He warned, “If we fail to adjust now, we will find ourselves as we did in 1986 with an economy with insufficient foreign exchange reserves and having to restructure our debt under a series of IMF (International Monetary Fund) programmes. This administration will not take this country back to that kind of situation. But success will require sacrifice and adjustment on the part of all sections of the national community.The adjustment in spending that is required can be nullified by increases in wages and in profits.”
Rowley said while the loss of employment is a source of great concern for his administration, “we are particularly concerned about persons with dependent children and with youth unemployment.” The Prime Minister promised that Government will initiate tripartite discussions with the labour movement and the business community,” with the objectives of maintaining employment as far as possible, moderating demand for wage increases (by labour unions) and discouraging excessive profits (by the private sector).” He added, “We will also be encouraging investment in foreign exchange earning activities during the adjustment period.”
TT MUST BE MATURE
Stressing the country has to approach this situation with a high level of maturity, openness and willingness to compromise in the best interests of the nation as a whole, Rowley said, “I take this opportunity to appeal to the business community and the trade union movement to approach those discussions with the national interest uppermost.” He said the tripartite discussions will commence early in the New Year.
On the issue of foreign exchange, Rowley the business community can help by seeking out cheaper sources of imports and finding cheaper substitutes of imported goods.
“It is important to emphasize that in the type of economy we have, it would be highly imprudent to try to stimulate the economy just by increasing overall expenditure.This is because almost all types of expenditure in our economy, whether for consumer goods or capital equipment, involve using foreign exchange.What we must do at this stage is to conserve our foreign exchange.”
He said it was reasonable to expect that the balance of payments will continue to be in deficit in 2016 and 2017. “Therefore while some further decline in the foreign exchange reserves is to be expected in 2016 and 2017, we have to minimize that decline as much as possible.” To this end, Rowley said Govt must ensure that by the end of 2017, the balance of payments deficit is stabilized so the foreign exchange reserves remain stable at around at least six months import cover.He called on citizens to help in the sacrifice for the national good by shifting more consumption to a preference for quality, locally produced goods which will have the added benefit of helping to create or sustain employment in the local economy.
“As a symbolic gesture of our own (Government) willingness to share in the necessary adjustments, my colleagues and I, have decided that with effect from January and for the next two years, we will each donate five percent of our salary to a selected charity, NGO or sporting body of our choice.”
Noting the country has approximately US$10B in official reserves, citizens have approximately US$3.6B in deposits in local commercial banks and there is US$5.6B in the Heritage and Stabilisation Fund (HSF), Rowley said, “Some experts estimate that citizens of TT have assets and cash overseas amounting to hundreds of millions of US dollars.”
He pledged Government will lead the way in restraining expenditure as government expenditure accounts for about 35 percent of Gross Domestic Product (GDP). Rowley announced that yesterday, he instructed Finance Minister Colm Imbert, “to direct the management of every State Enterprise, Statutory body, eavery Ministry and the THA to review operations and make adjustments of seven percent in reduction in proposed operating expenses, not relating to job cuts.
“These identifiable responses to be submitted to the Ministry of Finance by January 31. This is expected to tighten and improve the management alertness and innovativeness in these sectors.”
WE MUST STIMULATE GROWTH
Rowley called on the nation to do all to stimulate growth by selectively using what is available in the most innovative ways. In this regard, Rowley announced, “We intend to ramp up housing construction as a major driver of the economy but there will be a comprehensive overhaul of the funding arrangements of the program.”
He said there will be new initiatives to encourage private capital to accelerate construction on private or state land for prearranged priced units which, “upon completion the State through the HDC (Housing Development Corporation) will receive and direct these units quickly to mortgagees who will access and service facilities which will be readied at TTMF (TT Mortgage Finance Company).” The objective here is to quickly move private capital into the housing market to service a sector which forms the HDC client base without initial State cash outlay.
On the revenue side, Rowley said land and building taxes will be restored from January and the revised VAT (Value Added Tax) regime will be implemented from mid-January. Saying Imbert will also be seeking to collect considerable arrears of taxes, Rowley said the deficit indicated in Imbert’s Budget presentation on October 5, “is expected to be somewhat lower than originally projected.”
He said the rationalization of the VAT regime, will take particular note of those items which may be included in the basic list or must be retained in the list in light of these measures.
“This will cushion the effects of any increases in prices of basic food items. However, imported salt and fat dietary items, their local counterparts and luxuries will all be subjected to the full tax regime.”
Noting that private sector expenditure also needs to be examined, Rowley said, “Some curtailment will occur automatically as overall expenditure falls. The Central Bank is also expected to evaluate current and prospective monetary conditions and take appropriate action on interest rates that will assist in moderating credit demand and keeping private sector expenditure in check. Rowley outlined measures hoped to mitigate the effects of the downturn in economic activity as a result of falling oil and natural gas prices.
HSF TO BE SPLIT
The Prime Minister said government will bring legislation to Parliament to separate the Heritage and Stabilisation Fund (HSF) into two distinct Funds.Governemnt will leave the bulk of the existing fund in the Heritage component and allocate the remainder to a Stabilisation Fund.“We intend to use approximately US$1.0 billion for stabilization purposes in 2016 and perhaps another US$0.5 billion in 2017,” Rowley said.
He said the Heritage Fund will be given cash over time irrespective of the level of oil prices and which can be utilized for approved projects through the appropriate mechanism as decided by Parliament.
Rowley said the Stabilisation Fund will help finance the projected budget deficit and minimise increases in government borrowing.
Vowing that Government will continue investment in infrastructure projects to be funded by the Inter-American Development Bank (IADB) and other multilateral and bilateral agencies, Rowley said, “These projects will help to sustain a reasonable level of construction activity and employment.”
However, he indicated that while a report on the current review on a mass transit system is due next February, Government will not make a decision to proceed with this project because,” the issue of affordability looms large into any such decision at this time.” Saying the measures he outlined are the responsible course of action that we must take,” Rowley said Imbert will announce additional and more detailed measures in his mid-year review, “as as we steady the ship and stay the course.”