Budget agenda a mouthful

NEXT MONTH’S budget presentation must allay concerns about an over-optimistic oil price outlook, clarify the lessons learned from the recent episode involving the country’s stabilisation fund, highlight new and aggressive efforts to extend non-fossil fuel revenues and address the issues of national security spending, foreign exchange and the cost of living.

It’s going to be a mouthful.

Already, the Prime Minister has suggested we will return to deficit budgeting after the last fiscal period’s flirtation with a surplus – a surplus that had to be adjusted down as the State raised spending levels while revenues declined due to fluctuations in key commodity prices.

The Opposition has highlighted this development and there is pressure on Finance Minister Colm Imbert to say exactly what happened regarding the decision to peg the budget at a certain level.

However, it is important to observe that global inflation fears have begun to push oil prices back up, with some analysts predicting they are on track to return to US$100 a barrel in coming weeks, owing to cuts in production by key players in the Middle East and a surge in demand from China.

This could be the perfect Christmas gift for Mr Imbert and the economy.

Still, caution must be the touchstone and the Government’s signal that more borrowing will have to be tapped to deal with expenditure is a sign that it does not wish to drastically rock the boat.

This is especially important given the experiences of the last 12 months with regard to the Heritage and Stabilisation Fund.

Plans to reform this sovereign fund, for example by disentangling its social mandate from its fiscal purpose, have all but been eclipsed by the momentary loss of almost US$1 billion.

The fund managed to recover before word of this development was reflected in formal parliamentary reporting, but it remains important for the minister to state what lessons, if any, were learned from the incident and how best the fund can be insulated moving forward.

Expect the usual crowing about the Government’s stewardship. It is notable that it has managed to keep a tight rein on key economic indicators, even amid the lingering effects of the pandemic. Non-energy revenue also appears to be set for continued growth, according to Central Bank expectations.

But on the latter point, everyone agrees we need even more aggressive efforts to diversify the economy. It is time for bolder initiatives, as well as the establishment of a concentrated mechanism by which such initiatives can be assessed.

While we are still concerned with lingering oil and gas prospects, as well as the ideas behind so-called clean hydrogen, notwithstanding cost concerns, we must also face the reality of climate change, a reality that is literally burning away our productivity as mandarins fine-tune the fiscal package’s details.

Three enormous issues must also be dealt with – how much money will be allocated to national security amid the current crime spate; what is going to be done about foreign exchange, especially given signals from banks that the situation is getting tighter; and will relief be brought to bear on the cost of living?