Economist, business chamber cautiously optimistic after budget mid-year review

ECONOMIST Vaalmikki Arjoon and the Trinidad and Tobago Chamber of Industry and Commerce (TTCIC) expressed cautious optimism at the mid-year review read by Minister of Finance Colm Imbert on Monday.

Both described the reported reduction of the debt to GDP (gross domestic product) ratio, increased revenues and the proposed uses of the revenue to pay debts and raise public-sector wages as encouraging but emphasised that government should remain vigilant and keep a tight grip on expenditure.

Arjoon said, “If we are careful, the surge in revenues from the energy sector can help with better debt repayment capabilities, but these additional revenues must be invested to build our productive capacity and generate attractive returns to not just pay off the debt but also re-invest in national development.”

He said the $1.98 billion budget surplus owing to an increase in government revenue because of dramatic increases in the prices of hydrocarbons and petrochemicals was encouraging given that TT’s GDP had declined by more than 11 per cent since 2016 and that TT had a deficit of $63.9 billion over that same period.

“It is also very encouraging that the debt to GDP ratio has fallen to a value of 72 per cent. This will certainly, be looked upon favourably by the credit rating agencies, together with the increase in revenues.”

The TTCIC commended the minister’s proposal to use part of the additional revenue – about $1.6 billion to repay VAT refunds.

“We also note the minister’s intention to settle outstanding payments to suppliers and contractors, as well as the payment of arrears to utility companies, and outstanding gratuities to public sector contract workers.”

While Arjoon identified the benefits of the increases in TT's revenue he noted the reality that those increases were mainly because of the rise in energy prices and not the rise in energy production, a situation which could change.

Energy prices have increased globally as a result of Russia's invasion of Ukraine. Resulting sanctions against Russia, a leading hydrocarbon producer, have reduced the availability of fuel on the global market which, in turn, have caused an increase in energy prices.

Arjoon recalled that commodity and service prices have increased in general.

“Prices of all raw materials used in the production process and imported goods have risen sharply due to global supply chain complications together with the cost of shipping and, most of all, energy prices.

“This means that nominal GDP, which is the total value of goods and services produced at current prices, will naturally be much higher, therefore causing the debt to GDP value to fall.”

He said, in 2016, the revenue to debt ratio was 50.9 per cent, which suggested that 50.9 per cent of the debt could be paid off by revenues.

“This value fell to 28.3 per cent in fiscal 2020 but is projected to increase to 37 per cent in this fiscal period given the Finance Ministry’s estimates of revenues.”

Arjoon said it was important to accelerate any plans to increase wages for public servants as the purchasing power of many households were cut significantly and greatly contributing to poverty levels.

“Further, there was no mention, unfortunately, of the agricultural sector and the public-private partnerships (PPPs) that the ministry is undertaking such as the partnership with Trinidad Parboiled Rice,” he said.

“This and other PPPs that were proposed in the budget must be accelerated to ensure our food security, especially given the massive surge in food prices globally. An update on the progress of the finding a private operator for the Port of Port of Spain also ought to have been given.”