The Bankers Association of TT (BATT) says the macroeconomic environment of TT appears to be gradually improving, with economic growth at 1.7 per cent registered in the first quarter of 2019.
BATT commends the Government’s commitment to stabilising the fiscal accounts particularly as it has been able to cut expenditure by roughly ten per cent in fiscal year 2017/2018, relative to 2015/2016 against a backdrop of lower revenue.
“We particularly note the projected fiscal deficit for year ended September 2019 of 2.4 per cent of GDP, achieved with no large one offs from monetisation of assets,” BATT said.
However, it is concerned that budgeted expenditure for this fiscal year has resumed an increasing trend compared to the last year, with the overall fiscal deficit budgeted to widen to 3.1 per cent of GDP for fiscal year 2020. “Of concern is a 7.5 per cent increase in transfers and subsidies, which accounted for TT$27.3 billion in FY 2019. While the 15 per cent increase in the wages for Cepep and URP is placed within the philosophy of assisting those most in need, the gains made due to previous years’ prudent expenditure rationalisation must be guarded, to prevent their erosion. Expenditure on transfers (which is already in excess of $27 billion) must remain under close watch to manage implications for the ongoing fiscal consolidation efforts that are imperative from a credit rating perspective.”
BATT said from a labour market standpoint, it welcomes the increase in the minimum wage to $17.50 per hour, an increase of 17 per cent, as this will greatly benefit approximately 13 per cent of the population and will assist in improving their socioeconomic conditions. However, it said it is mindful of any potential inflationary implications this may have, as costs of production will increase and may be passed on to the consumer. “Further, the increase in stipends associated with the OJT programmes, together with a higher intake of persons to 8,000, will assist not only the participants, but can provide a wider talent pool for potential employers,” the association said.
Beyond this, though, BATT noted the increase in retrenchment notices filed with the Ministry of Labour and Small Enterprise Development over the past year, saying this can have serious implications on a socio-economic level, which can have knock-on effects for the banking sector.
It commends the move to address the long outstanding VAT refunds. “The government’s proposal to offer TT$3 billion (initially) in interest-bearing government bonds to all eligible VAT-registered business will improve liquidity flows for businesses and is a welcomed move by the government in settling this debt, moreso in a manner with minimal impact on the fiscal balance.”
Regarding the incentives provided to spur activity in the non-energy and non-traditional industries that will support the country’s diversification thrust and will improve its ability to earn foreign exchange, BATT said, “This is particularly important given the volatility of the energy sector which causes significant swings in the government’s revenue and external liquidity particularly against the backdrop of a managed peg exchange rate regime.”
The association emphasises that one of the key aspects of the budget is the implementation of the capital expenditure programme, which will support the country’s economic recovery. However, it urges the government to continue to rationalise its expenditure levels to ensure the effectiveness and efficiency of its spending, particularly in the context of subdued energy prices internationally and a global economy that faces significant headwinds in the short-to-medium term.