A disjointed Budget

The minister also told us that the Government’s midterm strategy is couched in the context of a long-term plan — the Vision 2030 — which is almost ready and is to be the subject of public consultation.

So the sum total of any diversification the minister proposed in this Budget is to run an entrepreneurial talent competition to reward the top five competitors with $1 million for their innovative business concepts.

In other words, the sub-heading of the Budget presentation has nothing to do with the constructs detailed in the Budget. The presentation defined the plans of the Government as to how it is going to spend $53.4 billion while all it receives from taxes etc (core revenue) is $37 billion; the deficit to be made up by borrowings, drawdowns from the Heritage and Stabilisation Fund (HSF), one-off sale of assets (State enterprises shares), dividends from the State companies and repayments of past loans to Clico.

Hence this Government is on the economic dance floor focusing on securing income for the duration of this year’s dance. What happens next year and the years after? This Government expects oil and gas prices to recover; we will find more oil and gas, Venezuela will help us both in the Manatee and Dragon Fields, we will invest in part in a new methanol DME plant and foreign investors will get into aluminium production locally.

Government spending on roads, highways, ports, airports, hotels, economic growth (not economic development) is expected, which could indeed put further pressure on the reduced foreign exchange being earned. But what about the shortage of foreign exchange? Listen to the minister: “… from time to time there have been complaints about foreign exchange… Occasional foreign exchange shortages are not new but their incidence has been exacerbated since 2014 due to changes in the forex management regime, which disturbed the long-standing confidence in the system.” (This regime change had no impact on the foreign exchange earned by the country.) “The situation was later aggravated by the steady decline in earnings from the energy sector.

These uncertainties have led to increased demands for foreign exchange… We have a flexible exchange rate regime that has served us well for decades. As such there is no need for any drastic movement.

The Central Bank will continue to manage the exchange rate flexibly, supported by monetary policy and foreign exchange sales to the market as needed.” The Minister of Finance appears to be restricting the current foreign exchange problem, shortages, simply to its negative impact on government income since, according to him, the Central Bank can sell foreign exchange to the market as needed (with the concomitant reduction in our reserves). The minister is ignoring the fact that as a small open economy that depends for its very survival on the foreign exchange earned by the energy sector, the current shortage, besides reducing Government’s income, is shutting down the onshore economy: The latest Central Bank release confirms that construction and distribution, major onshore activities, are sluggish.

Further, any move by the Government to stimulate the economy via spending that does not provide new exports or replace imports by local production (both of which are extremely unlikely in our economy) simply increases the liquidity in the market, which increases demand for foreign exchange to which government spending can also contribute directly.

It is also noteworthy that the new taxes imposed are not about reducing aggregate demand in the economy (though the depreciation of the TT $ has moderated this demand) but moreso to meet the Government’s need for income.

Hence organising its business disjointedly on a short-term yearto- year basis is not only insufficient, but criminal if the view from the balcony, the view of what the future holds and the related risks, is ignored and if we do not start to put in place the strategic management of our future economy.

Counting on the resurgence of the energy sector is to ignore the risks associated with the related assumptions.

Further, the minister still sees government as a facilitator and the private sector, with proper incentives, as the driver of economic diversification. Hear him: “Diversification also requires that the private sector changes its mindset from commerce to industry, from a focus on the domestic market to seeking to explore global markets, from avoiding risk in new ventures and technologies to taking on new risks and facing new competitive pressures to conquer new fields. To assist this process this Government is prepared to provide the necessar y incentives and support for the private entities willing to take these risks.”