$2b loan for tax reform

Finance Minister Colm Imbert
Finance Minister Colm Imbert

FINANCE Minister Colm Imbert believes TT’s debt to gross domestic product (GDP) ratio is improving. That’s why he thinks the country can service its latest US$300 million (nearly TT$2 billion) loan agreement with Corporacion Andina de Fomento (CAF or Latin American Development Bank), with headquarters in Caracas, Venezuela, for which an agreement for the release of the first tranche for US$180 million was signed yesterday.

In a brief message to Newsday, Imbert said the country’s GDP had improved in 2017.

A release from the Ministry of Finance yesterday said the money will be used to implement Government’s Medium-term Fiscal Consolidation Strategy – Phase II, intended to boost growth and reduce the economy’s vulnerability to external fluctuations and terms of trade. Tax reform for the energy sector, as well as corporation tax and the implementation of an environmental tax, are among policies supported by the loan agreement.

“This programme aims to increase fiscal revenues; improve public expenditure efficiency and accountability; strengthen public debt management and promote fiscal policy sustainability,” the release said.

Other policies include:

• Improving public procurement mechanisms

• Strengthening of the Central Audit Committee

• Review of public debt legislation

• Improvement of the bond market

• Establishment and operationalisation of the National Investment Fund

The loan was mentioned in Imbert’s budget presentation last October, and the facility has already been factored into the country’s accounts.

For the most part, the facility has been received cautiously by critics.

“At this point in time in the country’s economic progress, the Government is taking the necessary steps to help build and rebuild its fiscal position where it can,” said Dr Roger Hosein, head of UWI’s economics department.

Although it involves borrowing resources from abroad, if it works and the yield supersedes the amount borrowed within the first five years, then it will be a good investment, he added.

“In my view, it will, so I support, at this point in time, the Government borrowing to support the fiscal framework in the economy,” he said.

Marla Dukharan, chief economist at Bitt, noted the economy has averaged zero growth for the past ten years, running fiscal deficits consistently since 2009. Central Government external debt went from US$1.48 billion in 2012 to US$3.5 billion in December 2017– an increase of 137 per cent in five years, she said.

“The drawdown on the CAF facility is not a surprise given that it was discussed in the budget. What is of concern, is the vague nature of the deliverables/targets,” she said.

Dukharan questioned the ministry’s definition for items like “monitoring the fiscal consolidation process” or “improvement of the bond market”.

“In other words, is further drawdown tied to the achievement of any of these items and how will success be measured? Or is this really a loan simply for budgetary support, to help finance the roughly TT$11 billion (excluding one-off financing items) fiscal deficit for the current fiscal year?” she queried.

Former minister in the Ministry of Finance, Vasant Bharath, was also sceptical of Government’s intended use. “I don’t necessarily agree that any of the borrowing is being put to productive use, like building capacity and increasing economic activity,” he said.

Instead, Government is filling the gap between expenditure and revenue by borrowing, he said, when it should really be investing in human resources and industries that can help recreate a level of confidence in the economy.

“They’re pouring money into a black hole. There’s no benefit except being able to meet recurrent expenditure. That’s not how the money should be used,” he said.

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