Introduction
It was like a baptism of heat for new Minister of Finance Karen Nunez-Tesheira of the twin island state of Trinidad and Tobago as she presented the first budget of the re-elected Patrick Manning government and more personally, her first since her surprise appointment as the country’s first female Minister of Finance.
Surprising because despite being the holder of an Executive Masters of Business Administration from the Arthur Lok Jack School of Business of the University of the West Indies, Nunez-Tesheira is better known as an attorney at law who has spent more than twenty years at the Hugh Wooding Law School as Senior Tutor and writer of two recommended books on the syllabus of the school.
Indeed as she announced measures inherited from or incomplete from earlier years she was teased with perhaps the most damaging accusation against an academic – plagiarism. Uncomfortably for the Minister, one opposition front bencher closely followed her speech, shouting out the page and paragraph number if she repeated something which was in the previous speech.
For Budget 2008-09 it was all about billions of TT dollars which at today’s rate of exchange is approximately US$1 = TT $6.24. The budget was presented against rapid developments in the financial sector in the US − the bail-out of Bear Stearns a few months ago, more recently of mortgage giants Fannie Mae and Freddie Mac and insurance titan American International Group and public disquiet at a call by the Bush administration for US$700 billion to buy what is now being referred to as toxic mortgage loans. The Minister had earlier said in a statement issued by her ministry that it was difficult to anticipate exactly how the ongoing turbulence in financial markets would impact T&T but that the country’s central bank was examining the developments on the economy of T&T.
In that statement the Minister indicated that the Governor of the central bank had informed her that the bank has no holdings of paper issued by any of these institutions and that the very small proportion of the bank’s foreign assets managed by US institutions are “ring-fenced” and were not on the balance sheets of these institutions.
The PNM government has however announced a number of measures to amend various acts, including the Financial Institutions Act and the Securities Act to strengthen the regulatory framework.
Budget highlights
Total revenue is estimated at $49.465B of which $20B (40%) is expected to come from the energy sector with the remaining coming from other taxes on income and Value-Added Tax.
Total expenditure net of capital repayments and Sinking Funds is projected at $49.445B giving a surplus of $19.5M. As a percentage of total expenditure, education receives some 14.4%, infrastructure 13.3%, health 8.78%, security 9.6%, agriculture 4.5% and housing 3.3%.
External reserves have increased to US$8.5B or the equivalent of eleven months of import cover while the Heritage and Stabilisation Fund has some US$2.4B representing 10.2 % of GDP and higher than the level of the country’s external debt which stands at 6% of GDP.
The growth in the economy was 3.5 % which − despite the substantial increases in energy prices – saw the non-energy sector growing faster than the energy sector.
Inflation has taken a hit with commodity food prices and headline inflation rate having risen to 11.9% over the twelve months to August 2008 which makes the sustainable inflation rate of 6 % a formidable challenge.
Increases for senior citizens, those on public assistance and disability and retired public servants.
Other positive features by the Minister include free access to textbooks and other school material, free meals and transportation for students, 2% mortgage interest rate for low income earners, no VAT on all basic food items, one of the lowest rates of personal income tax “anywhere in the world” (25% after an allowance of US$10,000 per annum).
Developed country status
As would be expected, the Minister was upbeat about the medium-term prospects for the country that aims to achieve developed nation status by 2020. The Minister was not bashful in announcing that her government was putting in place special arrangements to bring benefits to the country beyond the tax take and added that they propose to increase the government’s ownership of assets in the natural gas market.
One of the measures attracting the most comment is the announcement of an increase in tax on premium unleaded gasoline which the Minister controversially predicts “will affect the high end of the market.” This measure will require those affected to pay $4 a litre for premium unleaded gasoline — an increase of $1 or 33 per cent, a move which some see not as a revenue matter but one to ease the traffic congestion that sees jams in the morning, at noon and nights and choking entry and exit points not only in Port of Spain but in the other major urban areas such as San Fernando and Chaguanas.
The government’s long-term plan is the reintroduction of a rail system involving two express train lines covering 105 kilometres while more immediately the government-owned Public Transport Service Corporation is expanding and modernizing its fleet of vehicles to 400 while the Coastal Water Taxi Service project will, beginning in phases from December 2008, connect by boat the principal cities cutting travel time from 2 hours to 45 minutes in the Port of Spain-San Fernando link.
Guyanese and Colombians
Aided by increased revenues from the export of oil, LNG and petrochemicals, unemployment has fallen to a historic low of less than 5 % and the construction industry is now using increasing numbers of nationals from non-Caricom countries including Colombia and as far away as Nigeria. Guyanese would therefore feel justifiably aggrieved that so many of our hugely productive nationals are turned away by immigration officials when they try to enter the country. I understand that part of the reason for the difference is that many of the Guyanese try to do it on their own while others are brought in mainly by international contractors.
Apart from its willingness to remain involved in the economy the government also plays a leading role in the housing sector though some critics see the not too thinly disguised hand of politics involved. Many of the schemes are located in marginal seats (T&T has the constituency system), and the distribution pattern can shift the electoral balance significantly in favour of the ruling party even as the opposition continues to founder for any strategic line of challenge on the Government’s Achilles Heel such the markedly arrogant and autocratic style of the Prime Minister, corruption, crime, weak governance and failure to deal with inflation.
Crime and inflation
In fact with Trinidad and Tobago challenging its sister countries for the title of crime capital of the Caribbean, it remains a mystery why more attention was not spent on measures to address the out of control crime situation in the country. Deputy leader of the main opposition party Kamla Persad-Bissessar’s comment that “the programmes the government has put in place will continue to overheat the economy” was shared by some of the TV commentators in the hours after the presentation of the budget. Not many people would agree with her that the country was heading for a meltdown.
While the Minister announced that the government was trying to deal with increased food prices by treating agriculture as a priority sector and therefore dealing with high food prices from the supply side, Persad-Bissessar lamented that the low allocation to agriculture hardly reflected this priority status.
As a part-time visitor to the country, my observation is that T&T’s economic challenge is how to tame the inflation tiger with the depreciation of the TT dollar in line with the US dollar against non-US dollar currencies adding cost pressures to inflation fueled by sharply escalating food prices. Bank governor Ewart Williams has advised that the only way to reverse food price inflation on a sustainable basis is by increasing domestic agricultural supply and containing demand. There is an obvious contradiction between this objective and the government’s policy of buying political and public support by increasing the amount of money pumped annually into the economy.
Agriculture
Last year, as Finance Minister, Partick Manning announced an agricultural policy following a two-day national food consultation that fourteen agriculture initiatives, involving the conversion of sugar lands to food crops, were earmarked to be implemented at a total cost of $1.2 billion.
Minister in the Finance Ministry Chartered Accountant Mariano Brown has told the public that only four of these have come to fruition, attributing the blame to the private sector for not taking up the challenge. That those have not succeeded in making a dent in prices obviously raises the question as to the prospects for success of the initiative in the light of more money being put into the economy by the government. Another initiative which may be instructive for us is the bulk purchase by the National Flour Mills of staple products in non-traditional international markets and selling those items at cheaper prices locally. This was abandoned after NFM racked up huge losses.
Rating and comparison
Despite the challenges the country received a good review by the International Monetary Fund which last year described its economic performance as “remarkable in a regional context and in comparison to other energy producing economies.” More recently, the country’s credit rating has been raised making it more attractive to investors who seem unmindful of the crime situation that plagues T&T.
I have consciously avoided any comparisons or contrasts between Guyana and Trinidad where there are both similarities and differences, but for me some do stand out. The first is the willingness of the government in Trinidad to engage in the economy while in Guyana we are prepared to leave it to the private sector that has but one motive only. The second is the take of revenue that comes from natural resources.
In Trinidad it is 40% while in Guyana, as a result of a range of tax incentives our share is negligible, if not negative in economic terms. We tax the salaried and the poor in the form of income tax and VAT at punitive rates, while those are considerably less in Trinidad. The Audit Office in Trinidad has already published its report on the 2007 Accounts of the Government while in Guyana the 2006 has only just been released with warts galore.
Like Guyana, the government in Trinidad is not hesitant to use the economy for political causes and we share places of dishonour with Trinidad on the Transparency International scale of corruption. We are 126 while Trinidad is 72. Trinidad and Guyana both believe in big governments and political favours are not unknown. We also share similarities of demographics and the penchant of our nationals to migrate. Do I need to go on?