BUDGET JITTERS

AS Finance Minister Colm Imbert gives his 2020/2021 budget presentation this afternoon, economist Dr Vaalmikki Arjoon has expressed hope the policies announced do not result in job losses.

He told Newsday in a telephone interview poverty and inequality are growing in TT. He cited a recent Inter-American Development Bank study (released in July) which showed 67 per cent of low-income households in TT were affected by job losses.

“And this is going to continue, make no mistake, with the closure of more elements of the private sector, especially the SME (small and medium enterprises). This is a key avenue the Government needs to consider in setting their budget.”

He recalled during last week’s Spotlight on the Budget and the Economy, Finance Ministry Permanent Secretary Vishnu Dhanpaul spoke about revenues and expenditure being set and a balancing act.

“But I think that at this particular point forward, given the covid19 fallout and the impact upon households, Government, in setting this budget, and for the next few years, they have to try to balance not just revenues and expenditures, but also try to help optimise the economic welfare and social welfare of citizens.”

He stressed the Government has to be very careful that its policies will not cause any more job losses. He said it was encouraging to hear from the minister that the State is not looking to make any cuts in wages and salaries, pensions or social welfare.

“That is a good plan. It is very important to support livelihoods.”

He said of the previously mentioned 67 per cent of households, many would have been living pay cheque to pay cheque without any substantial form of savings, and savings would have run out for many of them by now.

“It is a reality that many people, many households, are having problems just to simply access food. So you may be looking at having to allocate more money, unavoidably so, for certain aspects of social welfare spending, for example the food card programme.”

He said there do not seem to be indications of cuts in certain elements of transfers and subsidies, and Government must be careful that whatever cuts are made do not result in people being out of jobs.

“Now is not the time to increase the joblessness rate. Now is the time to try to create more jobs.”

Don’t overtap HSF

He pointed out during the five-year term of the previous incarnation of this Government the total deficit was about $48 billion.

“That would mean that we would have spent $48 billion more than we earned in revenue. So obviously we don’t have any real savings to fall back on except the HSF (Heritage and Stabilisation Fund).”

He said both Dhanpaul and the Finance Minister at Spotlight indicated the HSF at $5.9 billion. He added, however, this is purely due to market fundamentals in the foreign capital market and price movement.

“Now what we have to remember is (despite) a healthy HSF fund value, we (still) need to keep in mind that we should not be complacent.”

Arjoon said he suspected the State will need to tap into some more of these funds in the very near future. He stressed, however, the country should not tap into this fund unnecessarily but only when there is little or no alternative.

He said Government also needs to pay careful attention to transfers and subventions to state entities and statutory boards, which were an average of more than $9 billion per year. He added some state entities are used for unprofitable purposes and some may need to embark on effective cost-cutting, though without putting people out of jobs.

“They need to decide which state enterprises they want to keep on the books and which ones need to privatised or pruned off.”

Inflated forex reserves

He said it was very interesting to hear the Finance Minister speak very highly about the country’s foreign reserves during Spotlight, which was at about $7.4 billion.

He explained TT has had a balance-of-payments deficit for the last several years and this means there has been a net outflow of foreign exchange and not a net inflow.

Arjoon said, therefore, the reasons foreign reserves went up was because when TT engages in foreign borrowing or takes out money from the HSF, the Central Bank will convert it from US to TT dollars for Government to spend in TT.

“So when we convert the money to US, it will obviously be put in the foreign reserve account. So that is why the foreign reserve account would have gone up.

“It is basically artificially increasing or propping up the foreign reserve account. It is not really due to any substantial foreign exchange revenue earnings in the form of taxes and royalties paid by the energy companies, not substantially anyway.”

He said over the years Government has spent between $4-5 billion on average on capital expenditure. He advised that Government should look at not necessarily increasing the amount but making the most out of the money in terms of getting better value for it.

He explained capital expenditure projects are the most productive aspect of government expenditure as it builds productive capacity and creates jobs.

Budget as foundation

Arjoon advised that government’s economic strategy should be to use this 2020/2021 budget as a foundation for at least a three-year plan to build economic resilience and engender some form of notable diversification of economic sectors.

He said to do this Government needs to embark on a programme of quantitative easing – have Central Bank purchase long-term government bonds from the financial system. The money they use to buy these bonds will be injected into the banking system and this will give banks an increased money supply and more access to liquidity to provide financing for the business community.

“So effectively the business community, especially the SMEs, should have more access to more financing from the commercial banks at much reduced interest rates.”

He stressed for this to work, however, Government must engender confidence among the business community so it will be encouraged to make use of these funds “and go out there and invest to keep their businesses afloat, expand the scale of their operations, and, far more importantly, keep people in their jobs, and even reduce the rate of joblessness in the country.”

Arjoon said going forward there is a significant and urgent need to fix the ease of doing business.

“Because much of their policies will not work unless it becomes easier to do business in TT. Many companies have gone as far as having to close down not just because of poor financing and poor sales in the country, but also because of difficulties in doing business and the high cost of doing business for many years. So this is another avenue they need to fix.”