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‘De people want water’ – and other budget considerations

A monthly column by Dr Marlene Attzs, Economist

A few weeks before the 2020 general elections I took a drive to Manzanilla, one of my favourite cross-country jaunts. Such a jaunt naturally involves a stop at a neighbourhood parlour.

At my preferred stop, I happened on a conversation between the shopkeeper and another customer. The conversation at that time naturally was on politics and who did and didn’t do what. I became rapt in the conversation—not quite eavesdropping—but one contribution resonated then and continues to haunt me.  “Once I start getting water two times a week, I go think about voting in 2025…”. What a wish, I thought. Imagine in 2020 the plea is for water twice a week!

I raise this conversation now, post-election but pre-Budget 2021 for a few reasons.  Most citizens I’m sure appreciate the challenging economic times—no need to rehash that storyline.

COVID-19 has exacerbated the economic challenges and many wonder what bag of tricks the Minister of Finance will unleash on Monday, October 5.

The Central Bank recently reiterated the continuous decline in the energy sector which undoubtedly will result in lower revenues to the government coffers—2021 will see another deficit budget. Put simply, the government will be spending more money than they’re earning.

What does all this have to do with water?  Well, a ‘confuffled’ conversation that always surfaces at budget time focuses on transfers and subsidies. Transfers and subsidies which account for a significant share of government expenditures—an estimated 50 per cent—will likely feature come October 5 as the Government tries to cut back on its expenditure and keep it more closely aligned to its projected revenue.

Transfers and subsidies are essentially the way in which a government provides financial support to its citizens either directly or indirectly. Transfer payments are government payments to individuals through social programmes such as welfare, pensions, disability, and unemployment grants.

Government also provides payments to corporations such as WASA, T&TEC, CAL and previously to Petrotrin called subsidies.

These subsidies are government payments to support the provision of public services to promote a social good or an economic policy. Subsidies in health allow many citizens access to free health care, subsidised medication under the CDAP, subsidised education including tertiary level education, the “free rides” senior citizens enjoy on the water taxi, the low cost of travel between Trinidad and Tobago either by plane or ferry.  The subsidies to WASA and T&TEC are what allow citizens to enjoy relatively low water and electricity rates.

The catch 22 in this equation is that WASA is challenged both in terms of its ability to capture water and its distribution channels. The reason there are impassioned pleas during the dry season to conserve water flows from the limited supply that WASA has available.

The distribution challenge has many sources— aged infrastructure which results in a lot of leakages and what is called “unaccounted for water”.

The WASA story gets more complicated. If government were to reduce the subsidy to WASA then the shortfall will have to be met from an increase in water rates.  How does one justify an increase in rates when ‘de people want water’?

Budget 2021 on Monday will also be driven by some other considerations—how does a government keep the body and soul of a nation together when there is limited revenue going into its coffers?

How does the government balance its books at a time when there is little revenue but there are demands that arise from the national COVID-19 response?

How does the government stimulate the economy when business activity has slowed because of justifiable lockdown measures?

How do we address the social fallout that will arise?

What mechanisms can be put in place to curb the excessive demand for foreign exchange?

On the latter point, I have advocated a depreciation of the exchange rate because it makes good economic sense especially when foreign exchange is not being earned from the traditional sources.

That said and with a heavy heart, given the ongoing impact of COVID-19 on the most vulnerable in our society, depreciation may not now be in the best interest.  A depreciation will mean an almost immediate increase in the cost of living—imported food, medicine, tyres for vehicles, and the list goes on.

All the above notwithstanding, October 5 presents an opportunity for T&T to use the COVID-19 and energy crises to restructure our thinking and take hard decisions to transform our economy and set it on a path for growth—at some point you just have to rip off the Band-Aid.

The question is can we, as a country, make hard decisions and adjustments now to allow us to enjoy better days ahead? That’s just my point of view.