GEISHA KOW­LESSAR-ALON­ZO

Gen­er­at­ing new rev­enue streams will be fun­da­men­tal when the new gov­ern­ment steps in­to pow­er on Tues­day, says econ­o­mist Dr Vaalmik­ki Ar­joon and de­vel­op­ment econ­o­mist Dr Mar­lene Attzs.

Ar­joon not­ed that Gov­ern­ment main­ly fund its spend­ing through tax rev­enues, with ad­di­tion­al sup­port from bor­row­ing and, when the leg­is­la­tion al­lows, Her­itage And Sta­bil­i­sa­tion Fund (HSF) with­drawals.

In the past nine years, he said tax earn­ings made up about 75 to 80 per cent of to­tal rev­enue, to­talling TT$301.6 bil­lion or 20 per cent less than the pre­vi­ous nine-year pe­ri­od (2007 to 2015), not­ing that this short­fall stemmed from de­clin­ing en­er­gy pro­duc­tion and prices, com­pound­ed by the pan­dem­ic, which trig­gered $65 bil­lion in added bor­row­ing and US$2.87 bil­lion in HSF with­drawals.

Look­ing ahead, Ar­joon ad­vised the in­com­ing gov­ern­ment must move be­yond tra­di­tion­al fi­nanc­ing meth­ods of tax­es and bor­row­ing, and adopt a more bal­anced mix of strate­gies, es­pe­cial­ly as short-term rev­enue is con­strained by low­er gas pro­duc­tion and prices, and ris­ing geopo­lit­i­cal risks – in­clud­ing po­ten­tial trade wars.

“With pub­lic debt at $140 bil­lion and the coun­try at the low­est notch of S&P’s in­vest­ment-grade rat­ing BBB-, fur­ther re­liance on bor­row­ing could push us in­to spec­u­la­tive grade and shrink our al­ready lim­it­ed fis­cal space. Rais­ing tax­es should al­so be avoid­ed, as it would weak­en house­hold spend­ing and pri­vate sec­tor com­pet­i­tive­ness – both of which are crit­i­cal for dri­ving eco­nom­ic mo­men­tum,” he ex­plained.

For in­stance, Ar­joon said a prac­ti­cal non-tax way to raise fi­nanc­ing is by set­ting up a re­al es­tate in­vest­ment trust (RE­IT).

“Here the state would trans­fer par­tial own­er­ship of a por­tion of in­come-gen­er­at­ing state prop­er­ties such as land, of­fice build­ings, com­mer­cial in­fra­struc­ture, car parks etc., to the RE­IT. For ex­am­ple, it could con­sid­er trans­fer­ring a small stake eg 20 per cent own­er­ship of e-tech in­dus­tri­al parks and se­lect­ed UDe­COTT-de­vel­oped prop­er­ties to the RE­IT,” Ar­joon fur­ther ex­plained.

He said these prop­er­ties al­ready pro­duce steady rental and lease in­come, giv­ing the RE­IT a sol­id earn­ings base, sug­gest­ing that gov­ern­ment would then sell shares in the RE­IT to the pub­lic, there­by gen­er­at­ing rev­enue – the sale pro­ceeds flow straight to the Trea­sury with­out adding to pub­lic debt.

The RE­IT then leas­es the prop­er­ties to the pri­vate sec­tor and some of the rental in­come earned would be used to pay div­i­dends to the share­hold­ers, while the re­main­der can be used to sup­ple­ment state rev­enues fur­ther, Ar­joon stat­ed.

He said apart from pro­vid­ing fi­nanc­ing to the state, this would al­so fos­ter in­vest­ment op­por­tu­ni­ties for cit­i­zens and pro­mote cap­i­tal mar­ket ac­tiv­i­ty. Ad­di­tion­al­ly, rent­ing these spaces to pri­vate en­ter­pris­es could boost busi­ness op­er­a­tions, cre­ate jobs, and ul­ti­mate­ly, stim­u­late eco­nom­ic growth.

It is al­so im­por­tant to ex­plore short-term strate­gies to boost forex re­serves with­out re­sort­ing to ex­ter­nal bor­row­ing, es­pe­cial­ly to sup­port in­sti­tu­tions like the EX­IM Bank - the of­fi­cial ex­port cred­it agency in T&T.

“One such op­tion is ne­go­ti­at­ing bi­lat­er­al cen­tral bank cur­ren­cy swap lines, where we tem­porar­i­ly ex­change TT dol­lars for for­eign cur­ren­cy with an­oth­er cen­tral bank – such as US$ or Chi­nese RMB (the of­fi­cial cur­ren­cy of Chi­na) – up to an agreed lim­it, then re-ex­change lat­er, at a pre­de­ter­mined rate. For ex­am­ple, a US$1 bil­lion swap with the Fed­er­al Re­serve would in­volve pro­vid­ing TT$6.8 bil­lion and lat­er re­vers­ing the trade.

“This of­fers quick ac­cess to for­eign cur­ren­cy for trade set­tle­ments or liq­uid­i­ty needs. Such arrange­ments aren’t lim­it­ed to the US – a swap with the Peo­ple’s Bank of Chi­na could al­low lo­cal man­u­fac­tur­ers and re­tail­ers to set­tle pay­ments to Chi­nese sup­pli­ers in RMB, eas­ing pres­sure on our US dol­lar re­serves. Sim­i­lar agree­ments with oth­er ma­jor trad­ing part­ners, like the Bank of Japan for Japan­ese Yen, to sup­port the for­eign used ve­hi­cle in­dus­try, would di­ver­si­fy our re­serves, and re­duce trans­ac­tion costs for im­porters,” Ar­joon ex­plained.

Lo­cal gov­ern­ment cor­po­ra­tions of­ten face fund­ing short­falls from the cen­tral gov­ern­ment, mak­ing it dif­fi­cult to con­sis­tent­ly de­liv­er es­sen­tial ser­vices.

One cre­ative way to raise funds is by sell­ing nam­ing rights to pri­vate busi­ness­es for streets, parks, and oth­er pub­lic spaces, Ar­joon sug­gest­ed.

‘This doesn’t mean sell­ing the prop­er­ty – just al­low­ing a com­pa­ny to put its name on it for a set pe­ri­od, in ex­change for a fee. Part of the agree­ment will al­so re­quire the com­pa­ny to main­tain the prop­er­ty eg re­pair the street when nec­es­sary,” he ex­plained.

He said it gives busi­ness­es vis­i­bil­i­ty in the com­mu­ni­ty while pro­vid­ing the cor­po­ra­tion with ex­tra in­come with­out over-re­liance on the gov­ern­ment for fund­ing.

Ar­joon said is al­so crit­i­cal that the next gov­ern­ment pri­ori­tis­es lim­it­ing over­spend­ing and cor­rup­tion in the pub­lic sec­tor, a ma­jor source of fi­nan­cial leak­age high­light­ed in sev­er­al au­di­tor gen­er­al re­ports.

He said these leak­ages wors­en the debt bur­den but can be ad­dressed through the im­ple­men­ta­tion of the In­te­grat­ed Fi­nan­cial Man­age­ment In­for­ma­tion Sys­tem (IFMIS) – an au­to­mat­ed plat­form that al­lows the fi­nance min­istry to mon­i­tor re­al-time spend­ing and track the progress of state trans­ac­tions and projects.

This, Ar­joon stat­ed, en­hances trans­paren­cy, curbs wastage, and en­sures pub­lic funds are bet­ter di­rect­ed to es­sen­tial ser­vices, de­liv­er­ing greater val­ue for mon­ey.

In ad­di­tion, it is al­so cru­cial for the gov­ern­ment to con­tin­ue plug­ging the $12 bil­lion gap in tax leak­ages, while al­so re­mov­ing the ob­sta­cles to do­ing busi­ness through in­creased digi­ti­sa­tion of pub­lic ser­vices, while elim­i­nat­ing port de­lays, crime etc, which cur­rent­ly stymie the com­pet­i­tive­ness and di­ver­si­fi­ca­tion of the pri­vate sec­tor.

Chart­ing a course for di­ver­si­fi­ca­tion

Attzs not­ed that the PNM pro­posed a struc­tured push in­to the or­ange econ­o­my through ini­tia­tives like a new T&T food and rum fes­ti­val, and ef­forts to fran­chise and ex­port cul­tur­al ex­pe­ri­ences (eg, Car­ni­val, pan, culi­nary prod­ucts) via tour­ing show­cas­es, di­as­po­ra-led fes­ti­vals, and e-com­merce plat­forms.

She said that giv­en the glob­al val­ue of the glob­al or­ange econ­o­my (US$2.3 tril­lion and em­ploy­ing more than 30 mil­lion peo­ple) and the cul­tur­al as­sets T&T al­ready pos­sess­es, struc­tured de­vel­op­ment of the or­ange econ­o­my could be a sig­nif­i­cant rev­enue stream.

How­ev­er, Attzs ad­vised that suc­cess­ful mon­eti­sa­tion would re­quire in­sti­tu­tion­al ca­pac­i­ty, cre­ative in­dus­try sup­port, and strong ex­port lo­gis­tics.

“In my view, we need a busi­ness mod­el that po­si­tions cul­tur­al and cre­ative ex­pe­ri­ences as vi­able eco­nom­ic dri­vers, with the gov­ern­ment’s role fo­cused on pro­vid­ing the en­abling frame­works to sup­port their de­vel­op­ment.

“In the case of T&T, sup­port from the gov­ern­ment could in­clude the re­open­ing of the T&T Hos­pi­tal­i­ty and Tourism In­sti­tute (TTHTI) to en­sure a steady pipeline of tal­ent - par­tic­u­lar­ly young peo­ple - en­ter­ing the sec­tor as lo­cal chefs, event man­agers, hos­pi­tal­i­ty en­tre­pre­neurs and food in­no­va­tors,” she ad­vised.

If ef­fec­tive­ly re­alised, Attzs said the or­ange econ­o­my could em­pow­er youth, small cre­atives and ar­ti­sans by cre­at­ing new in­come streams and en­tre­pre­neur­ial op­por­tu­ni­ties, adding that it al­so presents a valu­able op­por­tu­ni­ty to mon­e­tise the glob­al ap­peal of the T&T brand, par­tic­u­lar­ly through strate­gic align­ment with agro-pro­cess­ing to sup­port ini­tia­tives like the pro­posed food and rum fes­ti­val.

Lo­cal com­mu­ni­ties stand to ben­e­fit di­rect­ly from tourism in­come - es­pe­cial­ly if com­mu­ni­ty-based culi­nary and cul­tur­al hubs are de­vel­oped - while job cre­ation in events, tours, and hos­pi­tal­i­ty could pro­vide mean­ing­ful em­ploy­ment across the is­lands, she added.

The UNC pro­pos­es le­gal­is­ing and com­mer­cial­is­ing cannabis for med­i­c­i­nal and in­dus­tri­al pur­pos­es, cre­at­ing ex­port and do­mes­tic mar­ket op­por­tu­ni­ties.

Attzs said there is a po­ten­tial op­por­tu­ni­ty for T&T to tap in­to the glob­al cannabis mar­ket size which was val­ued at US$43.72 bil­lion in 2022 and is pro­ject­ed to grow from US$57.18 bil­lion in 2023 to US$444.34 bil­lion by 2030. North Amer­i­ca dom­i­nat­ed the cannabis mar­i­jua­na mar­ket with a mar­ket share of 81.79 per cent in 2022.

More­over, she not­ed, the cannabis mar­ket size in the US is pro­ject­ed to grow sig­nif­i­cant­ly, reach­ing an es­ti­mat­ed val­ue of US$428.22 bil­lion by 2032, dri­ven by in­creas­ing le­gal­iza­tion of med­ical and recre­ation­al cannabis in dif­fer­ent states of the US.

Notwith­stand­ing, for the cannabis in­dus­try to be eco­nom­i­cal­ly vi­able in T&T, there are sev­er­al con­sid­er­a­tions in­clud­ing the need for a ro­bust reg­u­la­to­ry frame­work, an in­formed and re­cep­tive so­ci­ety and an ap­pro­pri­ate sup­port­ing in­fra­struc­ture to sup­port this new rev­enue-gen­er­at­ing ac­tiv­i­ty, Attzs sug­g­st­ed.

She not­ed that present­ly, T&T has no es­tab­lished (or planned) frame­work for com­mer­cial cannabis cul­ti­va­tion, pro­cess­ing, or dis­tri­b­u­tion, adding that ex­ist­ing leg­is­la­tion has on­ly par­tial­ly de­crim­i­nal­ized small quan­ti­ties for per­son­al use.

“Be­yond that, there is no reg­u­la­to­ry frame­work with­out which at­tempts to piv­ot in­to such an in­dus­try will be fraught with nu­mer­ous risks. We al­so must be mind­ful of the high lev­els of youth crime, drug abuse, pub­lic/men­tal health con­cerns and a deeply root­ed in­for­mal drug trade,” Attzs said.

She added that if all (or the ma­jor­i­ty) of the risks could be iden­ti­fied and ad­dressed, cannabis as a new source for rev­enue gen­er­a­tion could cre­ate rur­al jobs, and youth en­tre­pre­neur­ship op­por­tu­ni­ties, and re­duce black mar­ket re­liance.