Home' Trinidad and Tobago Guardian : September 27th 2015 Contents Given the dramatic, and poten-
tially long lasting decline in
the prices of T&T main s
petrochemical exports, there
is no doubt that T&T s new
Minister of Finance, Colm
Imbert, will be hardpressed to
identify sources of revenue that would come
close to matching the country s expenditure,
which is expected to close the 2015 financial
year at upward of $60 billion.
When former Minister of Finance, Larry
Howai, made his budget presentation for the
2015 financial year (which ends on Wednesday),
he envisaged that he would spend a total of
$64.66 billion, net of capital repayments and
sinking fund contributions.
Mr Howai also assumed that he would col-
lect $60.35 billion, based on revenue assump-
tions of US$80 a barrel of oil and an average
natural gas netback price of US$2.75 per
Clearly, the decline in the price of oil, natural
gas (LNG) methanol and ammonia will have
an impact on the amount of revenue that Mr
Imbert can expect to collect for the 2016 finan-
cial year, which begins on Thursday.
Data put out by Mr Howai in August, per-
taining to the first three quarters of the 2015
financial year (from October 2014 to June
2015), indicate that the decline in revenue was
not as sharp as many might have predicted.
The actual revenue collected by the Excheq-
uer for that period was $39.1 billion, which
was 8 per cent or $3.1 billion less than the
$42.2 billion in revenue that was projected to
be collected. That s average quarterly collection
of $13 billion compared with the budgeted
collection of $14 billion.
What accounts for the fact that actual rev-
enue was only 8 per cent than projected over
the nine-month period, especially given the
fact that the production of T&T s single, largest
revenue earner, LNG, was less during the cur-
rent period than the previous one?
The off-balance sheet revenue measures
implemented by Mr Howai---such as the
US$650 million TGU dividend, the $1.5 billion
from the Phoenix Park IPO and the $4 billion
in partial settlement of the Clico obligations---
may boost revenue for the 2015 financial year.
But these are one-off measures that are
unlikely to be repeated in the 2016 financial
year. Although the proposed establishment of
the T&T Mortgage Bank as a result of long-
awaited merger of the Home Mortgage Bank
and T&T Mortgage Finance may generate
some revenue, the Government should expect
additional revenue from the final settlement
of the Clico matter and the minister may iden-
tify another state-owned company from which
to squeeze dividends.
1Mr Imbert may wish to identify what would
be an acceptable fiscal deficit (less than 3
per cent would be considered prudent) based
on his revenue projections and reduce expen-
diture to that level.
As has been referenced in this space on a
number of occasions, the need for a speedy
resolution of the Clico/CL Financial matter
has never been greater than it is now. A clear
vision and speedy implementation of the pay-
ment of all of CL Financial s creditors---includ-
ing the State---and the return of what s left
of the group to its shareholders, will definitely
generate some additional cash for the Gov-
2Mr Imbert needs to insist that the Central
Bank disclose its plans and the implemen-
tation timetable for the Clico resolution so
that a realistic deadline for the payment of
the balance owed to the Government can be
On Friday, the Central Bank announced that
it was raising the repo rate for a seventh con-
secutive time by 25 basis points to 4.5 per
According to the Central Bank statement
announcing the upward adjustment: "The
most-influential factor behind the Monetary
Policy Committee s (MPC) decision remains
the normalisation of US monetary policy which
could reduce capital flows to many emerging
markets, including T&T, which is adjusting
to persistently low energy prices.
"The MPC also judged the domestic mon-
etary policy stance as still very accommodative
in the context of a contracting non-energy
sector and moderate inflationary pressures."
Most importantly, the Central Bank made
explicit in its Friday statement what it has
only implied in six previous announcements
of higher repo rates.
It stated: "The MPC judged higher domestic
interest rates are necessary to mitigate potential
In other words, the Central Bank has admit-
ted that it is trying to make the cost of money
high enough to limit the demand for US dollars.
There is no reference to the possibility of
higher interest rates in this statement as the
Bank is forced to admit that "domestic infla-
tionary pressures have not materialised as ini-
tially expected," with headline inflation declin-
ing to 4 per cent in August from 5.5 per cent
in July and food inflation declining to 8 per
cent from 11.5 per cent.
The Central Bank even admits that one of
the main drivers of higher interest rates---the
need for a wide enough margin between the
assets of T&T and US in order to slow capital
flight is no longer the problem that it used to
be.The Central Bank said: "Over the past few
months, the interest differential has widened
between TT dollar assets and US dollar assets,
but this fairly comfortable position could easily
reverse, given the sharp fluctuations in US
interest rates in 2015."
The statement also indicates that T&T s
"domestic economic outlook has deteriorated"
with the economy contracting by close to 2
per cent in the first half of 2015.
A contracting economy, lower inflation and
the widening gap between the domestic cur-
rency and the currency of its major trading
partner are all issues that should be demanding
a reduction in interest rates and not their
3The need for better alignment between
fiscal and monetary policy and between
monetary policy and exchange rate policy has
never been as great.
4If there is fiscal deficit after all of the rea-
sonable cuts have been made and every
penny of revenue sequestered, think carefully
about adjusting the rate of exchange.
5Mr Imbert obviously needs to pay great
attention to what s happening on the inter-
national scene as an accurate judgment of
revenue will be very important. It may be that
scenario planning will be much more important
this year than it has ever been and that there
should be a national discussion on what will
be cut in the event that revenue continues to
SEPTEMBER 27 • 2015 www.guardian.co.tt SUNDAY BUSINESS GUARDIAN
COMMENTARY | SBG3
Will new Finance Minister
consider these five issues?
Finance Minister Colm Imbert speaks with Minister of Housing and Urban Development Marlene Mc Donald and Health Minister, Terrance
Deyalsingh during the opening of parliament on Wednesday. PHOTO: ABRAHAM DIAZ
The off-balance sheet revenue
measures implemented by Mr
Howai---such as the US$650 million
TGU dividend, the $1.5 billion from
the Phoenix Park IPO and the $4
billion in partial settlement of the
Clico obligations---may boost
revenue for the 2015 financial year.
But these are one-off measures
that are unlikely to be repeated in
the 2016 financial year.
Links Archive September 26th 2015 September 28th 2015 Navigation Previous Page Next Page