Look out for ‘Double Dip’Thursday, September 2 2010
In forecasting the 2010-2011 national budget, which will be read on September 8, economist Dr Ronald Ramkissoon said it is important the budget is taken in the context of the world economy.
Ramkissoon said the chairman of the Federal Reserve Bank, Ben Bernanke, spoke of a “Double Dip” in the US economy, which would have implications for TT economy.
“They have not come out strongly from this recession and this is going to put a damper on the global economy. Hopefully it would not get worse, as it would affect the price of oil and gas in this country,” said Ramkissoon.
He said if things deteriorate in Europe and North America, major export markets for manufacturers in TT can be “luke warm”.
Ramkissoon said as a result of the global economic crisis, TT has experienced two years of negative growth.
In the 2009-2010 budget presentation, that government blamed a decline in economic activity, decreasing private sector expenditure and the threat of rising unemployment for the deficit which was equivalent to 6.3 percent of the annual GDP. It was said that this was comparable to major advanced economies.
Real GDP was said to have declined by one percent in the last quarter of 2008, and this decline continued in the first quarter of 2009, when real GDP fell by three percent. The then PNM government said several other indicators including falling retail sales, declining construction activity, and contracting private sector credit also contributed to the decline. Ramkissoon said fiscal 2009-2010 translated into a deficit of $8,455.5 million, and so, 2010 would likely experience marginal or negative growth.
“We are in a weak economy. We are in the context of going into a second year of fiscal deficit, which is spending more than revenue,” said Ramkissoon, senior economist for Republic Bank.
Finance Minister Winston Dookeran has already indicated the country could expect a smaller than TT$8.4 billion (US$1.4 billion) budget shortfall as had been the case when the Patrick Manning led-government presented its fiscal package last year.
Fiscal 2009-2010 showed a decline in energy exports combined with the rise in foreign exchange demand for current and capital transactions.
In light of all this, Ramkissoon said both the private and public sectors have to do more to rekindle growth in the economy.
Ramkissoon said Dookeran would have wanted to see a smaller deficit this year, but in reality, it is likely to be a deficit about the same size, or large than last year’s.
“For one thing government has little choice in capital expenditure,” said Ramkissoon.
He said initiatives which are likely to come forward in the energy sector would likely create some level of economic activity.
“Activity in the energy sector would drive activity in the other sectors of the economy,” said Ramkissoon.
He said there is a “wait and see” approach by people wanting to invest in the economy.
“The budget may bring an end to this approach since investors would see what projects are going ahead and those which are not. They would see where the Government is heading,” said Ramkissoon.
Ramkissoon pointed out that one of the factors he believed is hindering investment was the week confidence in the overall economy up to the 2010 election.
“I would hope that the new administration would regenerate some confidence going forward,” said Ramkissoon.
He said there has been some indication of this in two surveys put on by Market Facts and Opinion (MFO).
“One was the consumer confidence index and the MOODS survey, which suggested there is likely to be some confidence in the economy. It is only when the Budget is presented we are likely to see the actual measures to evaluate it,” said Ramkissoon.
Ramkissoon said he expects the budget to focus on new initiatives in the non-energy sector areas of the economy.
“This was a big issue on the campaign trail. They used this to show how the new Government would make a difference when they got into power,” said Ramkissoon.
He said the sum of all these initiatives would mean some amount of growth in 2011.
“The year 2011 would be somewhat better than the last two years from a development and investment sector,” said Ramkissoon.
He expressed that he does not expect the same size of growth which the country was experiencing before 2008, but one which would take the country out of the negative growth it has been experiencing for the past two years.
The budget for 2009 was based on an assumed oil price of US$70 per barrel and US$4.00 per million cubic feet for gas with a projected total revenue of $49,465.2 million.
Former Minister of Finance Karen Nunez-Tesheira delivered a $49.6 billion budget for 2009- 2010 that made several prudent investments in the country’s economy, ecology and education.
Ramkissoon said he expects the 2010-2011 budget of about $45 billion.
“It is likely to remain around where it was in the last budget or a little higher.
The revenue might not be a lot different,” said Ramkissoon.
He expects expenditure will be greater than revenue. He said Government will have to look closely at ways of raising revenue, “because we cannot continue to have a budge deficit as it has effects on growth and investment.”
He sees the key to rasing revenue and foster development in the economy is by stimulating private sector investment.
“Once people invest you would find that the Government revenues continue to rise, and it will generate the revenue the Government would need to jump start the economy,” said Ramkissoon,.
He said he expects to hear something positive about the construction structure, “payments to contractors” being addressed in the September 8 budget presentation. “We expect those sectors to receive some attention since they are needed,” said Ramkissoon.
In the 2009-2010 fiscal package, the Ministry of National Security was the recipient of the most funding, with an allocation of $4.74 billion. This represented about ten percent of Government’s estimated fiscal package for the financial year.
At $3.6 billion, the Health Ministry was able to rake in the second highest funding in the 2009/2010 national budget. It was followed by the Ministry of Education which was awarded $3.4 billion, and the Ministry of Public Utilities, which will receive $2.5 billion. Another top recipient of funds from the budget was the Ministry of Social Development, it received $2.4 billion and was followed by the Ministry of Science, Technology and Tertiary Education with $2.2 billion and the Ministry of Works and Transport with $2.1 billion.
