Economist tells government to watch expenditure

Last Thursday, Finance Minister, Colm Imbert announced that government intended to withdraw TT $1.7 billion from the Heritage and Stabilisation for the purposes of financing the 2017 budget, particularly the Public Sector Investment Programme or PSIP.

Hosein acknowledged that after successive years of negative growth, government had to find ways to jump start the economy.

He suggested some methods by which this could be done, including creating backward and forward linkages within different sectors of the economy and increasing its productive capacity.

However, he was uncertain that use of the HSF to fund the PSIP would lead to the kind of economic growth the country needed. Hosein noted that government remained unclear as to what parts of the PSIP they intended to invest the money in, and until he had that data, he preferred to take the wait and see approach.

The economist also was also concerned about the continued gap between TT’s income and expenditure, caused largely by low prices for oil and gas in the global market.

“Government revenues fell, as did government expenditure. But they are not falling in the same proportion,” said Hosein.

Providing figures, the economist noted that energy and non-energy sector revenue declined between the first quarter of FY 2015/2016 and the first quarter of FY 2016/2017 from $11.2 billion to $7.9 billion.

“The state has projected revenues for 2016/17 at $47.4 billion. With only TT$7.9 billion collected in the first quarter of fiscal year 2016/2017, there is the likelihood of a higher than expected fiscal deficit for 2016/2017,” said Dr Hosein.

The economist said that while the finance minister had done a good job in containing expenditure in his first year, it was gradually creeping back up.

He also said that government’s wage bill had increased by $55.9 million, even though its overall expenditure had fallen.

“This is a trend the government would want to reverse,” said the economist, “In fact, the time has come in the economy as a whole to provide a better alignment between wage increases and changes in worker productivity.” Hosein noted the contraction in the labour market, saying that more than 8,000 workers have left it, something he termed a significant fall. Moreover, the economist said that over time data suggested that TT’s labour market was contracting and may reach a point where the unavailability of labour might become a problem to the economy. He said the labour market has not been adjusting to this reality.

One of these steps Hosein suggested, was keeping workers in the labour pool longer by increasing the retirement age from 60 to 65 in the public service.

The UWI lecturer said the time has also come for government to consider “novel” ways to raise non energy tax revenues. “As it did in the context in the early 1990s on the intervention of the IMF, the state may have to become less involved with various state enterprises and push for each to be more cost efficient,” said Hosein.

“At some point, government has to consider living more within its non-energy sector means. Budgets closer to TT$40bn must become the new norm and just as we escalated government expenditure we now need to find ways to reduce it.” Hosein warned that the country was headed down a “dangerous road” with a debt to GDP ratio of around 62 per cent.

“It cannot be business as usual or else the informal IMF program we are currently practicing would become more formal,” said Hosein.

Given the decline in revenues, the UWI lecturer again made a call for government to depreciate the value of TT currency versus the US dollar to preserve stock of foreign exchange.

He told Business Day that government allowed a depreciation to around $9:30 to $1, several bidders would leave the market, leaving only those who could afford to purchase.