Finance Minister
Karen Tesheira

Government expects to run a fiscal deficit for this year as well as next year as a faster than expected drop in oil prices and higher expenditure for an economic stimulus package will take its toll on government finances. Finance Minister Karen Tesheira said Government had initially budgeted for a surplus in the current year, but said “no one could have predicted the dramatic fall in oil prices from a high of US$140 per barrel in July 2008 to less than US$40 just three months later.” She anticipated that bonds and other capital market instruments would fund the deficit, which is expected to be around 3 per cent of the national budget or about $1.5 billion to $2 billion for each year.

The Central Bank has also forecast a deficit of $1.6 billion compared to an overall surplus of $10.3 billion for 2008. “In hindsight, it was wise for Government to peg the budget on a price of just US$70 per barrel for oil, as we did not expect the extremely high prices to be sustainable. Neither the Government, nor the Opposition for that matter, predicted the large price movements that the world experienced last year. They also suggested that we base the budget on a similar oil price of US$68.” Speaking to her constituents as the parliamentary representative for D’Abadie-O’Meara at her Arima office yesterday, Tesheira said the Ministry of Finance was concerned about the persistently low price for gas on the international market. “Gas has been contributing more to the national budget through tax receipts than oil, and the low international prices will pose some challenges for us. We will have to manage our finances very tightly,” she said.

She said another challenge was the performance of the United States’ economy, which was the major market for T&T’s oil and gas exports.
“We are anticipating that the US economy will begin to turnaround by the middle of next year. If this happens, we will be in a better position to deal with the challenges of the economic slowdown as well as take on the aggressive infrastructure development programme we have planned to meet our vision to achieve developed country status by 2020.” Tesheira said despite the trying global economic situation, T&T had performed credibly, but she was seeing some signs of weaknesses in manufacturing, agriculture and the service sector, and the stimulus package was expected to deal with this situation and provide some measure of confidence for the business community.
Commenting on the performance of the economy, Tesheira said despite a run on the country’s foreign currency reserves since January, the country was able to expand its import coverage from 10 months to 13.6 months as imports dropped significantly in the first half of the year.

She said the focus of the new budget will be national development and government’s priority will be on infrastructure development, national security, education, healthcare and social security. “We are expecting cuts across the board in many areas, but the development agenda will continue and we will be maintaining our expenditures in these key areas. These are the priority of the Government.” She also lamented the difficult economic prospects facing the other Caricom states, and Government intended to provide some support, as they were important political partners and provided a key market for T&T manufacturers. Tesheira said many of these countries faced debt to gross domestic product ratios of more than 80 per cent while T&T’s overall debt ratio was just 25 per cent, with an external debt ratio of just 6 per cent.