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.
