The government will not roll back spending on its capital projects even if energy prices remain lower than expected and if it has to run a higher than anticipated budget deficit.
Finance Minister Colm Imbert told a news conference on Monday that capital expenditure is crucial to growing the economy and there will not be any reduction in expenditure in 2023.
“So even if we have to increase the deficit to two billion, three billion maybe, because that is just an estimate by the IMF, and it is extremely conservative, they are assuming the worst, in terms of oil and gas prices and production and so on…..so we would not cut back on expenditure willy nilly, we will try to maintain the expenditure momentum even if we have to have a higher deficit than expected.” A confident Imbert told the media conference.
He was responding to a question from the Express Business about the continued fall in energy prices, with oil, LNG and petrochemical prices all taking a hit.
The Finance Minister noted that the IMF, the rating agencies S&P and Moodys, all welcome expenditure on capital development.
All of these entities he said are not favourably disposed to increasing recurrent expenditure because as far as they are concerned recurrent expenditure does not stimulate economic growth, does not create jobs, does not stimulate economic activity and does not stimulate export. But capital programmes do just that.
“Your capital programme is infrastructure, its highway infrastructure, its facilities, its everything within the capital development programme, it is designed to create economic activity, to improve the ease of doing business and create jobs.
The answer is no we will not cut back on capital expenditure at all and in any event we have managed significant deficits in the past and my focus, and I saw Minister Dookeran talk about it…and I looked at what he said this time, he said we should not be too worried about deficits we should focus on growth and my focus will be on growth.” Imbert insisted.
The Finance Minister acknowledged that the country was facing some revenue challenges but said it is not as bad as some may think, because of a new formula in which the government gets money from the export of LNG.
He crowed, “Yes we have some issues in terms of revenue. I will account to the country in the mid year review. Yes I have some concerns about revenue targets and so on.
Obviously we can all read, we all see the international press and so on, we get data all the time on a daily basis in terms of the price of WTI, the price of natural gas, but I want to make a point, and I have made it before, that Trinidad and Tobago benefits from a revised formula for revenue from the natural gas sector, in particular where the prices that we get for tax and revenue purposes are not based simply on Henry Hub. They are based on three benchmarks.”
Imbert said these are Henry Hub, the Japanese/Korea and European benchmarks.
“So that the net back prices we get for gas is not based on Henry Hub. So when I speak in the budget, the figure that I give, $6 is a net back price. So we also have a different formula for LNG net back gas prices and a different one for petrochemical net back prices.” Imbert insisted.
With respect to the petrochemical net back the Finance Minister said it is based on international commodity prices and for four of the first six months of the 2023 fiscal year, the government was able to achieve its revenue targets.
“I can tell you that for the first four months of the fiscal period the net back price was above the budget estimates. They have moved in now a little below. So the average for the first six months is turning out to be just about the budget estimates for gas.
Oil has been below and as the IMF has said we make adjustments, we are prudent, we are careful, we are flexible and we will manage accordingly.”
Asked about the IMF’s report that the fiscal surplus was in fact half of what he, Imbert had told the country it is, or the equivalent to 0.03 per cent of GDP as opposed to the 0.06 per cent of GDP Imbert announced, the Finance Minister revealed it is because the IMF would not consider one off extraordinary receipts and therefore it removed those from its consideration, leading to its estimate being a smaller surplus than the Ministry of Finance.
He said, “They look at one off infusion of income as something not to be taken into account in the calculation, so when the IMF does its calculation of surplus, you can bet your bottom dollar that is the most conservative assessment possible, and what is good about that, is that even though the IMF would have taken out any one off revenue we might have gotten from CLICO or so on , if they took that out from our total revenue envelope, even so we still had a fiscal surplus in 2022 which is quite commendable.”
Imbert also boasted that the government’s diversification strategy was working and that it was the non energy sector that was mainly responsible for the growth in 2022.
He said when one looks closely at the economic fundamentals, the data from the central statistical office show the out-turn in fiscal 2022 was not only due to enhanced oil and gas prices and in fact the non oil sector rebounded much better than the energy sector which led to last year’s success.
“Of course the unexpectedly high prices of oil and gas helped to boost he coffers in the treasury of course, it goes without saying, but when you dig into the numbers and you see both in the non oil sector, you see there growth in the non-oil sector, non energy exports averaging twenty percent in fiscal 2022, it is not correct to say that when things went well last year it was due to external factors. It was not, it was a combination of external factors and internal factors.”
The Finance Minister said the growth in the non energy sector continues into 2023 with expansion in manufacturing in particular.
“ I am very encouraged by what I am seeing in the data coming out from the CSO and when I look industry by industry I am very encouraged because I am seeing that the economy has rebounded from the effects of Covid-19, I am seeing that our manufacturing sector has taken up the challenge and is growing at a tremendous rate, I am seeing that exports in the non energy sector are growing and therefore our diversification strategies are working.:”
No to IMF suggestions
Imbert also dismissed suggestions by the International Monetary Fund (IMF) that the Central Bank should raise interest rates as well as introduce a free float of the Trinidad and Tobago dollar.
Imbert said both prescriptions are likely to lead to hardship for citizens, sending hundreds of thousands into poverty, and result in an explosion in inflation and business failure.
He said T&T is not in an IMF programme and therefore does not have to take its ad-vice.
“If one were to increase interest rates in Trinidad and Tobago it would stifle economic growth, and the other thing is, when one looks at the data there is no capital flight occurring in Trinidad and Tobago, there is no risk-taking that we can see in the financial sector, from the constant monitoring of the financial sector by the Central Bank.
None of this is taking place and the irony of this is that they published this statement before Credit Suisse almost collapsed, and Credit Suisse almost collapsed because of this policy of increasing interest rates. So this is a view coming out of North America that we simply do not agree with,” he said.
Calling for greater exchange rate flexibility, the IMF team also recommended the removal of all restrictions on current international transactions while making sufficient foreign exchange available to meet the demand for all current international transactions.
The Finance Minister again rejected any suggestion of allowing a free float of the exchange rate, saying the Government was de-fending the exchange rate and would not allow it to float to TT$10 to one US dollar.
He argued it would unleash a lot of hardship on the population and would benefit the few who would take it and use it to purchase luxury items.
“We shall not be pumping US dollars into the system for people to buy town-houses in Miami,” Imbert said,
The Finance Minister insisted that the economy was doing well, that the country had a healthy supply of foreign re-serves, the balance of payment position was positive as was the current account and growth was projected to quicken in 2023 despite the energy price headwinds.