THERE can be little debate that the Government was justified in expanding expenditure in the last 16 months to deal with the critical issues of addressing the upsurge in Covid-19 cases and in providing some measure of relief for those individuals whose income was reduced since March 2020.
There are, of course, many who argue that the Government should have provided much more financial assistance to the many small businesses that have suffered significant loss of income, especially in period since May 2021.
For those who argue that the Government should have done more, my response would be: with what money.
There are two ways in which the Government has funded the extraordinary Covid-19 expenditure: By increasing the country’s debt and by withdrawing monies from T&T’s rainy-day fund, the Heritage and Stabilisation Fund.
In its May 2021 Monetary Policy Report, the Central Bank reported: “Data for the seven months of FY2020/21 showed a fiscal deficit of $5.2 billion compared with a deficit of $6.4 billion recorded in the comparative period of FY2019/20.
“The lower deficit was primarily due to higher non-energy receipts and lower aggregate expenditure. The deficit was primarily financed by domestic borrowing and withdrawals, which totaled US$592.7 million, from the HSF.”
So the Central Bank is explaining that between October 1, 2020 and April 30, 2021, the Government spent $5.2 billion more than it received. In that seven-month period, the Government withdrew the equivalent of about $4 billion (US$592.7 billion) from the Heritage and Stabilisation Fund (HSF) and would have borrowed the rest from local financial institutions.
On the issue of increasing debt, the Monetary Policy Report stated that provisional data suggests that during the six months ending March 2021, there were 16 private placements of debt on the local market that raised a total financing face value of $9.29 billion.
“The Central Government was the primary borrower, raising $7.53 billion via eight issues for budgetary support and the refinancing of outstanding bonds. Furthermore, State enterprise activity recorded seven bonds at $1.47 billion, while the private sector logged only one bond at $280.0 million.”
Clearly, this programme of borrowing from the local financial institutions and withdrawing funds from the HSF is not sustainable and the longer it continues the closer T&T would be to bankruptcy and the tender mercies of the International Monetary Fund (IMF).
The question is when?
If the T&T population is not vaccinated to an adequate degree by the end of September, when Finance Minister Colm Imbert would be deep into the drafting of the 2022 budget, would the Government risk cutting expenditure to more affordable levels?
I think the Government may be forced to, as Mr Imbert’s response signaled at the news conference on June 15.
He said: “One of the reasons why we have been able to maintain our investment grade rating, even amidst all of this chaos, is that the Government has been doing its own adjustment.
‘So that when we came in in September 2015, the annual expenditure was in excess of $60 billion. We have that down now to $50 billion, so we have cut annual expenditure by about 20 per cent.
“But we have work to do, because we have to look at the money that is spent by way of subsidies on the supply of water, electricity and fuel.
“Because, even though what some of the economists say is outrageous and ridiculous-when they tell us that we should only spend $35 billion and it does not matter what happens; 50,000 people could get retrenched. That’s is the kind of foolishness that comes out of our university-We as a Government have to keep looking at the deficit between revenue and expenditure because you cannot go on forever spending significantly more than you earn.
“So we have to look at things like subsidies on fuel, water and electricity and we have to deal with it. Because last year, we had a deficit of $16 billion and this year, I am not sure what it would be, but it may be more than $10 billion. And that money has to be borrowed or withdrawn from the Heritage and Stabilisation Fund.
“You can’t keep doing that forever as that would be totally irresponsible.
“So unfortunately, we have to deal with these issues that have been left unattended for so long....”
Mr Imbert is right that we cannot keep spending more than we earn for much longer. But will the budget presentation in early October grapple with T&T’s realities in a serious enough manner?