Thursday, September 2 2010

If the troubling economic reports coming out of the United States, Trinidad and Tobago’s largest export market, are a guide then the National Budget, 2010/2011, scheduled to be presented by Minister of Finance, Winston Dookeran, on September 8 may see a greater degree of deficit spending than in previous years.

While, admittedly, we cannot with any degree of accuracy predict what the Budget has in store for the country, nonetheless the 13 percent slide in the price of crude on the New York Mercantile Exchange, since the start of August leading to last week Wednesday’s US$71.55, may be an uncomfortable guide. What cannot be ignored is that the slide in the price of crude for October delivery had been encouraged by, for example, the 27.2 percent fall in July in the sales of formerly occupied houses.

In turn, we in Trinidad and Tobago should be concerned in the run-up to Budget Day on reports of a slowdown in the economic recovery of the United States as demonstrated by high levels of unemployment and “sluggish manufacturing activity” in the mid-Atlantic region.

Meanwhile, the prediction by former Minister of Finance, Karen Nunez-Tesheira, made in the 2009/2010 Budget of a four percent growth in real Gross Domestic Product (GDP) in 2011 has already been revised downward to one percent by Central Bank Governor, Ewart Williams. This is understandable as the price of crude in the international market place plummeted last year by US$100 a barrel.

Although it rose this year to US$80 plus a barrel, its retreat in August to the low 70s, along with low demand has meant that Trinidad and Tobago’s diminishing revenue from crude has negatively impacted on Budget planning. That is unless Finance Minister Dookeran’s Budget calls for greater borrowing. It should be pointed out, however, that hoped for revenues from crude have long yielded to those from natural gas.

In the meantime, in spite of the economic difficulties of the US that country imports more than 70 percent of its liquefied natural gas (LNG) from Trinidad and Tobago. On the minus side, however, several energy based companies have either closed down or reduced their production capacity, leading to a loss of needed national revenue.

There are priorities the new People’s Partnership Administration, which was elected to power in the May 24 General Election, will need funding to address adequately. These include education, agricultural development, infrastructural development, drainage, road construction and repairs, social development and crime fighting.

Meanwhile, the Budget for 2010, not unlike that of the previous year, had to be revised downward because of a slide in energy prices and demand. While today’s crude and gas prices are somewhat above the assumed prices of the revised Budget, nevertheless, the subsequent fall off in demand has negated this.

A decision will have to be taken in the next few days on how the difference between planned Expenditure and anticipated Revenue will be met. There are three options — a trimming of Expenditure; borrowing and additional taxation.

A trimming of Expenditure will mean that several planned projects will be adversely affected. While the current ratio of public debt to Gross Domestic Product (GDP) is a relatively low 38 percent, additional borrowing may increase the ratio to a level with which Government may be uncomfortable.

The third option may embrace the reintroduction of the Property Tax reform which had been originally broached by the former PNM Administration but rejected by the People’s Partnership.

Government, in addition to declining energy and energy based revenues, is faced with the prospect of having to cut energy sector taxes in order to stimulate oil and gas exploration and does not appear to have much room in which to manoeuvre.