Economists Dookeran, Attz on removal of subsidies: Balance is needed

FORMER finance minister Winston Dookeran suggested Government examine balancing structural deficits over time. He made this comment on Thursday in response to comments made by Finance Minister Colm Imbert on Tuesday about removing billion-dollar subsidies on water, electricity and fuel.

Dookeran said Imbert's comments "appears to be referring to short-term effects of balancing the budget now, and attributed that as a consequence of seeking IMF (International Monetary Fund) support from their emergency pandemic window."

Dookeran said, "In my view, balancing the structural deficits over an adequate time frame is good sense, and may even open additional doors for ‘growth.'"

Dookeran said that seemed to be "the glaring missing link in the current policy framework.

"Financing the cyclical deficits in today’s situation may require some extra monetary policy measures, underlining the need to separate cyclical swings – necessary in these times – from persistent structural budget deficits requiring new capital flows in a sustainable growth strategy."

He added, "Balancing the budget is a political choice process, that requires tactful negotiation strategy at both the technical and diplomatic levels."

UWI economist Dr Marlene Attz said approximately 50 per cent of Government's expenditure continues to be on subsidies and transfers.

She observed both Imbert and local economists have said that situation is unsustainable.

"A balance must be struck. And there are two immediate considerations – a phased approach to lowering the subsidies as well as the timing of such a policy measure."

Owing to the covid19 pandemic, Attz said it "is not a time for us to consider this measure but we could begin planning for its implementation in the medium to long term."

She suggested a gradual removal or lowering of subsidies with appropriate supporting programmes put in place by Government "to assist the vulnerable in society who will feel the impact of higher prices in their pockets."

Attz said those programmes would be particularly important for people on fixed incomes and those who currently benefit from government transfer payments including various social grants.

She said there are several interconnected strands to the conversation about balancing the budget and "simultaneously managing the country’s growing debt profile."

Attz said it was not helpful "to separate those strands, given the gravity of the situation facing the country regarding its fiscal position and the need to identify and time an appropriate combination of solutions to treat with TT’s current finances."