experienced in the last year will continue. Foreign exchange inflows cannot meet demand despite large interventions to support the market. There is little growth, the fiscal stance far too expansionary thus encouraging further outflows.
T&T’s established approach to growth and diversification has been to pray for a dramatic increase in oil and gas which has not worked. Most importantly, T&T needs a serious growth strategy that starts by stabilizing macro fundamentals and targets growth in non-energy sectors.
Adjustment is always a bitter pill. Any adjustment will be worse if left until 2021 and beyond. That is the lesson of Barbados and Jamaica. Howai promised stabilisation after a 2015 election budget.
Will minister Imbert do the same?