Life after debt – reimagining T&T’s economic resurrection

By Dr Marlene Attzs, Economist
Email: marlene.attzs@gmail.com

Twenty years ago, a US-based director produced a documentary Life and Debt focused on the economic and social situation in Jamaica, and specifically the impact of International Monetary Fund (IMF) and the World Bank’s policies of the 1980s on the average Jamaican citizen.

Loans from the IMF at that time were conditional on structural adjustment policies, which required Jamaica to enact major economic reforms, including trade liberalisation, privatisation, and deregulation. Those reforms were not successful and left Jamaica with US$4.6 billion in debt.

The year is 2021 and Trinidad and Tobago is grappling both with COVID-19 and an increasing public debt challenge. Our debt challenge, unlike Jamaica’s captured in the abovementioned documentary, is not one born out of major economic reforms imposed by the Washington-based multilaterals.

T&T’s public sector debt as a share of GDP—the debt-to-GDP ratio—grew from 33.4 per cent of GDP in 2011 to 45.2 per cent in 2014. In 2016, the share of debt to GDP was 58.9 per cent, a significant increase from 48.2 in 2015. The trend has been upward since.

As at 2020, the public debt as a share of GDP was estimated to be 82.7 per cent.  To put these numbers in context, public debt, sometimes also referred to as government debt, represents the total outstanding debt (bonds and other securities) of a country’s central government.

The debt-to-GDP ratio measures a country’s public debt to its gross domestic product (GDP) essentially comparing what a country owes to what it produces.  The ratio indicates the country’s ability to pay back its debts.

Additional context: shortfalls in revenue from the energy sector have had a significant knock on negative impact on the Government’s coffers. This is in addition to declines in revenue from taxes on income and profits, shortfalls in profits state enterprises and the unemployment levy, a tax charged on profits from petroleum companies.

In February 2021, the Minister of Finance was reported as saying that “… the Government has been seriously challenged …to find the money necessary to keep the country running and to meet mandatory commitments and has had to resort to loan financing and withdrawals from the Heritage and Stabilisation Fund [HSF], to make up the deficit between income and expenditure… ”.

Additionally, the Minister spoke of Government borrowings (debt)— $3 billion for direct budgetary support and a withdrawal of $2 billion from the HSF “… to pay salaries, wages, and pensions, and keep both the primary and parallel healthcare systems functioning…mandatory payments, which include payments of salaries and wages as well as financial support for regulated industries costs the country $3.5 billion each month…”.

In a more recent conversation, the Minister was quoted as saying, “Our greatest problem now is that in order to stimulate growth we must spend…How do we spend? You have to borrow. You have no choice… we have absolutely no choice as a country…”.

Given the growing debt crisis some economists have opined that the Government ought to seriously review its expenditure—particularly when it is borrowing to meet recurrent expenditures.

That recommendation has not been embraced by the Minister of Finance. The facts are that in an already depressed economic environment, in which unemployment has increased owing to the closure of some businesses, economic activity in the energy sector is subdued, there are few other income-generating sectors on the horizon to match the revenues accrued from energy, what is needed now is an impetus to boost economic activity, create employment and increase productivity.  There is no quick fix to that and there must be some collective and patient suffering as we contemplate our nation’s life after debt.

I have suggested that Trinidad and Tobago should engage in some form of structural adjustment—at least for the short and medium term. To be clear: by structural adjustment I mean there is need to reimagine Trinidad and Tobago’s social and economic space, without the buffer of oil and gas, given that source of revenue has declined. Such a reimagination will necessitate supporting institutional frameworks, including at the very least, an education system producing human capital to support new sectors.

The role of institutions in fostering economic growth will be reexamined in a subsequent column.

Also, important as we paint a new canvas for Trinidad and Tobago, is an eye on vulnerable persons in our society—economic growth must be inclusive and take into consideration the well-being of the vulnerable.

The road to the resurrection that we celebrate at Easter was fraught with many challenges—Jesus fell three times while carrying His cross; at some point Jesus also received help carrying His cross.

T&T is not quite on its knees, but we are burdened by the weight of our national debt and other crosses. We, each of us, needs to help carry the national ‘cross’ to ensure there is life after debt for our country.

That’s just my point of view.