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As the Min­is­ter of Fi­nance pre­pares to de­liv­er the T&T FY2022/2023 bud­get speech lat­er to­day, this week we at Bourse fo­cus on the ex­pen­di­ture side of the bud­get equa­tion. Notwith­stand­ing some re­duc­tions from peak lev­els in re­cent years, To­tal Ex­pen­di­ture by the state has re­mained no­tably “sticky.”

With Rev­enue

(i) fair­ly volatile and

(ii) still not match­ing ex­pen­di­ture lev­els, can ex­pen­di­ture be ad­just­ed to help bal­ance the coun­try’s fis­cal po­si­tion?

We dis­cuss be­low.

Ex­pen­di­ture in­creas­es

Ini­tial pro­jec­tions in the FY2022 bud­get in­di­cat­ed a 3.1% year-on-year (YoY) in­crease in to­tal ex­pen­di­ture to $52.4B. This fig­ure was re­vised up­wards to $55.5B dur­ing the mid-year re­view fol­low­ing the sup­ple­men­tary ap­pro­pri­a­tion of $3.1B, to as­sist with in­creased op­er­a­tional costs across min­istries. Dur­ing the spot­light on the econ­o­my, da­ta pro­vid­ed high­light­ed to­tal ex­pen­di­ture of $53.5B for the soon-to-be con­clud­ed FY2022, sug­gest­ing that gov­ern­ment spend­ing may be mar­gin­al­ly high­er than ini­tial­ly an­tic­i­pat­ed.

To­tal ex­pen­di­ture is com­prised of two broad com­po­nents. Cur­rent ex­pen­di­ture in­cludes spend­ing by the Cen­tral Gov­ern­ment on items non-cap­i­tal in na­ture, mean­ing they pro­vide a pro­duc­tive use to so­ci­ety but may not nec­es­sar­i­ly pro­vide a con­crete as­set in re­turn. Cap­i­tal ex­pen­di­ture, on the oth­er hand, is usu­al­ly fo­cused on in­vest­ments that fa­cil­i­tate pro­duc­tion and rev­enue gen­er­a­tion. It con­tributes to the over­all stock of phys­i­cal as­sets of the econ­o­my and is im­por­tant for eco­nom­ic growth.

Be­tween the fis­cal years of 2017 to 2021, cur­rent ex­pen­di­ture ac­count­ed for rough­ly 93% of to­tal ex­pen­di­ture, with cap­i­tal ex­pen­di­ture ac­count­ing for the re­main­ing 7%. Dur­ing the first 9 months of FY2022 (9M 2022), these al­lo­ca­tions re­mained rel­a­tive­ly un­changed. Cur­rent Ex­pen­di­ture amount­ed to $33.5B, high­er than $31.7B in 9M 2021 and Cap­i­tal Ex­pen­di­ture amount­ing to $1.7B com­pared to $1.4B in the pri­or com­pa­ra­ble pe­ri­od.

Trans­fers & Sub­si­dies Dom­i­nate

Trans­fers & Sub­si­dies amount­ed to $20.4B in 9M 2022, 7.1% high­er than $19.0B in 9M 2021. The sec­ond high­est com­po­nent, Wages and Salaries (20.4% of To­tal Ex­pen­di­ture), mar­gin­al­ly in­creased 1.7% from $6.7B in 9M 2021 to $6.8B in 9M 2022. Ex­pen­di­ture on Goods and Ser­vices in­creased 11.4% YoY, to $3.5B in 9M 2022. In­ter­est Pay­ments de­creased 2.0% from $2.83B to $2.77B in 9M 2022. To­tal Ex­pen­di­ture in­creased 6.4% from $33.1B in 9M 2021 to $35.2B in 9M 2022.

Trans­fers and sub­si­dies have hov­ered be­tween $25B-$27B (or 52% - 53%) of To­tal Ex­pen­di­ture over the FY 2018 - FY 2021 pe­ri­od. Trans­fers and Sub­si­dies ac­count­ed for 57.8% of To­tal Ex­pen­di­ture to­tal­ing to $20.4B for the fis­cal 9-month pe­ri­od (Oc­to­ber 2021-June 2022), 7.1% high­er than the $19.0B in 9M 2021. Based on the da­ta pro­vid­ed at the MoF’s spot­light of the econ­o­my, spend­ing on Trans­fers and Sub­si­dies was re­vised up­wards from $28.1B to $29.8B for FY 2021/2022. With Trans­fers and Sub­si­dies rep­re­sent­ing the largest sin­gle al­lo­ca­tion of the na­tion­al bud­get, it re­mains a prime area for mod­er­a­tion of spend­ing, should it be­come nec­es­sary.

Break­down of Trans­fers and Sub­si­dies

Trans­fers to house­holds, the largest com­po­nent of Trans­fers and Sub­si­dies mar­gin­al­ly fell 0.8% from 36.7% to 35.8% in 9M 2022 while trans­fers to statu­to­ry boards and sim­i­lar bod­ies climbed 1.9%, in­creas­ing its con­tri­bu­tion to­wards trans­fers and sub­si­dies from 20.0% to 21.9% in 9M 2022. Trans­fers to state en­ter­pris­es fell 0.5% to 11.1% over the 9-month pe­ri­od. Trans­fers to ed­u­ca­tion­al in­sti­tu­tions de­clined 0.2%, while Sub­si­dies re­mained con­stant at 1.0% of trans­fers and sub­si­dies. Trans­fers to non-prof­it in­sti­tu­tions and trans­fers abroad ex­pe­ri­enced a drop in its 9M 2022 con­tri­bu­tion of Trans­fers and Sub­si­dies to 0.7% and 0.4% re­spec­tive­ly.

An­oth­er Fis­cal Deficit?

Based on the most re­cent pro­jec­tions, the fis­cal deficit (the dif­fer­ence be­tween to­tal rev­enue and to­tal ex­pen­di­ture) is ex­pect­ed to nar­row fol­low­ing in FY2022 on ac­count of an en­er­gy price-dri­ven Rev­enue re­cov­ery. Rev­enue is pro­ject­ed to be TT$51.5B for FY 2022, re­vised up­ward from the ini­tial pro­jec­tion of TT$43.3B. This marks a 38.8% in­crease from FY 2021 (TT$37.1B). De­spite the im­proved Rev­enue, the fis­cal deficit per­sists as ex­pen­di­ture ex­pand­ed to TT$53.5B, 5.3% high­er than 2021 (TT$50.8B). The fis­cal deficit is now es­ti­mat­ed to be TT$2B in FY 2021/22, an up­ward re­vi­sion from the Mid Year’s pro­jec­tion of TT$7.7B.

Ex­pen­di­ture Cuts on the Hori­zon?

Stem­ming from the spot­light on the econ­o­my, the MoF’s goal of achiev­ing a pri­ma­ry bud­get sur­plus by 2023 and an over­all bud­get sur­plus by 2024 would in­evitably re­quire in­creased rev­enue gen­er­a­tion and/or more ef­fi­cient rev­enue col­lec­tion, as well as mod­er­a­tion of ex­pen­di­ture to sus­tain­able lev­els. In­di­ca­tions dur­ing the spot­light on the econ­o­my sug­gest that one area which is be­ing fo­cused on for ex­pen­di­ture ra­tio­nal­i­sa­tion would be trans­fers and sub­si­dies.

Fu­el prices have al­ready been ad­just­ed in April 2022, with the price of pre­mi­um and su­per gaso­line in­creas­ing by one dol­lar to $6.75 and $5.97 per gal­lon re­spec­tive­ly, while the price of diesel in­creased by $0.50 to $3.91 per gal­lon. Re­cent bud­get state­ments have al­lud­ed to a move to ful­ly float­ing fu­el prices, as well as the pri­va­ti­za­tion of fu­el sta­tions. Com­ing on the heels of this re­cent in­crease, the Hon­or­able Min­is­ter of Fi­nance high­light­ed dur­ing the Spot­light on the Econ­o­my that the FY21/22 fu­el sub­sidy is now ex­pect­ed to be an es­ti­mat­ed $2.7B. A pos­si­ble cap on the fu­el sub­sidy of $1.0B go­ing for­ward was al­so sug­gest­ed.

Re­views of util­i­ty tar­iffs, in­clud­ing elec­tric­i­ty and wa­ter rates, have been an on­go­ing con­ver­sa­tion in re­cent years. Var­i­ous re­ports in­di­cate that rate re­views for both the Wa­ter and Sewage Au­thor­i­ty (WASA) and the Trinidad and To­ba­go Elec­tric­i­ty Com­pa­ny (T&TEC) are at var­i­ous stages of progress. The Min­is­ter of Pub­lic Util­i­ties dur­ing a we­bi­nar in April 2022 not­ed that WASA is sched­uled to de­liv­er pro­pos­al doc­u­ments to the RIC, which in­cludes a jus­ti­fi­ca­tion for an in­crease in the wa­ter rate. If ap­proved, this will be the first rate in­crease for both state-owned com­pa­nies since 1993.

Im­pact on Con­sumers

Ad­just­ments to/re­moval of sub­si­dies would in­evitably im­pact con­sumers. High­er fu­el costs record­ed at the pumps as well as in­creased wa­ter and elec­tric­i­ty rates would be borne by house­holds and busi­ness­es alike. The pro­posed re­vi­sions to fu­el prices and util­i­ty rates in T&T could re­duce dis­pos­able in­come/dis­cre­tionary spend­ing and fur­ther in­ten­si­fy in­fla­tion­ary pres­sures, re­sult­ing in a weak­er con­sumer. Ul­ti­mate­ly, the GORTT’s tar­get to re­duce sub­si­dies and to­tal ex­pen­di­ture could place up­ward pres­sure on the cost of liv­ing, with sub­se­quent im­pact on con­sumer and broad­er eco­nom­ic ac­tiv­i­ty. 

Ex­pen­di­ture Out­look

The scope for and im­pact of ex­pen­di­ture cuts across dif­fer­ent seg­ments of the bud­get would vary wide­ly as T&T heads in­to FY22/23. Trans­fers & sub­si­dies, be­ing the largest com­po­nent of spend­ing could have the high­est im­pact on ex­pen­di­ture re­duc­tion at the state lev­el. This would, how­ev­er, re­quire more fi­nan­cial re­spon­si­bil­i­ty to be placed on cit­i­zens. Spend­ing on good & ser­vices and cap­i­tal ex­pen­di­ture would have less scope to be re­duced, with an over­all less mean­ing­ful im­pact on the over­all bud­get equa­tion.

Ad­just­ments to wages & salaries re­mains a high­ly sen­si­tive top­ic, with on­go­ing pub­lic sec­tor wage ne­go­ti­a­tions al­ready sim­mer­ing. In­ter­est pay­ments, mean­while, re­main a func­tion of both the vol­ume and price of out­stand­ing debts. FY21/22 has, thus far, been char­ac­terised by sta­ble debt lev­els. Do­mes­ti­cal­ly, in­ter­est rates have al­so re­mained rel­a­tive­ly sta­ble, sug­gest­ing there may be no ma­te­r­i­al in­crease of in­ter­est pay­ments in the near-term.

The ex­pen­di­ture enig­ma – re­duc­ing state ex­pen­di­ture while en­sur­ing that pri­vate con­sump­tion and in­vest­ment ac­tiv­i­ty does not stall – re­mains a del­i­cate bal­anc­ing act. The equa­tion be­comes more com­plex when adding ob­jec­tives of

(i) achiev­ing debt sus­tain­abil­i­ty,

(ii) bal­anc­ing fu­ture bud­gets and

(iii) en­sur­ing cit­i­zens re­tain a com­fort­able stan­dard of liv­ing in a ris­ing cost en­vi­ron­ment.

We at Bourse take this op­por­tu­ni­ty to wish the Min­is­ter of Fi­nance a suc­cess­ful de­liv­ery of the FY2022/2023 fis­cal bud­get.