Finance Minister Colm Imbert faces difficult decisions as he presents the budget for the fiscal year 2022/2023 tomorrow.
T&T is emerging from a two-year global health pandemic which led to the closure of many businesses and an increase in poverty and unemployment. Social problems like crime continue to grow and citizens are clamouring daily for solutions.
Even before the pandemic which started in 2020, the country had experienced five years of negative Gross Domestic Product (GDP) growth.
However, T&T has been thrown an economic lifeline as the war in Ukraine has resulted in higher energy prices, giving the Government $8 billion (TT) in extra revenue, Prime Minister Dr Keith Rowley informed the country in June.
Although there is no indication of the amount allocated for the 2023 budget, last year Imbert presented a $52.4 billion budget. The Sunday Guardian understands that Imbert is likely to price the budget on higher energy prices as the Ukraine/Russia war continues and, consequently, higher commodity prices.
The Government based last year’s budget on US$65/barrel and gas on US$3.75 per mmbtu. Although economists who spoke with the Sunday Guardian declined to give specific figures that this year’s budget could be based upon, they did say that the Government should be conservative in the price that the budget is pegged to.
The Sunday Guardian understands that the Minister of Finance could likely run another deficit budget with higher spending on infrastructure projects like roads, land slips and drainage.
Speaking at the Spotlight on the Economy on September 2, Imbert said a new road repair company will be called the Secondary Road and Rehabilitation Company and will be assigned to the Ministry of Local Government. He indicated that $100 million (TT) will be allocated to the company in the 2023 budget.
Imbert also said that the Government wants to cap the fuel subsidy at $1 billion annually, and this could likely lead to higher fuel prices in the short run. He may address the issue again on budget day.
Economists who spoke to the Sunday Guardian identified crime and national security, education and economic diversification as areas that should be dealt with in the budget, however, limited resources will stymie the Government's options.
In his Sunday Guardian column today, CEO of the Arthur Lok Jack Global School of Business Mariano Browne noted that although Imbert may be outwardly calm, he is "sitting on the horns of a dilemma".
Browne contended that there are many competing claims for increased energy revenues.
The public sector wage negotiations have been stalled for nine years, he said. Higher international energy prices force a choice between a higher fuel subsidy or higher prices at the pump, a bigger electricity subsidy or higher electricity prices. The primary and secondary roads are parlous, deteriorating due to leaking subterranean water mains which undermine the road subsurface, he added. "This means bigger subventions to WASA without any improvement in the delivery of water."
Browne said, "Inflationary pressures and the higher cost of food will also require concessions to those citizens on fixed or low incomes."
Imbert definitely has a tough task on his hand, according to economists.
University of the West Indies (UWI) economist Dr Vaalmikki Arjoon said that given the increasing cost of living citizens are facing, the Government has "serious decisions" to make on how it will solve some of these social and economic problems.
"It is essential that this budget has a strategy to be implemented during the year to promote the economic welfare of the country and our overall quality of life by controlling the cost of living, and creating a more competitive private sector."
Arjoon advocates increased social programmes to help alleviate some of the social ills as a result of poverty.
"Given that we have an improved fiscal space, it is also important for the State to mitigate the effects of the high cost of living by temporarily increasing its social safety net for vulnerable households to prevent them from falling deeper into poverty, such as more coverage for the food card and school feeding programme, temporary cash transfer programmes, utility bill discounts etc.
"The utility and fuel cash cards which were previously proposed to help lower the cost-of-living burdens should be provided this year with urgency. While they previously removed VAT on several food items, they could consider broadening the zero-rated items list, and temporarily adjusting import duties paid, while taking care that it does not further disadvantage the fiscal space."
On the subject of energy prices, he said that after the initial rise earlier this year energy prices are already falling and the Government has to be careful of the oil and gas prices that the budget is pegged to.
"Already we are seeing oil prices starting to fall, where Brent has moved from $122 per barrel at the end of May to now $86.15–a 29 per cent drop, largely due to the increase in interest rates by many central banks globally to curb global inflation and the strengthening of the US dollar. We are also facing the highest cost of living ever experienced for generations, especially since we import much of what we use on a daily basis and prices internationally are high!"
Economist Dr Vanus James, based in Tobago, said the Central Government and the Tobago House of Assembly (THA) must focus on crime reduction, poverty and how to diversify the economy in the budget.
"Once you have social problems you always have to address them as a condition for initiating any programme or else there will be no development. If crime is out of control, proper programmes are needed for that. These programmes would fit into the institutional framework which is necessary for the economy to make progress. The Government must also look at excess poverty. The Government has to know the living standards of the lower end of the income distribution. In the absence of those people being able to survive, the Government will run the risk of serious social unrest."
Speaking about energy prices, he said that the Government has already decided on what prices it will base the budget.
He explained how economists work the formula out.
"The Government has been monitoring oil prices and normally what they do is they take a range and they will study and track the prices and try to use a projection that fits in the middle of a range. Then they peg the budget on the bottom of that."
He also called on the THA and Central Government to do more to diversify the economy.
"The THA and the Central Government are the biggest contributors to the economy. We’ve really never really put in place a proper programme of development here in Tobago. They must develop tourism beyond inviting tourists to the beach. We need to industrialise tourism. Also, they need to look at education and healthcare and the creative industries.”
James is hoping that the Central Government allocates more money for Tobago in the next fiscal year as he believes that not enough money is ever given to Tobago.
"The Central Government normally allocates a portion of the budget and then the THA takes that and reconfigures it according to the needs of the people of Tobago. Usually, you are looking at $2 billion for recurrent spending and $300 million for development spending. This can’t do anything or can’t initiate a serious economic restructuring programme."
There should not be a bigger budget–Ramkissoon
Former Republic Bank economist Dr Ronald Ramkissoon said that despite higher revenues, he does not think that there should be a bigger budget for the next fiscal year.
"I don’t think that the budget should be bigger. There are things that T&T has been spending money on and we have not seen the results. The tendency is that we should spend more money as oil prices are higher.
"We have to re-examine what the Government is spending money on. The state-run enterprises come to mind. Are they efficiently run? The Government must be conservative. Whatever savings are made should go towards generating revenue and investment in foreign exchange earning activity."