Budgets vs Planning

Without getting into very much technical detail, a national budget is a government document containing the proposed revenues and spending for a financial year that is often passed by the legislature, and presented by the Finance Minister to the nation. The budget is also known as the Annual Financial Statement of the country.

The term economic planning describes the long term plans of a government to manage the economy. This comes down to resource allocation, where key economic decisions to be made or influenced by the government can be contrasted with the market mechanism. Of course the latter also tries to guide the economy, relying instead on market forces to determine the speed, direction, and nature of economic evolution.

United Nations Conference on Trade and Development (UNCTAD) and United Nations Industrial Development Organization (UNIDO) have pointed out that state development planning or national planning refers to macroeconomic policies and financial planning conducted by governments to stabilize the market and promote economic growth in market-based or mixed economies. This involves the use of monetary policy, industrial policy and fiscal policy to “steer” the market toward targeted outcomes. Industrial policy includes government taking measures “aimed at improving the competitiveness and capabilities of domestic firms and promoting structural transformation.”

Ours is a mixed economy where we have both government and the private sector as key actors in the economy. In our national budget the revenue measures that we want to implement and the expenditure pattern we are desirous of pursuing must be consistent with clearly spelt out national objectives. In our case fiscal consolidation has to be the very first objective followed by stabilizing the economy. These, if we are honest with ourselves, can and do take more than one year to achieve. In fact, the use of the national budget to pursue fiscal consolidation while touting it as a growth plan leaves a lot to be desired. After all, if, as is the case, your core recurrent revenue is around TT$37 billion dollars and your expenditure remains around TT$53 billion, then this requires both measures to stabilize the economy and to bring expenditure in line with revenue. The case of Greece is a prime example where expenditure reduction was diametrically opposed to getting growth started.

If a cut in expenditure is required and capital expenditure is reduced, then this does not promote growth. Selling assets and borrowing when there maybe terminal decline of your main export does not result in growth. While we are waiting on a draft economic plan to discuss, we have to stabilize the economy. Looking to identify ways of getting greater levels of efficiency and eliminating waste has to be the order of the day.

There are some clear items we will wish to see in a national plan when it is finally presented. These must include the country’s medium term strategic direction, development priorities and implementation strategies. In addition, it should detail the current development status, identifying the challenges faced and opportunities to be exploited. We must know who is the champion of the economic plan as we set our sights on growth and development.