FINANCE Minister Colm Imbert will today deliver his much-anticipated mid-year review of the 2018 Budget. This year, though, it’s not just a review of the half-way point of the financial year – it also marks the midpoint of the PNM administration’s term in office.
Imbert has remained tight-lipped about what the country can expect – he declined to comment for this article – but hinted last Friday during the launch of the Export Import Bank’s (Eximbank) US$100 million facility for manufacturers, that there would be some “positive news” about the economy.
It’s likely that part of this positive news will be a revised gross domestic product that more accurately reflects the uptick in hydrocarbon production, as well as higher-than-budgeted commodity prices in the latter half of last year. And it’s unlikely there’ll be any new taxes announced in the mid-year review. Nor will the minister – at least for the time being – completely remove the fuel subsidy, which still applies to diesel and super unleaded gasoline.
It’s also likely that following the transfer of $4.3 billion worth of shares from Republic Financial Holdings Ltd earlier this month, from the Clico Investment Bank which is in liquidation, government as part of its debt repayment, will use these shares to underpin the National Investment Fund (NIF). The NIF, Imbert promised last October, will be offered through a public offering. This mid-year review could possibly see the start of government’s election machinery.
“I think politics will trump economics in this mid-year review,” economist and political commentator Indera Sagewan-Alli told Newsday. The government, she said, will be starting to position itself to win elections. There are two municipal by-elections for Belmont and Barataria slated soon, as well as local government elections next year. And in late 2020, the general election is scheduled. “(Imbert) has said good things are coming in the mid-year review, so we are already being put on notice. Most likely revenue (to fund these good things) will be raised through borrowing and sale of assets,” she said.
Politics or not, a recovery in the energy sector still appears to be the crux of the government’s fiscal strategy. Whether this can prove to be sustainable in the long term remains to be seen.
Former Energy Minister Kevin Ramnarine said: “Any recovery of the economy in terms of GDP growth in 2018 is premised on the large increment of natural-gas production that came from Juniper as it started production in August 2017 and ramped output into 2018. The Sercan and Trinidad Onshore Compression (TROC) projects, which had their genesis in 2014/2015, also helped, but it was Juniper that gave the big increase.
“The question now is whether a natural gas production rate of 3.7 billion cubic feet per day is sustainable, and if it is not then what will sustain growth post-2019.”
Imbert has said, though, that in January this year, gas production was up to 3.9 billion cubic feet and is expected to average 3.8 billion cubic feet this year; next year, four billion cubic feet; then 4.1 cubic feet in 2020.
NO VALUE FOR MONEY
And while revenues in this first quarter increased by about 10 per cent, and expenditure fell by 13 per cent, it doesn’t mean quality of life has improved, noted Dr Valmikki Arjoon, lecturer in finance and economics at UWI, St Augustine.
“Taxes remain high, and the population/business community are not getting value for money – crime, sales and the ease of doing business locally are worsening, which continues to trash confidence in the economy. These are crucial areas that the minister should discuss in the mid-year review.
“Cuts in expenditure are partially reflective of dues that have not yet been paid by the State, such as value added tax refunds and outstanding payments to contractors,” he said.
Crime, in particular, continues to be the one of the biggest challenges to economic growth.
The Ministry of National Security received the second biggest allocation in the 2018 budget – $6.237 billion, down from the $7.625 billion in 2017, and second only to education’s $7.3 billion. Despite that hefty sum, there’s barely been a dent in crime and criminality: it’s not even six months into 2018 and the country has already had nearly 200 murders for the year. Last year there were 494.
Sagewan-Alli said, “Crime continues to worsen, even though budget allocations have not been cut in any significant way. That has worsened our competitiveness, because businesses have had to add to their cost of production.” In terms of deliverables, on Twitter Imbert cited the Eximbank facility as a “budget promise fulfilled.”
While the move has been welcomed as an attempt to ease constraints on the availability of foreign exchange to manufacturers, there has been some criticism, with at least one business chamber head saying a better option would be making the exchange rate more in line with reality through liberalisation of the controls (that is, adjusting the rate to better reflect market forces). Imbert is adamant that he will not do this, tweeting last Friday that his ministry’s policy is to contain inflation through stability of the exchange rate while targeting foreign exchange to the productive sector and managing foreign reserves. “(The) inflation rate in TT is at now at a record low, below two per cent. This low inflation is not accidental,” Imbert tweeted.
It should be noted that the Central Bank is the entity that should be in charge of the country’s monetary policy – which includes exchange rate adjustment and inflation management – not the Ministry of Finance. Central Bank governor Alvin Hilaire has been reticent to comment on exchange-rate policy, and while he has admitted the supply is strained, he has maintained that reserves are “high and comfortable.”