There is no doubt that reducing total Government expenditure by about 20 per cent over a four-year period in an economy like T&T is a significant achievement. And Mr Imbert may not get enough credit for maintaining total expenditure at $51.05 billion in fiscal 2020 and an estimated $50.79 billion in fiscal 2021—two years when most budget analysts would agree that Covid-19 support spending was justified.
But how does the Minister of Finance account for the fact that the central Government projects to spend $52.42 billion in fiscal 2022, some $9.09 billion more than the $43.33 billion it expects to earn in the current fiscal year?
What accounts for the fact that total expenditure in 2022 is projected to be more than in 2021 and in 2020?
What signal does it send to the population that the Government, through the Minister of Finance, seems to have opted to slacken its financial belt slightly in the current fiscal year when objective observers would have recommended the continuation of fiscal tightening or at least the maintenance of total expenditure in the vicinity of $50 billion?
Perhaps the signal that Mr Imbert intended to send was a return to normalcy and an end to the severe contraction in the economy caused by the Covid-19 disruptions.
But the consequence of seven consecutive actual and projected annual fiscal deficits, of course, is a growing national debt.
As Mr Imbert himself said in his presentation of the 2022 budget on October 4: “As a result, the adjusted general government debt ratio which had been rising since 2015, has now reached 84.8 per cent in September 2021 and is projected at 87.2 per cent in 2022.”
Local economist, Marla Dukharan, who is based in Barbados, argues that the Government could be facing a debt crisis by the end of 2022, given the rate at which the foreign reserves are being depleted, the continuation of fiscal deficits and the risk that foreign creditors may choose not to refinance T&T debt.
My position on this debt crisis debate is that a country with US$7 billion in foreign reserves, US$5.5 billion in a sovereign wealth fund and with tight Central Bank control of access to foreign exchange from authorised dealers is not likely to find itself in debt trouble in the next two years.
I also believe that for T&T, fiscal deficits are optional, given the value of the assets on the balance sheet of the State.
Last week, in this space, there was a recommendation that could reduce the projected 2022 fiscal deficit to about $1 billion:
“In fact, if the Government were serious about minimizing T& T’s projected $9.096 billion fiscal deficit for 2022, why doesn’t Mr Imbert look to divest the Government’s entire block of 161,946,890 shares in FCB, equal to 64.43 per cent of the issued shares of the bank?
If the Government were to sell its 161,946,890 shares in FCB at $50.60, that would raise $8.194 billion, which would be equal to 90 per cent of the projected 2022 fiscal deficit of $9.096 billion.”
If the Government were to embark on a programme of privatisation aimed at divesting one or two of the major State-owned enterprises a year, T&T would not have a fiscal problem or an issue of increasing national debt.
The problem with the way that Mr Imbert is managing the economy, though, is that there are unlikely to be substantial new investments in either the energy or non-energy sectors with an exchange rate virtually pegged at between $6.77 and $6.79 to US$1.
The people who have been “hoarding” their foreign exchange savings both onshore and offshore for “precautionary” reasons are not going to take the risk of conversion unless there is a correction in the grossly overvalued exchange rate.
Reduce role of State
In April this year, there were two commentaries in this space that focused on the role of the State sector in the T&T economy: “Should Govt divest post-Covid? on April 21 and “Do State companies need a Spotlight.”
There can be little argument that State-owned companies absorb a significant percentage of our financial resources, which are in decline despite the recent and temporary increase in the international prices of crude oil and natural gas.
The Review of the Economy 2021 estimates that the total expenditure on transfers and subsidies for the previous fiscal year was $27.24 billion.
According to the document, current transfers account for the lion’s share (77.9 per cent) of total transfers and subsidies and are estimated at $21.23 billion. Under the rubric current transfers—which includes the payment of salaries and the servicing of debt—transfers to State enterprises accounted for $3 billion and transfers to statutory boards and similar bodies in 2021 were estimated at $5.72 billion.
Mr Imbert did point to some adjustments in the transfers to the public utilities in the near future.
On the issue of water rates, he said: “We are looking forward to the results of the rate review for WASA for the period December 2021 - December 2026 and we would put in place a framework at the centre of which will be enhancing the quality of life of our citizens with a guaranteed daily supply of water. It is to be noted that water rates have not been adjusted in Trinidad and Tobago since 1993, 28 years ago.”
It is also appropriate that the Government is putting in place measures to protect low-income households from the impact of higher water and electricity rates.
If sensitively managed, the expansion of the T&TEC bill rebate programme to 35 per cent on electricity bills that are $300 or less is a good policy, which would impact 210,000 households at an additional annual cost of $25.0 million, said Mr Imbert.
The introduction of similar rebates for water bills is also good policy, if managed with sensitivety to cash flow issues of low-income households.
Mr Imbert also proposed an additional measure to help low-income households deal with higher utility bills: “We will introduce the market-based prices for electricity and water as recommended by the Regulated Industries Commission.
“We will provide low-income and vulnerable groups with appropriate rebates in the first instance. We will develop and put in place a Utility Cash Card, which will be made available to low-income and vulnerable groups to access subsidies for electricity and water, once the prices for these services are regularised.”