T&T’s Finance Minister, Colm Imbert is a civil engineer and a property developer by profession. Engineers understand the concept of structural integrity which is like the concept of financial integrity. The structures engineers design must be able to take the stresses and strains for which they are designed. Numbers matter, as does action.
Unsurprisingly, the midyear review is a restatement of government’s actions taken in response to the impact of the COVID-19 pandemic. That is to be expected is an election year. The immediate priorities are to maintain public order and alleviate the economic fallout as many as possible. In this scenario it is expected that there will be non-traditional measures such as accessing the HSF etc.
Some weakening in the debt/ GDP ratio is inevitable as additional borrowing is required. In any event as GDP declines, this ratio will increase automatically without an additional cent of borrowing. If GDP declines by 5 per cent, and debt remains the same, the ratio will increase by 5 per cent. The minister is on good ground up to this point. Thereafter, his credibility declines.
First, total expenditure is now estimated to increase by $70.6 m to $53.1 billion.
This is very surprising given the plethora of emergency measures announced. To achieve this there must have been substantial slashes (called savings?) in other areas of budgeted expenditure. Deficits are expansionary and this deficit is projected at $14.53 billion. But the budget has been in deficit through each year of GDP decline. How will the monies from the IDB and CAF be classified? As revenue or financing devices?
Second, the economy declined every year from 2016 to 2019. In 2016 and 2017 by -6.3 per cent and -2.3 per cent. There weren’t seven idled or closed petrochemical plants then, and Petrotrin operated up to September 2018. The retail, distributive and hospitality sectors functioned, as did CPEP and URP. Minister Imbert “predicted” economic growth for 2018 and 2019, the same way he now projects a short period of decline which he estimates at -2.4 per cent for 2020, to be followed by a sharp rebound of 4.7 per cent in 2021. In 2015 Larry Howai said the budget would be balanced by 2016. We all know how that turned out.
Third, although Minister Imbert noted “the urgent need for revitalising the energy sector and an assessment of the sustainability of the gas value chain to ensure a competitive, viable and sustainable investment environment in the energy sector” he could not present a single idea on how that would be achieved. This administration has been “muddling through” this issue since assuming office 5 years ago. Despite the “Spotlight on Energy,” and “high level negotiations” by the PM, seven plants are closed or idled.
Fourth, the Minister argued that “this suite of policies is to be supported by a series of cogent, practical and compelling actions in the areas of ease of doing business, building institutional capacity, critical supporting infrastructure and national value systems.” Closer examination suggests that the Minister cannot differentiate between a policy and an action. Actions give effect to policy. The action restated in the speed have the sole objective of short-term remedial action, necessary at this time and particularly useful from an election point of view.
For example, one important ease of doing business measure has been to widen the ambit and scope of the TTBIZ Link platform. An IDB loan of USD$25 million was arranged to facilitate these improvements in April 2016. Four years later, the upgrade is incomplete with USD$10 million spent. The road to hell is paved with good intentions.
Sixth, the minister says T&T’s forex reserves have improved because funds had been transferred from the HSF, along with the funds from CAF and IDB, increasing the reserves. What is important is the trend. The reserves were USD $10.5 billion in September 2015. Since then in addition to normal earnings, the transfers from the HSF and international borrowings amounting to an additional USD $3 billion. If the reserves stand at USD $7 billion, it means that the reserves have declined by approximately $7 billion and the loans are still to be repaid. Despite the boasting, this is unsustainable.
The Minister cynically concludes that T&T is in “a good place.” The tooth fairy is a fantasy associated with early childhood in many Western Cultures. When a child loses a tooth, folklore says that the tooth should be placed under a pillow and the Tooth Fairy will visit and replace the lost tooth with a small payment.
Mr Imbert is not a tooth fairy and T&T is not a fantasy island.