Home' Trinidad and Tobago Guardian : January 15th 2015 Contents BG14 COMMENTARY
BUSINESS GUARDIAN www.guardian.co.tt JANUARY 2015 • WEEK THREE
What are the
will give the
to the peo-
ple of T&T?
Given the almost comical machinations
emanating from both the Government and
the Opposition over falling energy prices, it
is clear that there is no acceptance of respon-
sibility as to how we have arrived at this junc-
ture and no consensus as to what to do from
Political expedience is the order of the day
and that charge rests with both the Govern-
ment and the Opposition. The Government s
seeming unwillingness to take bold and decisive
steps as it relates to current expenditure levels
has been well ventilated. Yet very little censure
has been offered to the Opposition bench for
themselves politicising the situation.
Surely what is required is a bipartisan
approach to the population outlining the risks
that lie ahead so that the necessary steps that
need to be taken can be now as opposed to
waiting on whoever is in government post-
September 2015 to offer the bitter medicine
to the population.
The reality is we have just witnessed approx-
imate to a four standard deviation event, which
means that statistically we should see no more
than two such occurrences in our lifetime. Yet
this is the second such occurrence in five years
and it is the eighth oil price decline of more
than 30 percent during the past 30 years.
This statistic begs a fundamental question
that all our politicians have to answer.
Why is it that in the face of historically
volatile oil prices our economy remains so
Both the Prime Minister and Opposition
Leader as leaders of the two political incar-
nations that governed during this time should
be made to offer their views on this matter.
It can t simply be a case of change the leader
and the party is absolved as if that were the
rationale we should be selecting an executive
leader as opposed to choosing between political
parties. Here again the case for constitutional
reform is made clearer and the absence of
such reforms also contributes to the crisis at
Inflexibility, as regards to the economy, is
not just about economic diversification but it
also speaks to expenditure levels that are sus-
tainable or that are of a type that can be easily
adjusted up or down in the face of volatility
in energy prices. A big part of the problem of
economic inflexibility is the fact that the econ-
omy relies heavily on elevated levels of expen-
diture from the State.
This administration came into office 18
months after the demise of the CL Financial
Group which, by all accounts, was the biggest
private sector spender in the economy. Fol-
lowing its demise, everything from the Tobago
Jazz Festival, to media advertising to spending
of the interest income received by policyholders
were all curtailed. This made the economy
even more reliant on government spending at
a time when our expenditure levels were already
exceeding our revenues.
Over the term of this administration there
have been many unheeded calls for increased
private sector participation in order to reduce
the role of the state in the economy.
Having come into office with a larger major-
ity than any administration since 1986, the
political capital should have been better spent
in working to bring the private sector on board.
It is inconceivable that with annual requests
for $7 billion in private sector participation
that we are still waiting on the full enactment
of the proposed Procurement Legislation into
the fifth year in office.
Surely greater certainty, meritocracy, trans-
parency and accountability are pillars upon
which private sector participation would be
Further, the inability to properly emphasise
a medium-term plan and stand by the results
of that plan all work against the very private
sector participation that this administration
sought to engineer.
The end result is that over the current term
the economy became more reliant on state
spending and increasing expenditure levels
year-on-year represented a self imposed ration-
ale for coming out of recession and returning
to economic growth.
The situation was not helped by the admin-
istration s inability to deal constructively with
the issue of taxation, not just higher tax rates
and tax collection but the issue of land and
building tax reform and gaming taxes were
also left wanting.
The story did not begin in 2010.
The inflexibility inherent in the way our
economy is configured came as a result of
elevated and now clearly unsustainable levels
of expenditure introduced during the period
2004 to 2008. The price for such wanton
expenditure is being paid for by every citizen
today and the generations to come in the form
of higher levels of inflation, increased cost of
homeownership, high levels of TT dollar liq-
uidity which pushes savings rates down and
recurring borrowing to mop up that liquidity.
Coinciding with the longest uninterrupted
period of energy price increases over the past
30 years---approximately $179 billion---passed
through the Treasury during the period 2004
In simple English, our expenditure grew at
a rate of 27 per cent per year. Even allowing
for contributions to the Heritage & Stabilisation
Fund (HSF) we are still dealing with upwards
of $160 billion of expenditure.
When you consider that in 2000 the national
budget stood at $12.5 billion but by 2007 we
were spending four times that amount in a
single year, the unsustainability of this increase
becomes apparent. Every kindergarten student
appreciates that when you give someone some-
thing it is difficult to take it back. So when
a significant amount of the expenditures quoted
above went to social and make work pro-
grammes in a manner that was unsustainable
the political quagmire should be clear.
The current administration chose the popular
route by continuing and, in some instances,
increasing these "hand outs" citing the reces-
sionary nature of the economy as justification.
The unsustainable increase in expenditure---
for which the current Opposition is respon-
sible---is now critical. A laughable situation
were it not so serious.
In 2008, at the end of this period of wanton
spend and after having blown through $160
plus billion in five years, we have managed to
save the inadequate sum of $19 billion in our
HSF. This level of savings and expenditure
must be viewed in the context that, in 2006,
we received no bids for our deep-water explo-
ration blocks and so we had unsustainable
expenditure and not saving enough at a time
when our energy reserves to production ratio
were declining rapidly. That is as about as
irresponsible as one can get.
The cut back
So what do we do now?
We experienced a similar situation in 2009
with the then fall in oil and gas prices.
Excluding transfers to the HSF, expenditures
in fiscal 2008, the year prior to the Great
Recession were approximately $48 billion. The
2009 budget saw a reduction to $45.7 billion
equating to around five per cent. There were
no transfers to the HSF in 2009 despite the
fund only being introduced into law in 2007.
The lack of discipline should be highlighted.
This lack of discipline was repeated by this
administration in 2014.
The Government has offered up budget cuts
to the tune of $4.5 billion on a $64 billion
Budget, which on a percentage basis compares
to what obtained in 2009. Of course the devil
is in the details so we wait to see how this
$4.5 billion in cuts will become manifest.
Given the inflexible structure of our economy
and the dependence on the State for economic
activity can we really afford to cut expenditure
by more than five per cent in any one year
without serious dislocations? Especially when
the average oil price over the year as opposed
to the current oil price is what matters.
A reduction in expenditure of just five per
cent and the fall out from CL Financial saw
this country go into a recession. We have
struggled to get out of that mode for the past
five years. What impact will a 10 per cent
reduction in expenditure have on the econ-
What happens when fewer state contracts
are awarded because the capital expenditure
programme is reduced and contractors begin
to reduce their workforce?
How will this filter through to retail, the
service sector and so on?
When the average person sees how volatile
the situation is and begins to cut back, leading
to further contraction in the economy, what
do you think will happen? The last resort will
be to turn to the State with already elevated
and unsustainable levels of expenditure for
More borrowing will be the order of the day
and hope for oil prices to rebound. Or maybe
our politicians and our society as a whole will
rise to the challenge.
Which scenario seems more realistic?
Ian Narine is a broker registered with
the SEC and can be contacted at
A crisis of the political economy
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