Together for Peace
September 15, 2017
September 15, 2017

Budget 2018: take the blinkers off!

Maintaining an artificial rate simply causes uncertainty in the forex market and also creates a black-market.

“I will be announcing the date soon.”  So said Minister of Finance Colm Imbert to the media at a press conference, as they no doubt questioned him for the date of ‘d Budget’.

I recently participated in a pre-budget ‘meeting of minds’ hosted by the private sector. The intent behind this session was to have a non-partisan conversation about where the country stands, economically speaking, versus where we want, and ought to be. Such a conversation, particularly a non-partisan one, is conspicuously missing from the national discourse so I welcomed the opportunity to participate.

To set some context at the event, I described the country as being in a state of “economic stillness” – the prevailing sense among the population is that nothing is happening in the country.  In the midst of that stillness, a budget looms.  I share with readers some thoughts on what should be addressed in the budget for fiscal 2018.

The challenges associated with foreign exchange (forex) in the country – both the earning of forex and the exchange rate for forex – are no secret. Foreign exchange from the traditional sources, the oil and gas sectors, is woefully low. We also continue to not have an alternative sector to earn forex.

The recent hype from the “Juniper gas” activity seems to have silenced any serious consideration about diversification. In fact, many seem optimistic that “Juniper gas” was another sign that God is a Trini. I don’t share that optimism since the long-term trajectory is that oil and gas alone cannot and will not sustain or transform our economy.

The other aspect of the forex challenge is the exchange rate. The reality is that the rate should be more actively managed to reflect its short supply – if we aren’t earning forex then the price should better reflect such circumstances rather than maintaining an artificial rate.

Maintaining an artificial rate simply causes uncertainty in the forex market and also creates a black-market where those who have access to foreign currency can sell at a rate other than the rate that hovers about 6.XYZ at the commercial banks.

At the pre-budget forum, I drew on the work of Lloyd Best and Kari Polanyi Levitt in the Plantation Economy Model. In that model, the authors identified a period known as the ‘Inter regnum’a period during which there is a break in reliance on traditional sectors for economic growth. This break, in the historical context, was due to either the Great Depression or World War II.  Whatever the external cause, the Inter regnum presented an opportunity for the restructuring and reorganisation of resources.

Trinidad and Tobago is experiencing its own Inter regnum evidenced by the significant decline in revenue from the oil and gas sectors. Recall, as the Minister of Finance read the last budget he said, “… the revenues from petroleum dropped to just $1.7 billion. This represents a decrease between 2014 and 2016 in annual revenues from petroleum of $17.6 billion of, or 92 per cent…”.  T&T is at an economic crossroads and decisions taken in the next fiscal year will be crucial in deciding how we survive this break and transform our economy.

Not unrelated to the Inter regnum will be the whole question of fiscal management for the coming fiscal year – how the Government will keep a check on its expenditure while revenues are declining.  The PM was recently quoted as saying the Government’s “hardest task” was finding money to pay its public servants.  I understand the conundrum but it seems that the budgets to date have focused more on appeasing the political populace than ensuring transformative economic management.

Another side of the pre-budget forum to which I made reference, was a presentation on the state of the Jamaican economy and lessons that we in Trinidad and Tobago might, believe it or not, distil from them.

Jamaicans are no strangers to economic challenges. Historically they have survived externally-imposed structural adjustment programmes.  More recently they have lived with a devalued exchange rate (that now stands at $J 130 to $US 1), lived with rising crime and depressed economic growth, among other challenges.

The difference between Jamaica and T&T is they have a well-documented plan for economic recovery complete with targets and indicators and accompanied by a governance structure to ensure the plan is executed to the last detail – irrespective of which political party is in power. At 55 years of age they are clear what kind of economy they wish to have and the sacrifices needed to build their ‘dream’ economy.

As T&T’s Budget Day 2018 gets closer, I share with readers my simple wish list: that Government recognises the palpable sense of “economic stillness” enveloping the country and that they use that recognition to craft the best policy options to focus on economic transformation for sustainable development. A key policy option will include economic diversification using part proceeds from the (soon-to-be) separated Heritage and Stabilisation Fund (HSF). The Finance minister also spoke of that separation in Budget 2017.

It’s time for the blinkers on the economy to come off and for us to get on with the transformation. That’s my point of view!