UWI economists: Focus on fiscal performance, revenue in mid-year review

THE mid-year review of the 2023/2024 budget needs to address issues of fiscal performance and revenue generation.

UWI economists Dr Vaalmikki Arjoon and Dr Marlene Attzs expressed these views in separate statements on May 28.

Finance Minister Colm Imbert will present the mid-year review in the House of Representatives on June 7.

On June 3, the House's Standing Finance Committee will meet to approve a $2.3 billion supplementation to the budget.

Among the major supplementations the committee will consider are $570,900,000; $155,677,500; $527, 800,000; $495, 286, 000 and $144,200,000 for the Energy, Works and Transport, Public Utilities, Health and Education ministries respectively.

It will also consider a $50 million increase in funding for the Tobago House of Assembly (THA).

This $2.3 billion supplementation is expected to be approved by the House on June 7.

On fiscal performance, Arjoon said, ""Despite growth at 1.48% in 2022 and 2.56% in 2023, we are still 6.4% short of pre-pandemic levels. Fiscal health has weakened, with a six-year overspend of $45 billion above revenues, pushing debt to $137.5 billion."

He added, "Lower hydrocarbon exports, capital flight, and reduced FDI (foreign direct investment) have helped shrink our forex (foreign exchange) reserves to $5.6 billion, artificially propped up by external borrowing and HSF (Heritage and Stabilisation Fund) withdrawals."

Arjooin said these issues highlight the importance of developing sectors earning sustainable revenues unaffected by geopolitical tensions.

He added that the benefit of this is creating productive jobs, exports, and forex earnings while reducing taxation and inequality with respect to access to economic opportunities.

"For the first five months of this fiscal year, energy revenues totalled $5.1 billion, which is $7 billion lower than what earnings in the same period in the last fiscal year, attributed to production declines and, more so, lower LNG prices relative to last year."

For instance, he continued, "In the first five months of the previous fiscal year, prices for Japan/Korea LNG marker (JKM) fluctuated between $38.73 to $19.02, contributing to $12.2 billion in energy revenues.

"However, in the same period this year, JKM prices dropped significantly, ranging from $18.59 to $8.12, thereby slashing revenues by more than half to $5.1 billion."

He added that non-energy sector revenues improved during this period by $3.53 billion, "largely driven by manufacturing, despite higher international prices and shipping costs caused by the re-routing of shipping from the Suez Canal.

"Despite the $1.8 billion deficit for the first five months, the state is ramping up spending to maintain economic activity ahead of an election year."

To address revenue shortfalls, he continued, the government might incur additional debt from domestic and international markets, especially given the successive years of fiscal deficits, lower energy production and international LNG prices.

"Domestic borrowing may offer better rates, while international borrowing will boost foreign reserves. International loans, converted to TT dollars by the Central Bank, increase foreign reserves, currently at US$5.36 billion. However, with US$5.2 billion foreign debt factored in, net reserves stand at US$155 million, covering less than half a month of imports. Thus, foreign reserves are being bolstered by debt."

Arjoon highlighted aspects of the 2023 Auditor General's Report which Imbert laid in the House on May 24, which also dealt with fiscal performance.

He said the report exposed numerous cases of what could be described as financial mismanagement, such as full payments to contractors for incomplete work and payments to unverified suppliers for undelivered items.

"These not only lead to inefficiencies and wastage of public funds but also create a perception of fraud and corruption, eroding public trust in the state’s financial management."

Arjoon said wasteful spending "increases state costs, contributes to budget deficits, necessitates increased borrowing or higher taxes, and reallocates funds from vital areas, ultimately reducing economic efficiency and missing opportunities for growth and development."

He added, "Financial discrepancies of this nature will not bode well for us when we have to face the credit rating agencies."

In this context, Arjoon said a focus by the state of collecting overdue taxes makes little sense if these tax revenues are going to be spent inefficiently or wasted.

Attzs said, "The issue of increasing revenue-generation, particularly from the non-energy sector, arises from the shortfall in energy revenues, which would impact on the anticipated revenue of $ 54.012 billion alongside projected expenditure of $ 59.209 billion."

Attzs attributed any shortfalls in energy-sector revenues to price and volume shortfalls.

"This situation also continues to impact the availability of forex (foreign exchange), given the majority of foreign currency in circulation comes from the energy sector."

Outside these issues, Attzs believes the population needs to be updated on two important matters in the mid-year reviews

The first is crime and whether there has been a return on the funds provided to the police in the budget for fiscal 2024 for crime-fighting.

"We heard of more funds for vehicles, more recruits, etc, but there continues to be a palpable sense of unease regarding crime."

A total of $5.798 billion was allocated for national security in the 2023/2024 budget. The budget allocated a total of $2,937,923,200 to the police.

The second matter was investment arising out of the Prime Minister's recent visits to Ghana and India.

Attzs said those visits appear to be aimed at increased trade between TT and these two very large markets.

"It might be helpful to know what, if any, investment incentives might be introduced to support trade with these countries. It is clear we need to increase revenues from non-energy sectors so trading opportunities with these partners could help in this regard."

At a news conference at Piarco International Airport on May 19, Dr Rowley identified new investments coming from Ghana and India as something Trinidad and Tobago could look forward to in the not-too-distant future, arising from these visits and other work Government has been doing quietly in the background.

He said Phoenix Park Gas Processors Ltd is involved in an energy initiative in Ghana and a Ghanaian business delegation would visit TT in early June to explore potential commercial opportunities which both countries could pursue.

With respect to India, Rowley said the Reliance Group will invest in the construction of a cricket academy to be built in Trincity.