Home' Trinidad and Tobago Guardian : April 21st 2016 Contents APRIL 21 • 2016 www.guardian.co.tt BUSINESS GUARDIAN
COMMENTARY | BG3
Chief editor-business: ANTHONY WILSON
Editing and design: NATASHA SAIDWAN
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In downgrading T&T s sovereign credit rating to Baa3
from Baa2 with a negative outlook on Friday, the
rating agency Moody s naturally cited the impact of
low oil and natural gas prices, but also, more impor-
tantly, "a high likelihood" that the current admin-
istration s response to the commodity price collapse
"will not be as timely and effective as required due
to lack of macroeconomic data and weak policy execution
Of course, rating agencies and international financial insti-
tutions such as the International Monetary Fund have cited
the shambolic nature of the collection and dissemination of
economic data by the Central Statistical Office in the past.
But, even there, some improvements have been made by the
CSO and the Central Bank, which has picked up some of the
slack in terms of the collection and dissemination of economic
But for Moody s to suggest that the response of the Ministry
of Finance to the dramatic and catastrophic decline in revenue
that the country is experiencing will be partly hampered by
"weak policy execution capacity" is certainly new, very serious
and a potentially damning indictment of all of the professional
staff at the ministry, as well as the minister himself.
If the allegation that Minister of Finance, Colm Imbert, is
leading a ministry that is incapable of executing the govern-
ment s fiscal policy because of weak capacity is proven to be
true, that should prompt Prime Minister Keith Rowley to insti-
tute wholesale changes in the staffing of the ministry, starting
with the minister and his Permanent Secretary, Mr Maurice
If the allegation is proven to be unfounded, the Ministry
of Finance should terminate the services of Moody s with
extreme prejudice and then seek compensation before a federal
judge in New York for the gross defamation of the capabilities
of the ministry.
There can be no middle ground on this issue: If Moody s
is right, both the minister and the PS have got to go; if the
rating agency is wrong, it should be kicked to curb.
This allegation, which potentially tarnishes the entire public
service of the Republic of Trinidad and Tobago, simply cannot
be allowed to stand unchallenged and it is frankly astonishing
that neither Minister Imbert nor PS Suite have sought instant
clarification from Moody s by way of a public letter to its pres-
ident and CEO Raymond W McDaniel Jr.
In explaining what it means by a "weak policy execution
capacity," the authors of the Moody s report on T&T, analyst
Ariane Ortiz-Bollin and MD sovereign risk Anne Van Praagh,
said that while T&T s fiscal data are more reliable than the
"low quality of statistical information," the institutional and
execution capacity of fiscal policy "remains weak."
According to Moody s: "Some of the limitations include
lack of elements to perform sensitivity analysis on the impact
of oil prices in government finances, as well as on the estimates
on how the Value Added Tax (VAT) reform will impact revenues.
The government also lacks a rigorous medium-term fiscal
strategy and a clear debt-financing strategy, limiting visibility
beyond one fiscal year."
The rating agency, therefore, looked at four elements in
concluding that the Ministry of Finance had "weak policy
1) Lack of quantifiable analysis determining how declines
in the prices and production of oil and natural gas will affect
2) Lack of quantifiable analysis on how the reduction of
the VAT to 12.5 per cent and the widening of the VAT band
will affect government revenues;
3) Lack of a rigour in its medium-term fiscal strategy; and
4) Lack of clarity on the government s debt financing strat-
VAT and energy revenues
While there is no evidence of the kind of sensitivity analysis
work for energy and VAT revenues required by Moody s in
Minister Imbert s mid-year budget review, presented on April
8, that may simply have been a function of the time that the
minister had to make his presentation.
Assuming, but not accepting, that it is part of the day-to-
day business of the Ministry of Finance to conduct sensitivity
analyses of the impact of VAT and the price and production
of oil and natural gas on the government s revenue projections,
the ministry should now feel compelled to share that information
both with Moody s and with the public of T&T.
Mr Imbert did, however, disclose the following:
• That in the first five months of the 2016 fiscal year, revenue
collection was $2.96 billion lower than projected;
• That the revenue shortfall was primarily in tax receipts
from the energy companies, reflecting a sharp decline in pro-
jected income from oil and gas companies in the first six
months of this fiscal year of over $2 billion;
• That there was also a further shortfall of $1 billion in other
corporation tax receipts from the non-oil sector due to the
slowdown in economic activity, among other revenue short-
• That the new revised estimate for current revenue in fiscal
2016 is now $52.68 billion, as compared to $60.28 billion in
the original budget estimates, a shortfall of $7.6 billion;
• That the major shortfalls in revenue for all of fiscal 2016
would include taxes from energy companies, estimated at $2.4
• That the shortfall in corporation taxes from other companies
would be $1 billion and the shortfall in VAT would be $3 billion.
The minister, therefore, accounted for $6.4 billion of the esti-
mated $7.6 billion in the shortfall of current revenue.
Given that the original 2016 estimate of revenue states that
the Government expected to collect $12.364 billion in VAT
revenues, it seems that there is an expectation that only $9.364
billion in VAT would be collected.
It is interesting to note, however, that Mr Imbert did present
some sensitivity analysis of the impact of the price of oil on
the fuel subsidy, when he disclosed: "Even after the adjustment
in domestic fuel prices in November 2015, the current cost
of the fuel subsidy, including arrears, remains at close to $600
million at current oil prices" of US$37 a barrel.
"If oil prices rise to US$45, which is not an unreasonable
assumption, the subsidy will exceed $850 million for 2016
and at an oil price of US$50, the fuel subsidy will exceed $1
Medium-term fiscal strategy?
In my view, the minister did present a clear medium-term
fiscal strategy; whether it was rigorous enough for Moody s
is a different issue.
He said the fiscal deficit in 2016 would be about $6.7 billion
or about 4 per cent of GDP, which would be financed through
borrowings an appropriate drawdown from the Heritage and
Stabilisation Fund, if necessary.
He did disclose that the gap between expenditure at $59
billion and current revenue at $44 billion would be financed
by one-off items of $8.3 billion and borrowings/drawdown of
He disclosed that in the 2017 fiscal year, the government
would "have to resort to further borrowings and further asset
sales, including the remaining Clico assets, such as the shares
in Republic Bank, further drawdowns from the HSF etc, since
we anticipate another large gap between income and expenditure
He also signalled that by 2018, T&T "must put our house
in order," as by this time the gap between current revenue and
total expenditure must not exceed $10 billion, down from an
estimated $15 billion in 2016."
Imbert said: "All things being equal, therefore, if our revenue
position does not improve significantly over the next two
years, we will have to cut expenditure by 2018 to $55 billion."
If what was outlined by Mr Imbert above "limits visibility
beyond one fiscal year," Moody s would need to check their
Clear debt-financing strategy?
The Minister of Finance made heavy weather, in his mid-
year review, of the short-term loans raised by the previous
administration and did mention that debt servicing has "bal-
looned in fiscal 2016." But there were few details of the debt,
apart from some anodyne comments about "converting these
short-term loans into longer term financing arrangements as
part of a more comprehensive debt management strategy, i.e
a prudent sensible approach to borrowing, already recognised
by the IMF and other agencies."
Did Moody's defame
the Ministry of Finance?
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