HSF demands serious review

The TT Heritage and Stabilisation Fund (HSF) is a sovereign wealth fund created in 2007 as a way to smooth out the erratic nature of petroleum markets by investing in the fund during times of plenty and making measured withdrawals during difficult times.

It is intended to buffer the economy at a macroeconomic scale to avoid the dramatic financial shocks that this country weathered when oil income cratered.

We are in difficult times now.

Last week, Caribbean Information and Credit Rating Services revised its outlook on TT’s economic ratings from stable to negative.

Oil and gas revenues took a serious hit when global markets nosedived early in 2020.

Then covid19 stalled economies the world over, softening demand for petroleum and increasing costs for nation states.

On only one of those counts – the shortfall in petroleum revenues – was the government supposed to draw from the fund.

Chairman of the HSF Ewart Williams called last week, in his statement in the 2019 annual report, for a review of the fund, given concerns that long-term structural changes in global oil and gas markets are likely to reduce its income.

The fund chairman also hinted, with admirable restraint, that withdrawals in 2016 and 2017 of US$627.6 million from the fund might have been required because “public-sector indebtedness (was) edging towards unsustainable levels.”

He also expressed concern that the fund – which is subject to review by the Finance Minister, who is mandated to report to Parliament on it every five years – has not met that review requirement in 12 years.

From the taciturn Mr Williams, these are fiery words that demand a substantive and considered response from government.

In April 2017, a release from the Office of the Prime Minister sought to characterise the two withdrawals as necessary because of “a sharp decline in the country’s revenues due to the fall in oil and gas prices.”

The statement sought to describe the drawdown as normal from a fund “created specifically to deal with this type of economic climate.”

But what happens if the economic climate change becomes permanent, or so nearly so as to make increases to the HSF incremental at best?

There cannot be a parliamentary review of the prospects of the fund in the weeks leading up to a general election, there being no Parliament.

But it’s a matter that should be at the top of the public’s mind immediately after a new government is elected.

No citizen who has experienced the shocks of a local recession would dispute the value of the HSF.

No economy can avoid the effects of external market forces. But a review is needed with the aim of optimising management so as to help to create a more robust and resilient TT economy.