Reality Check

The most likely impact, if this becomes a reality, is the widened deficit will weigh on the country’s sovereign credentials and continue to strain the domestic financial system, which will limit credit extension to the private sector.

To finance the widened deficit that is anticipated, BMI Research argues withdrawals from the country’s sovereign wealth fund, as well as additional debt accumulation, appear to be the two options on the table for the government.

BMI revenue projections seem to be a conservative assessment of capital revenues from asset sales.

If we conduct a review of the asset sales over the last seven years, what we find is government has struggled to sell assets from Clico, the insurance firm the government bailed out in 2009, because of legal challenges.

Previously the government was denied an attempt to liquidate CL Holdings, Clico’s parent company, delaying its efforts. This has since been cleared up by the Court of Appeal. The government expects to earn approximately $5.7 billion from sale of Clico’s major assets.

What are these assets? A little over 50 million shares in Republic Bank as well as Angostura.

If we do not for the moment consider the fight from the company’s shareholders, how practical is it to expect a liquidator to be appointed and to liquidate Clico’s assets before the end of the fiscal year? It does not appear very practical. Attempts by the Deposit Insurance Corporation to move 30 million shares has proven quite difficult. Any attempt to move that number of shares could lead to a significant fall in Republic Bank’s share price. Then there are the rules of liquidations as spelt out by the regulations found in the Company’s Act. One wonders how can Angostura be disposed of in a way that maximises the benefit of the unsecured creditors.

If these asset sales do not take place before the end of the fiscal year, BMI forecasts revenue contraction of 16.4 per cent in FY17. Perhaps it is this anticipation that has motivated the prime minister to start putting out hints of impending difficulties and test possible options to address these challenges. We need to note that, if the asset sales were to take place, it is expected to produce windfall revenues for the government that would change the forecasts.

So far, for the fiscal year through to April 2017, energy revenues grew 16.8 per cent year-on-year, and we expect continued growth, as global supply cuts support oil prices and the introduction of BP’s Juniper field reverses a long-term decline in T&T’s energy production.

Government has demonstrated willingness to cut expenditure on goods and services, which fell 14.1 per cent year-on-year in the fiscal year through to April 2017, and capital expenditures fell 6.8 per cent.

We can expect that cuts in expenditure to occur at a slower pace than the fall in revenues.

Although the rate of domestic debt accumulation has decelerated over recent months, the government is expected to continue issuing debt, mainly on the domestic market, and could make additional withdrawals from its Heritage and Stabilisation Fund.

sThe probability of reduced revenues during this fiscal year is very likely. As citizens, we need to start thinking about the fall in services to us, workers being laid off, further depreciation of the currency, less projects and so much more. Against this reality check, one can only wonder about the lack of an economic plan at this critical time.