Economist acknowledges questions about government borrowing

FORMER minister in the Ministry of Finance Mariano Browne has acknowledged questions raised by former central bank governor Dr Terrence Farrell about whether the bank's decision to reduce the cash reserve requirement for commercial banks was to facilitate increased government borrowing.

Farrell asked these questions in a letter to the editor on July 22.

He noted a June 19 statement from the bank that it had reduced the cash reserve requirement imposed on commercial banks from 14 to ten per cent.

In a WhatsApp comment on July 22, Browne said, "His observations are well made as someone who has spent much time in central banking.

"I have no difficulty with his comment except that I would say 'relaxed' rather than imposed as the CBTT (Central Bank of TT) decision gives the bank a freer hand. Freer hand as the banking sector now has additional free funds to onlend (to borrow money and lend it to someone) in addition to the excess reserves."

Browne said in June, the bank noted that commercial banks were increasing loans.

The bank, he continued, reported, "Private-sector credit performed favourably, growing by 6.7 per cent (year-on-year) in April 2024 compared with 7.9 per cent in January 2024.

Browne said the bank also observed that "led by robust lending for motor vehicles, the growth in consumer loans (10.2 per cent) surpassed the expansion in business lending (9.5 per cent)."

He added this exacerbates demand for foreign exchange in what is already a tight forex (foreign exchange) market.

"The bank is aware of this and its statement 'in the current circumstances, a lowering of the reserve requirement, accompanied by greater reliance on open market operations (the purchase and sale of securities by the Central Bank to affect liquidity), would have an immediate impact on liquidity' suggests that it intends to remove funds freed up by this relaxation by issuing instrument of behalf of the government to finance (the) GORTT's (Government of the Republic of Trinidad and Tobago's) unbudgeted deficit announced during the mid-year budget reveiw by the finance minister."

In the House of Representatives on June 7, Finance Minister Colm Imbert said when the budget was presented last October, it was based on oil and natural gas prices of US$85 per barrel and US$5 per mmbtu respectively.

The budget's projected revenue, expenditure and fiscal deficit at that time were $54.012 billion, $59.209 billion and $5.197 billion respectively.

He said between then and now, there have been fluctuations in the prices of oil and natural gas.

"When one looks at the adjustments that we have to make, we are now projecting a lower figure for the revenue because we have to be pragmatic.

"We expect a decrease in revenue down to $51 billion, because we have some one-off streams of revenue – a source of revenue that we are planning. We are not sitting back and just relaxing. We have other ways of raising revenue."

But he added, "With this $2.3 billion supplementation, the net effect is $5.3 billion. So when you add the $5.3 (billion) to the original $5.2 (billion deficit), we are looking at a deficit of somewhere over $9 billion for fiscal 2024."

Imbert said that "as has happened in many other years, the Ministry of Finance will continue to try and control expenditure within reason of course."

Notwithstanding these issues, he continued, "We in this government believe that this reduction in revenue is not permanent."

Imbert said because of "all the foreign policy initiatives and the foreign co-operation, both at the corporate level and at the country level, we expect that this situation will be reversed in or around 2026-2027, in terms of the volumes of natural gas that will become available to our processing plants here in TT."

He added, "What it does mean, however, that for the next year or two, we have to be quite careful in how we manage our expenditure."

Referring to the International Monetary Fund 's (IMF) country report issued on June 5, which said the TT economy was at its strongest level in a decade, Imbert said under the PNM, the country had never dodged IMF Article IV consultations, which all IMF members were obliged to undertake.