The PNM has always understood that fiscal policy (on taxation, expenditure and borrowing) is central to the quality of its economic management. It is therefore troubling that there seems to be an unrelenting mission to brand the recent PNM administration with gross mismanagement of the national economy. First, the argument was premised on a crisis of indebtedness argument (which was proven to be patently false), next it was the fiscal deficit argument (which was proven to be misleading at best). But that has not prevented the scandalous and calumnious accusations, unsupported as they are by the inconvenience of objective data and statistics. But these charges have taken on even more incredulous proportions post September 2008.
The Global Financial Crisis
Just to remind readers, the crisis first manifested itself in 2007 in the United States' real estate market, eventually leading to the collapse of the US sub prime mortgage market and thereafter precipitating an economic recession in North America and Europe with its contagion effects felt in the rest of the world. In short, a combination of over-valuation of asset-backed securities (the product of the sub prime mortgage market), deregulation, incorrect pricing of risk, inadequate supervision and a proliferation of complex financial products all contributed to the inevitable near collapse of the global economy.
Characteristics of the Crisis
The major features of this crisis are well documented: The failure or near failure of major financial institutions, the bankruptcy of major corporate entities (Bear Sterns, Lehman Brothers, Northern Rock, Goldman Sachs to name a few), a cut back in the provision of credit, a decrease in remittances from developed to developing countries and for Trinidad and Tobago, the precipitous fall in the commodity prices in particular oil, gas, ammonia, urea and methanol.
Crisis-Macro-economic Indicators
Since the fourth quarter of 2008 the majority of countries have experienced declining or negative growth, an exponential rise in debt, current account deficits (yes deficits), negative balance of payment and rising levels of unemployment. The following key macro economic indicators for 2009 (Source: IMF), illustrate the devastating effect of the crisis on developed nations (T&T's benchmark countries) with a comparison of Trinidad and Tobago's economic performance for the same period. While Trinidad and Tobago, as indicated in a previous article, was certainly not spared the impact of the ongoing financial crisis, green shoots not withstanding, by any objective measure Trinidad and Tobago's economic management is impressive–at least up to May 24 2010.
The Issue of Fiscal Space
It is reasonable to ask what accounts for these impressive results, particularly given the collapse in the prices of this country's major foreign exchange earner. Why has T&T not gone the way of the other economies, developed and developing? Simply put, one of the major reasons is fiscal space. One very clear unequivocal proof of sound responsible and provident management is the policy position of the PNM in its commitment to creating fiscal space. So what is this fiscal space? Admittedly, fiscal space is difficult to define. However, it refers to the creation of the requisite room by a government to provide resources for the desired purposes without jeopardising macroeconomic stability and fiscal sustainability.
