JavaScript is disabled in your web browser or browser is too old to support JavaScript. Today almost all web pages contain JavaScript, a scripting programming language that runs on visitor's web browser. It makes web pages functional for specific purposes and if disabled for some reason, the content or the functionality of the web page can be limited or unavailable.

Monday, February 24, 2025

UWI econ­o­mist Dr Daren Con­rad:

Continued deficits could crash T&T economy

by

Raphael John-Lall
141 days ago
20241006

A se­nior lec­tur­er in eco­nom­ics at the Uni­ver­si­ty of the West In­dies (UWI) is warn­ing the Gov­ern­ment that its nine fis­cal deficits in ten fis­cal years is not sus­tain­able in the long term and can spell “doom and gloom” for T&T’s fu­ture.

This is the view of Dr Daren Con­rad who spoke at a post-bud­get we­bi­nar host­ed by the South Chap­ter of the T&T As­so­ci­a­tion of In­sur­ance & Fi­nan­cial Ad­vi­sors (TTAIFA) on Wednes­day Oc­to­ber 2.

Last Mon­day, Fi­nance Min­is­ter Colm Im­bert pre­sent­ed the na­tion­al bud­get for fis­cal 2025, pro­ject­ing to­tal ex­pen­di­ture is $59.741 bil­lion and to­tal rev­enue is $54.224 bil­lion, which means and es­ti­mat­ed fis­cal deficit of $5.517 bil­lion. Since the 2008 bud­get, T&T has record­ed fis­cal deficits for every year, ex­cept 2022, when the coun­try’s en­er­gy rev­enues were boost­ed by Rus­sia’s in­va­sion of Ukraine and the sup­ply-chain is­sues that re­sult­ed.

Con­rad said run­ning deficit bud­gets over the years should be a “con­cern” for the coun­try.

“Our gross debt is ac­cu­mu­lat­ing. I think last year (the 2024 fis­cal year) the deficit reached $7.1 bil­lion. We have nev­er been able to align the rev­enues with the ex­pen­di­tures which tells us that giv­en a bud­get of $59.74 bil­lion with more than 50 per cent be­ing trans­fers and sub­si­dies, it tells us that we need to work on the num­ber of trans­fers and sub­si­dies as these do not equate to eco­nom­ic ac­tiv­i­ty.

“They are just that, trans­fers and sub­si­dies to per­sons who are in need. One of the ways to work on that is to have em­ploy­ment work­ing in the right di­rec­tion.”

He added that not be­ing able to bal­ance a na­tion­al bud­get can lead to some economies crash­ing.

“We can on­ly run a deficit bud­get for so long and we can con­tin­ue to bor­row to fi­nance the deficit, but when you are bor­row­ing to fi­nance the re­cur­rent ex­pen­di­ture and that is dri­ving your deficit up, that well will run dry at some point in time.

“The debt-to-gross do­mes­tic prod­uct (GDP) ra­tio is at 76 per cent and in some coun­tries, it is at 101 per cent. There is no sci­en­tif­ic lim­it for it but what it means is that for every dol­lar that you earn, it goes to pay­ing the in­ter­est on the debt and not able to rein­vest any­thing. So, you will be­come a per­pet­u­al bor­row­er un­til that time your econ­o­my crash­es if you don’t take proac­tive mea­sures. So, it can spell doom and gloom for us if we con­tin­ue to do that,” Con­rad said.

He ex­plained that run­ning bud­get deficits and hav­ing to fi­nance bur­den­some debt can lead to a de­te­ri­o­ra­tion of the qual­i­ty of life for T&T’s cit­i­zens.

“We have been do­ing it for years, suc­cess­ful­ly man­ag­ing the bor­row­ing to fit the ex­pen­di­ture in terms of re­cur­rent ex­pen­di­ture. That is why T&T has a de­te­ri­o­ra­tion of the in­fra­struc­ture. Peo­ple talk about the roads, peo­ple talk about WASA (Wa­ter and Sew­er­age Au­thor­i­ty).

“It is that when the rev­enue is gen­er­at­ed or when the loans are booked, they are be­ing used for re­cur­rent ex­pen­di­ture, so the in­fra­struc­ture is go­ing to de­te­ri­o­rate and it can­not be main­tained.

“So, you have to strike a bal­ance be­tween whether I con­tin­ue to feed peo­ple or I con­tin­ue to al­low some things to run awry. We need to re­align the rev­enue with the ex­pen­di­ture. It is an un­com­fort­able truth that we do not want to ac­knowl­edge. That we can­not in per­pe­tu­ity con­tin­ue to al­lo­cate more than 50 per cent of our bud­get to trans­fers and sub­si­dies,” the econ­o­mist said.

He was al­so crit­i­cal of the Gov­ern­ment for peg­ging the bud­get at US$77.80 a bar­rel per oil and US$3.95 per MMB­TU for gas.

“It is not con­ser­v­a­tive enough in terms of a price per bar­rel. If you have been fol­low­ing the com­modi­ties mar­kets, the price of oil is around $70 per bar­rel and it is pro­ject­ed to re­main at $70 per bar­rel or even fall fur­ther un­til De­cem­ber.

“The on­ly rea­son why it may start to go back up is if Chi­na in­creas­es its de­mand for oil. But Chi­na has al­ready built up their re­serves so their de­mand is not there to stim­u­late that price for the oil. Coun­tries in OPEC have said that they can­not sur­vive on that price, so that is good news so they can to get the price back up.”

He spoke about some of the chal­lenges in the fis­cal mea­sures pro­posed.

“Since fis­cal year 2009, the Gov­ern­ment has spent more than it col­lect­ed in tax rev­enues. This means that we have not been able to bal­ance the bud­get and we keep mount­ing debt.

“Al­so, trans­fers and sub­si­dies make up more than half of re­cur­rent ex­pen­di­ture since 2009. That is where we can make ad­just­ments down­ward to re­duce these. It is how you do it. You could make them more tar­get­ed in that those in­di­vid­u­als who are re­ceiv­ing it are de­serv­ing of it. Then there is the debt-to-GDP ra­tio and this can put T&T in a bad po­si­tion with re­gard to cred­it rat­ings and we need to align that and get it down. Re­duc­ing trans­fers and sub­si­dies will help in get­ting it down as we can use some of that mon­ey to pay the debt.”

T&T’s es­ti­mat­ed debt by the end of 2024 was $140.58 bil­lion, in­creas­ing to 75.6 per cent of GDP.

The coun­try’s cen­tral gov­ern­ment debt ser­vice in fis­cal deficit was es­ti­mat­ed at $15.67 bil­lion, which is ex­pect­ed to be 25.4 per cent of cen­tral gov­ern­ment rev­enue in fis­cal 2024.

Agri­cul­ture and food prices

For­mer pres­i­dent of the Su­per­mar­ket As­so­ci­a­tion of T&T (SATT) Ra­jiv Diptee, who al­so spoke at the we­bi­nar, warned that T&T’s econ­o­my con­tin­ues to be “frag­ile.”

“We con­tin­ue to be very sus­cep­ti­ble to shocks in the glob­al mar­kets par­tic­u­lar­ly where we have seen war hap­pen. We have seen trad­ing lanes shut down and what this means is that we re­main price tak­ers in the in­ter­na­tion­al mar­kets for fin­ished goods and in­puts for pro­duc­tion.

“Eighty-five to 90 per cent of the goods on T&T’s su­per­mar­ket shelves are those that come from North Amer­i­ca and Eu­rope. We do not have that much fin­ished goods orig­i­nat­ing from Asia. A lot of our in­puts for pro­duc­tion are still heav­i­ly im­port­ed. Agro-pro­cess­ing needs to be fo­cused on.”

He al­so com­plained that be­cause busi­ness own­ers have prob­lems ac­cess­ing for­eign ex­change, there is less va­ri­ety on su­per­mar­ket shelves now.

He ad­mit­ted that con­sumers are now tired of prices of su­per­mar­ket items con­stant­ly go­ing up and said the in­crease of the min­i­mum wage in the pub­lic sec­tor was the Gov­ern­ment ac­knowl­edg­ing this trend.

“A lot of con­sumers are bat­tling con­stant fa­tigue in food price in­fla­tion and there is some­thing we call ‘stick­er shock’ when you go in­side the su­per­mar­ket and con­sumers say the price was this yes­ter­day and now it is that on your next trip. Salaries have not kept up with in­fla­tion and I think that is an ac­knowl­edge­ment when you con­sid­er the wage in­crease that was of­fered to pub­lic ser­vants.”

Agri­cul­tur­al econ­o­mist Nicholas Boodram, who is an aca­d­e­m­ic staff mem­ber at UWI, said a suc­cess­ful econ­o­my rests on the re­sources in the bud­get ded­i­cat­ed to agri­cul­ture.

He point­ed to large economies like the US, Chi­na and Japan where the US al­lo­cat­ed 3 per cent of its 2024 na­tion­al bud­get to agri­cul­ture, Chi­na ded­i­cat­ed 7.8 per cent of its na­tion­al bud­get to agri­cul­ture and Japan 2.5 per cent of its na­tion­al bud­get to agri­cul­ture.

For T&T, while for fis­cal year 2020 to 2021, 2.42 per cent of the na­tion­al bud­get was as­signed to agri­cul­ture, by the 2024 to 2025 fis­cal year, the con­tri­bu­tion of the na­tion­al bud­get to agri­cul­ture has been re­duced to 1.98 per cent.


Related articles

Sponsored

Weather

PORT OF SPAIN WEATHER

Sponsored