Home' Trinidad and Tobago Guardian : June 25th 2015 Contents JUNE 2015 • WEEK FOUR www.guardian.co.tt BUSINESS GUARDIAN
COMMENTARY | BG3
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In his speech at the fourth Monetary
Policy Forum at the Angostura com-
pound in Laventille on June 1, Cen-
tral Bank Governor Jwala Rambarran
signalled to the party or group that
wins the September 7 general elec-
tion that the "new government
must initiate politically unattractive
but durable fiscal reforms within the first two
years of coming into office."
He said: "These fiscal reforms must address
reduction of fuel subsidies, duplication and
poor targeting of social programmes, leakages
of the VAT caused by extensive exemptions
and zero-ratings, and broadening of the non-
energy tax base.
"The goal must be to arrest and reverse
recurring but modest fiscal deficits to put the
fiscal accounts on more sound footing."
In my view, this is sound advice from the
In the June 14 edition of the Sunday BG,
in a piece headlined, "What role will economy
play in general election?" the point was made
that "whichever party wins the general election
will have to move quickly to come to grips
with T&T s economic situation as the 2016
budget must be debated and passed before
October 1, the begining of the new fiscal year."
Budget regulations, of course, allow for a
one month grace period, but the point remains
the same that the administration that forms
the Government for the 2015 to 2020 Parlia-
ment will have to hit the ground running.
This means that the manifestos put out by
the two main parties will be especially useful
in allowing the population to form a judgment
of which party (in whichever incarnation)
would be better able to manage the economy
for the next five years.
So what kind of economy will face the Gov-
ernment elected at the September 7 poll?
A good place to start would be the fiscal
accounts and the fact that earlier this month,
the Central Bank said that if the extraordinary
revenue inflows in the 2015 fiscal year are
excluded, "the fiscal deficit would widen sub-
stantially to around $10.5 billion or almost 6
per cent of GDP."
As it stands, the Central Bank predicts that
in fiscal 2015, the Government will realize a
"moderate" fiscal outcome of a 1.5 per cent
deficit as a result of the extraordinary non-
energy inflows of almost $8 billion, comprising
proceeds from the sale of Clico assets, receipts
from the Phoenix Park IPO and "unbudgeted
loan repayments from Trinidad Generation
But these extraordinary non-energy inflows
are unlikely to reoccur during the 2016 fiscal
year, or at least nowhere near to the almost
$8 billion of 2015. This probably means that
the next Minister of Finance will face a fiscal
hole in the region of $10.5 billion in presenting
the 2016 budget.
It is useful to recall that in presenting the
2015 budget last September that Finance Min-
ister Larry Howai envisaged that the Govern-
ment would collect $60.35 billion and spend
$66.4 billion, for a fiscal deficit that he pre-
dicted would be 2.3 per cent.
If the incoming administration faces a large
fiscal hole in September, what are its options:
• Raise revenue
• Cut expenditure
• Draw down TT-dollar savings
• Delay capital and non-essential expen-
• Seriously embark on a programme of Pub-
lic Private Partnerships
• Sell state-owned assets
According to the 2014 Annual Economic
Survey, T&T s total public sector debt rose by
$7 billion to $97.9 billion at the end of the
2014 fiscal year (September 30, 2014).
But excluding securities issued for open
market operations (OMOs) total public sector
debt amounted to $71.8 billion, which according
to the Central Bank was at a "mangeable 55
per cent of GDP."
Central Government s foreign debt totalled
US$2.25 billion at the end of the 2014 fiscal
year and approximates 7 per cent of GDP.
For the 2015 fiscal year so far, the Central
Government borrowed $2.1 billion on the
domestic market, comprising a $1.5 billion,
12-year, 2.3 per cent fixed rate bond (issued
in two tranches in December 2014 ($1 billion)
and March 2015 ($500 million) and a $600
million loan for one year.
At 55 per cent, T&T s total public debt is
below the recommended 60 per cent level,
above which there tends to be some nervous-
ness about excessive debt.
Fortunately for T&T, Minister of Finance
Larry Howai has indicated that some of the
money from the Clico resolution will be used
to reduce T&T s debts. This will give the new
Government greater flexibility.
No new government likes to raise taxes in
its first budget, especially in a context of five
years in which there have been few tax increas-
es. The recommendation would be for the
new administration to concentrate on tax col-
lection as there are hundreds of businesses in
the country that are not paying the taxes that
It may also be time to reconsider the revenue
authority idea that the Manning administration
advocated between 2007 and 2010 as such
institutions have a proven record of increasing
In terms of cutting back on the amount of
money the government spends, clearly the
first order of business would be to look very
carefully at the amount of money that is being
disbursed as transfers and subsidies. The low-
hanging fruit of the fuel subsidy should be
abolished immediately as there is clear evidence
that such expenditure benefits wealthy users
much more than middle-income or the poor.
• Delay capital expenditure/slow down pay-
This is a traditional mechanism by which
the public sector in T&T shaves expenditure.
Public Private Partnerships
A period of reduced revenue and lower gas
production may be the time for the new
administration to think about sharing the cost
of infrastructural development with qualified
members of the private sector, both local and
foreign. (More on this next week)
The current administration has identified
a number of companies that are in the process
of being privatised. The main one is the T&T
Mortgage Bank, which is supposed to result
from the merger of T&T Mortgage Finance
and the Home Mortgage Bank. The former is
51 per cent owned by the National Insurance
Board, while the latter is 99 per cent owned
by the NIB. In an interview in May, the exec-
utive director of the NIB said the institution
had commissioned consultants to analyse the
options for the proposed merger. Hopefully,
the TTMB gets the green light and is listed
in the near future as the benefits of a gov-
ernment divesting shares to its institutions
and individuals are many and manifest.
Is adjustment on cards
for general election winner?
Central Bank of Trinidad and Tobago
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