To­day's Ed­i­to­r­i­al

In pre­sent­ing mid-year in­for­ma­tion on the na­tion's econ­o­my this week, Cen­tral Bank Gov­er­nor Ewart Williams hint­ed at a state of af­fairs which the cur­rent ad­min­is­tra­tion should seek to re­dress as soon as pos­si­ble. Dis­cussing the coun­try's fis­cal sit­u­a­tion, Gov­er­nor Williams point­ed out that, on a cash ba­sis, T&T's over­all deficit for the pe­ri­od Oc­to­ber 2009 to May 2010 was $77.9 mil­lion. While not­ing the much small­er than an­tic­i­pat­ed deficit was on a cash ba­sis, Gov­er­nor Williams said: "The da­ta need to be in­ter­pret­ed with cau­tion since there are re­port­ed­ly large pay­ments owed to con­trac­tors and sup­pli­ers. When these are fac­tored in, the pro­ject­ed over­all deficit for the year as a whole could be about $5.8 bil­lion or about 4 per cent of GDP, com­pared with the bud­get­ed deficit of 5.3 per cent." This seems to sug­gest that the Gov­ern­ment owes con­trac­tors and sup­pli­ers over $5 bil­lion–monies which the State has been late in pay­ing.

While the Gov­ern­ment may treat the late pay­ment of con­trac­tors and sup­pli­ers as a tool of fis­cal man­age­ment, there are very se­ri­ous con­se­quences to this scan­dalous state of af­fairs.

The Sub-con­trac­tors As­so­ci­a­tion of T&T, this week, es­ti­mat­ed that the con­struc­tion in­dus­try has lost 35,000 jobs in the last 18 months as a re­sult of non-pay­ment or tardy pay­ment of bills. What's more, the sub-con­trac­tors ar­gued, many of them face in­sol­ven­cy as a re­sult of the huge sums of mon­ey owed to them for work done on gov­ern­ment con­struc­tion projects. Late pay­ment of out­stand­ing bills not on­ly con­tributes to un­nec­es­sary un­em­ploy­ment, it may be a di­rect cause of T&T's eco­nom­ic stag­na­tion as busi­ness­men may be un­will­ing to com­mit to new in­vest­ments if they are owed bil­lions of dol­lars by the Gov­ern­ment. More­over, if sup­pli­ers and sub-con­trac­tors re­ceive late pay­ments from the Gov­ern­ment, they are of­ten forced to en­ter in­to over­draft arrange­ments at usu­ri­ous rates of in­ter­est. While over­draft may help to sus­tain the prof­its earned by banks, it adds sig­nif­i­cant­ly to the costs that lo­cal busi­ness­es are forced to bear, which they pass on to their oth­er cus­tomers in or­der to sur­vive. In ef­fect, this means that the costs of goods and ser­vices in this coun­try are high­er than nec­es­sary sim­ply as a re­sult of the Gov­ern­ment's fail­ure to pay its bills on time. And it is not true that the Gov­ern­ment is late with all of its dis­burse­ments.

In­deed, the Gov­ern­ment is ex­treme­ly ef­fi­cient in mak­ing some pay­ments on time. Gov­ern­ment, for ex­am­ple, is nev­er late in mak­ing pay­ments of in­ter­est on the coun­try's na­tion­al debt or on re­pay­ing the prin­ci­pal when debts be­come due. As well, there is ab­solute­ly no ques­tion about late pay­ment when the Gov­ern­ment em­barks on the mas­sive month­ly task of com­pen­sat­ing its 100,000 pub­lic ser­vants or the thou­sands of pen­sion­ers who de­pend on time­ly pay­ment to meet their com­mit­ments. The Gov­ern­ment has in­sti­tut­ed sys­tems to en­sure that bond­hold­ers, em­ploy­ees and pen­sion­ers get paid on time. Why are there sys­tems in place to en­sure that bond­hold­ers, pub­lic ser­vants and pen­sion­ers get paid on time, but not sup­pli­ers and con­trac­tors? While there is some el­e­ment of ver­i­fi­ca­tion need­ed be­fore a con­trac­tor's bill can be paid, the sim­ple an­swer is that there are se­ri­ous con­se­quences for a gov­ern­ment that pays its bond­hold­ers, pub­lic ser­vants and pen­sion­ers even one day late. In the case of gov­ern­ment bonds, if the State were to make a late in­ter­est pay­ment, bond­hold­ers could im­me­di­ate­ly move to have the Gov­ern­ment de­clared to be in de­fault of its debt oblig­a­tions. Such an event would have a calami­tous im­pact on the coun­try–from an in­stant down­grade of T&T's sov­er­eign debt, with the im­pact on fu­ture bor­row­ing costs, to the re­fusal of for­eign sup­pli­ers to ship goods to T&T.

Al­so, gov­ern­ments that pay salaries and pen­sions late face se­vere po­lit­i­cal con­se­quences. The is­sue, then, is that the Gov­ern­ment faces no di­rect con­se­quences as a re­sult of its fail­ure to make time­ly pay­ments to con­trac­tors and sup­pli­ers (the in­di­rect con­se­quences are huge and painful, as we have not­ed). As the largest em­ploy­er, builder and pur­chas­er of sup­plies by far in this coun­try, there is no con­trac­tor or sup­pli­er who can af­ford not to work for the Gov­ern­ment–re­gard­less of the high price they are made to pay. We rec­om­mend, there­fore, that the Gov­ern­ment en­sures that all out­stand­ing bills are tal­lied, ver­i­fied and paid be­fore the Fi­nance Min­is­ter reads the 2011 bud­get in Par­lia­ment. The Gov­ern­ment must re­alise the neg­a­tive im­pact that its late pay­ment is hav­ing on the econ­o­my and must com­mit to mak­ing quan­tum im­prove­ments in the speed with which out­stand­ing bills are paid–even if this means im­pos­ing penal­ties on it­self or its em­ploy­ees for late pay­ment.