Home' Trinidad and Tobago Guardian : January 11th 2015 Contents JANUARY 11 • 2015 www.guardian.co.tt SUNDAY BUSINESS GUARDIAN
FINANCE | SBG5
overall economy. However...the debt to GDP
ratio has not been stable. In fact, ratios have
risen sharply and, for several countries, have
reached unsustainable levels."
The brief s authors said what results are a
series of painful fiscal adjustments, which are
followed by "fiscal indiscipline, which then
necessitate another round of socially and polit-
ically uncomfortable adjustments."
Fiscal weakness and election
They found that this has much to do with
weaknesses within the budgetary process,
including the "built in flexibilities to take into
account unforseen events", such as the ability
to regularise un-budgeted spending through
Khan and Ruprah said that while these pro-
visions work well in other democratic countries,
they do not in the Caribbean region.
The reasons they put forward are the "insti-
tutional weaknesses in the democratic process
itself...well known problems of time-incon-
sistent political and economic preferences and
myopic views of the future are magnified by
inefficiencies in both the electoral and budg-
Moreover, Khan and Ruprah concluded that
Caribbean populations did not seem to punish
governments for poor fiscal management, or
necessarily rewarded good fiscal management
of the economy either.
Using data from another paper by economist
Charles Amo-Yartey (See Election
outcomes/Fiscal consolidation tables) which
compared the success of fiscal consolidation
over time in the Caribbean, Khan and Ruprah
added election outcomes.
According to them, in the period 1990-
2013, there were 27 episodes of fiscal consol-
idation and 25 elections. Eighteen of the con-
solidation episodes were successful. According
to Khan and Ruprah, the incumbent won nine
times after a successful episode and lost six
times after a failed episode, for a total of 15
"rational" outcomes to elections.
A fiscal episode was where "the cyclically
adjusted primary surplus (CAPS) to potential
GDP improved by one percentage point in one
or two years."
The end of an episode was where changes
in CAPS was zero or negative and a successful
consolidation episode was where the debt to
GDP ratio was reduced by "at least five per-
centage points after four years."
This hasn t been happening in T&T.
According to Khan and Ruprah most
Caribbean countries, including T&T, have had
worsen deficits and increasing debts. Moreover,
with the exception of Guyana and Jamaica,
"fiscal buffers (deficit and debt) are expected
to worsen in the medium term."
(See Recent evolution of fiscal deficit and
Caribbean populations also do not seem to
necessarily punish poor fiscal management or
reward good, Khan and Ruprah said:
"Of the 25 elections after fiscal consolidation
episodes, only 15 of them had rational out-
comes. This strongly suggest that the elec-
torates in the Caribbean do not adequately
take into account the fiscal performance of a
ruling government during a time of consol-
idation. There is also another possibility: the
electorates are able to discern between good
and bad fiscal management outcomes and
they are able to punish economic misman-
agement, but they choose not to do so because
they believe they will claw back more lost
ground with the incumbent and so reelect.
However, given data limitations, it is not pos-
sible to test for this."
NAR: Structural adjustment,
Looking at the fiscal consolidation chart,
T&T is listed as having seven fiscal consol-
idations, with four of them being successful.
In the late 80s, the ANR Robinson-led gov-
ernment was forced to accept IMF condition-
alities, which included cuts to public service
jobs, salaries and benefits, reductions of trans-
fers and subsidies, as well as reform of taxation,
including the introduction of VAT.
In theory, the cuts should have pushed the
country in the right direction. The result, how-
ever, was massive public discontent. An attempt
to overthrow the government followed in 1990,
with a loss for the NAR that would only see
it retaining its two seats in Tobago, the PNM
and UNC taking the remaining 34 in the 1991
election, with the PNM forming the govern-
People's Partnership 2015?
Throughout Thursday night s speech, the
Prime Minister attempted to remind the public
of her government s economic achievements:
low unemployment, a 30 per cent increase in
the Heritage and Stabilisation Fund and the
highest import cover in our country s history.
Despite critics of her revised budget speech,
some of whom saw it as too "political", maybe
the Prime Minister is wise in learning from
the lessons of the NAR experience, particularly
in an election year.
It will be left to be seen how the public per-
ceives the partnership s overall economic stew-
ardship and many segments of the population
will be wont to see these according to their
According to Khan and Ruprah, it would
seem the public can then make at least two
choices: they can punish the People s Part-
nership by removing them from office, or,
they can reward the People s Partnership by
allowing then to remain in office.
From Page 4
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