GEISHA KOW­LESSAR-ALON­ZO

geisha.kow­lessar@guardian.co.tt

Econ­o­mist Dr Ronald Ramkissoon is rec­om­mend­ing that small coun­tries such as T&T should adopt fis­cal rules, which will en­sure they do not spend more mon­ey than they can af­ford.

His com­ments came in wake of the World Bank’s Glob­al Eco­nom­ic Prospects re­port re­leased on Tues­day in which the in­ter­na­tion­al fi­nan­cial in­sti­tu­tion not­ed that small states face sig­nif­i­cant fis­cal chal­lenges aris­ing from com­mon vul­ner­a­bil­i­ties.

The re­port not­ed that many small states are trop­i­cal is­lands, and high­ly ex­posed to cost­ly nat­ur­al dis­as­ters, par­tic­u­lar­ly storms and oth­er weath­er-re­lat­ed events that have be­come more fre­quent with cli­mate change.

The re­port said nat­ur­al dis­as­ters and glob­al re­ces­sions weak­en small states’ fis­cal and debt po­si­tions, even more than in oth­er emerg­ing mar­ket and de­vel­op­ing econ­o­my (EMDEs), adding that these chal­lenges are fur­ther ex­ac­er­bat­ed by high­ly volatile rev­enues and large spend­ing needs, in­clud­ing to in­vest in cli­mate-change re­silience.

The re­port fur­ther stat­ed that be­tween 2011 and 2023, av­er­age gov­ern­ment debt in small states in­creased by about 11 per­cent­age points of GDP, with the av­er­age debt-to-GDP ra­tio stand­ing at 61 per cent in 2023, high­er than in oth­er EMDEs.

Ramkissoon said the re­port spoke a lot about some small states re­main­ing vul­ner­a­ble to cli­mate change and to in­ter­na­tion­al shocks.

“They com­pare that with oth­er de­vel­op­ing or what they call emerg­ing economies and they found that since COVID, our per­for­mance has been even worse than oth­er de­vel­op­ing coun­tries...so they in­di­cat­ed that since we tend to have dealt with the im­pact of in­ter­na­tion­al events by bor­row­ing and by in­creas­ing fis­cal deficits by ne­ces­si­ty, then have had to spend more with bor­rowed mon­ey.

“So, what the re­port has found is that the fis­cal deficits have been larg­er and ex­ter­nal bor­row­ing or debt to GDP ra­tios have been high­er. That is not a good place for SIDS (Small Is­land De­vel­op­ing States) and when we re­flect on T&T, we see this econ­o­my has been run­ning deficits for sev­er­al years now and this debt has been ris­ing for most of the pe­ri­od, al­though it fell in the 22/23 pe­ri­od,” Ramkissoon ex­plained.

He not­ed that the IMF, in one of its re­cent re­ports, rec­om­mend­ed that coun­tries such as T&T have fis­cal rules to keep a check of their spend­ing. This is es­pe­cial­ly the case for com­mod­i­ty pro­duc­ers like T&T that should not in­crease ex­pen­di­ture when ex­port prices are high.

“The idea is we save more than what we have been sav­ing. We do have a buffer that is the Her­itage and Sta­bil­i­sa­tion Fund (HSF) but the rec­om­men­da­tion by the IMF is the fis­cal rule, so every­one would be aware that we are at­tempt­ing to have a bal­anced bud­get or close to it over­time,” Ramkissoon added.

Econ­o­mist In­dera Sage­wan, who al­so com­ment­ed on the re­port, said the is­sue of small states vul­ner­a­bil­i­ty cer­tain­ly ap­plies to the Caribbean. She said the is­sue of high in­debt­ed­ness has plagued the re­gion for well over 15 years.

She not­ed that be­fore the pan­dem­ic sig­nif­i­cant work was be­ing done in the small is­lands, how­ev­er COVID cre­at­ed an anom­aly which set back most of the is­lands in the Caribbean with re­spect to debt-to-GDP ra­tios re­sult­ing in the es­ca­lat­ing of in­debt­ed­ness.

She not­ed that fis­cal pru­dence is an is­sue that has come up re­peat­ed­ly in par­tic­u­lar, stronger rev­enue-gen­er­at­ing ef­forts through tax­a­tion.

Sage­wan said while she un­der­stood this is the sim­plest method of re­duc­ing the fis­cal deficit, as well as find­ing a source of in­come to deal with what is owed and re­duc­ing the need to bor­row for things like re­cur­rent ex­pen­di­ture, it is an ex­treme­ly dif­fi­cult task.