Avoiding debt

Firstly, the issue of debt is a matter that we need to look at. While it is appreciated that the government has found itself in a difficult situation and must source financing to bridge the gap between recurrent expenditure and revenue, the increase in debt is a matter for heightened concern. It must be remembered that the Government of Trinidad and Tobago issued a US$1 billion 10-year fixed-rate bond on the international capital market on August 4, 2016.

This is expected to take the country’s external debt estimate to 13.6 per cent of GDP by the end of the fiscal year 2015/16.

The Central Bank reports that, taken together with other developments, this will bring the level of total public sector debt (excluding debt issued for sterilisation purposes) to 54.3 per cent of GDP.

We need to step back and note that Greenidge et al demonstrated that a 56 per cent of debt to GDP ratio is the threshold for the Caribbean, above which increases to accumulated debt result in a reduction in economic growth.

We are perilously close to that threshold whereby any further increases in debt will negatively impact our economic growth.

Care has to be exercised, that in our attempt to grow the economy, increasing debt for recurrent expenditure may cause us more harm than good. This has implications for how we go about raising finance both for the deficit and to fund our development.

Perhaps of a shock to many was the significant fall off in oil and gas production over the last five years. Those who think God is a Trini certainly have to take stock of the changes.

Should we expect incentives to accelerate production? This, in the present environment of low oil and gas prices, and where the potential deposits maybe in deep water, may not be economically viable at this time. This means that using improvements in technology to exploit existing and old wells may have to be accelerated. This also means that small producers may have to be contracted, given the size of some of these wells.

The government may have to think about providing guarantees to these small operators to access finance if the benefits of using them are to be fulfilled.

There are other implications of the fall in production in the energy sector. The combination of lower output and energy prices resulted in the fall-off in the value of exports earned in 2015 when compared with 2014 figures.

Energy sector exports decreased by US$3,670.5 million. This is expected to further deteriorate in 2016. The direct impact would have been on the reserves, which for us would have been around US$9 billion dollars, had it not been for two events. The first is the withdrawal from the Heritage and Stabilisation Fund (HSF) of US$375 million in May 2016 and the second was the US$1 billion bond in August 2016 which boosted the reserves.

This allowed the Prime Minister to claim that the pool of foreign currency remained at the same level as it was at the same time last year.

At some point this bond and the US$550 million-bond taken out in 2013 will have to be repaid. Are these to be bullet payments? It is noticeable that the Central Bank intervened at a substantially much lower level of US$906.6 million to authorised dealers in the first seven months of 2016 which was significantly below the US$1,418.9 million provided by the Bank over the same period of 2015.

The Central Bank has to be complimented for the prudent and wise rate of disbursement of the country’s foreign exchange. Going forward we must expect the Central Bank to be more conservative with the disbursement of our reserves. Perhaps new criteria for disbursement may have to be considered.

The last implication of the fall in production figures from the energy sector is the need to accelerate the planning of the diversification of the economy.

In this regard, it was very good to hear the Prime Minister indicate that the National Economic Advisory Board (EAB) has begun to deliver a number of individual and sectoral reports, as well as on work being done by the Standing Committee on Energy.

We look forward to hearing more about the plans, ideas and strategies that have been proposed. The timely implementation and sourcing of finance for the development plans are critical if we are to get our economy on a sustainable growth path.

To this end we must congratulate the Prime Minister on the start of what we hope will be a series of interactions with us the public. Dialogue with us is as vital as every other aspect of the process for getting this economy back on track.

We look forward to hearing and discussing our future.