Recession, covid19 hint at subdued mid-year review

Finance Minister Colm Imbert has, since the start of the covid19 pandemic and Government’s ensuing mitigation measures, kept the country apprised of costs and spending, either via the Parliament or else his twitter feed.

The Minister is expected to make an appeal to the Parliament, requesting nearly $2.7 billion in additional funds to bolster ministries and public services as the country emerges from a nearly three-month lockdown enforced to mitigate the spread of covid19. This, even as he has already articulated that the economic impact so far has widened the estimated deficit by some $10.2 billion, up from the $5.3 billion projected last October. The bulk of the supplemental allocations are expected to go to the Ministry of Finance ($880 million) and the Ministry of Social Development ($581.8 million).

And the Treasury’s coffers have taken a hit in the second quarter of 2020, as oil prices took a major tumble, spurred on by a price war between Russia and Saudi Arabia and dampening global demand as all over the world governments imposed strict restrictions on movement to clamp down on the spread of covid19. At a press conference in April, Imbert said for the second quarter, up to March 30, the government collected $3.6 billion, a shortfall of about $600 million to $700 million from the original projection. The ministry has had to recalibrate its estimates, including the projected price of oil and natural gas to US$40 per barrel from US$60 and natural gas from US$3 to US$1.80 per mmbtu. Luckily, revenues should perk up somewhat after a disastrous April. which saw US oil prices hit negative territory because of a glut in supply and scarcity of storage space. Prices have since rebounded and are in the high US$30s per barrel. Commodity prices remain depressed, especially for petrochemicals, and there are at least five plants in the Point Lisas Industrial Estate shuttered until prices – and supply – can make production viable again.

Back in April, Minister Imbert announced a three-month (April, May and June) $4.5 billion financial support programme, including an enhanced social safety net for displaced workers and families of school children who would have benefitted from the school feeding programme. Notably, there’s the salary relief grant, which would have given people who were temporarily laid off because of the coronavirus lockdown $1,500 per month. That alone was budgeted at $400 million in anticipation of at least 100,000 applicants. There’s also $25 million worth of food cards, distributed via members of parliament, to some 75,000 households. Religious organisations will share $10 million per month, allocated via congregation size, over the three months. There’s also an Income Relief Grant administered by the Ministry of Social Development. In a tweet on Saturday, Imbert said so far, the State via the ministries of Social Development and Finance has paid out 41,000 grants to a tune of $70 million.

For business and individuals who might not necessarily qualify for these safety net grants, there have been complaints that Government’s interventions are not enough. Imbert has disagreed, noting that as part of its plan to stimulate the economy, the State will pay VAT and income tax refunds and outstanding debts to vendors. So far, Imbert noted again via tweet on May 26 that Government has paid so far in 2020, $1.91 billion in refunds, all designed to assist with cash flow. The Central Bank has also revised the repo rate and reserve requirement downwards, encouraging banks to follow suit with reduced lending interest rates and freeing up some $2.6 billion in liquidity in the country’s financial system. In addition, there’s a $100 million loan facility via credit unions, guaranteed by the government, and a small business loan facility that will be administered by First Citizens Bank. Tobago has received $50 million for hotel upgrade grants.

And on Wednesday, Health Minister Terrence Deyalsingh announced that regional health authorities have spent or committed $45 million to the covid19 pandemic out of the $157 million Cabinet had initially committed.

Of course, the mid-year review comes at a ticklish time for the government. Riding high on positive reviews for its handling of the covid19 pandemic, it will also be preparing for a general election expected in the latter half of the year. It’s unlikely this mid-year review will contain any significant surprises in terms of election goodies, but the government will likely have to propose and account for how it will raise the money it needs to ensure it can stimulate economic activity. It has already sourced US$300 million from international agencies (notably excluding the IMF) – although it has not said yet if and how that money will be accessed and used – and has raised $500 million on the local market to pay for increased medical goods and services for the regional health authorities. One of the promises in the October budget was a proposed second National Investment Fund (NIF 2); given that the Finance Minister has said that sale of assets could be one way the State raises money, it’s possible NIF 2 might be announced, as well as if Government has dipped into the Heritage and Stabilisation Fund. Businesses are also going to be eagerly anticipating if a more direct and tangible bailout will be available to them in the form of grants or guaranteed loans – and beyond refunds that had already been available to them – something that has not clearly been articulated by the Government.

The IMF is already projecting negative three per cent global growth for 2020. For the first time in decades, China’s economy declined and just this week, the US officially entered into a recession. TT’s projected GDP change is -4.5 per cent. The Central Bank in its monetary policy report, released Wednesday, suggests given the circumstances, unemployment is likely to have risen markedly. Whatever he delivers, it won’t be easy for Minister Imbert.