Opinion
- Editorial- Commentary
Gregory
McGuire:
Mr
Manning runs something
In theory, a Budget is a statement of the short term plans of the Government
and the associated revenue and expenditure estimates. While its horizon is
one year, the Budget should really fit into a medium term planning framework
which sets out the path for the long term growth and sustainability of the
economy.
In Trinidad and Tobago Budget time is usually
filled with expectation and anxiety. This is perhaps
because the Budget is the single piece of Government
policy that impacts immediately on the living conditions
of the population and the viability of firms.
In an election year, expectation reaches fever
pitch. It is not unusual that budgets in an election
year tend to be the first major campaign platform
statement which would seek to glorify the performance
of the incumbent Government during its term and
paint a rosy picture of the possibilities under
its stewardship going forward.
Patrick Manning did not disappoint. He exhibited
the style and skills one would expect from the
country's most experienced politician. He even
offered to give some political lessons to one from
the other side. Having foreshadowed several of
the new measures long in advance, the Prime Minister's
budget contained absolutely no surprises. In fact
most, if not all, of his record three and a half
hour presentation was spent on wooing large segments
of the electorate. In doing so however, the Minister
of Finance continues to ignore some of the vital
signs of weakness in fiscal policy and the thrust
of economic policy.
The Budget opened with a review of the performance
of the economy under the stewardship of the PNM.
The major macroeconomic aggregates are all positive
confirming that the economy is indeed enjoying
a golden age, born out of increases in investment,
volume and prices of hydrocarbon products.
This was, in part, the result of the deliberate
policy of resource- based industrialisation which
the country has pursued since 1975.
But the expansion has also been due to fortuitous
increases in prices of all energy exports which,
as history has shown, can revert to normal levels
sooner or later. It is in this respect that the
economy is more vulnerable that ever before. According
to the Central Bank data, the energy sector now
accounts for nearly 50 per cent of GDP, compared
with only 26 per cent in 2002; 91 per cent of export
earnings compared with 75 per cent in 2002 and
62 per cent of Government revenue compared with
only 27 per cent in 2002.
Moreover, over the last five years Government
expenditure has increased at an average rate of
16 per cent per year, tracking revenue growth of
15 per cent per year.
In
other words we have been spending most of the
additional revenues. The Government is not oblivious
to the fact the while revenue may fall sharply
due to lower prices, Government expenditure is
very difficult to reduce. The painful experience
of the NAR is too recent for us to forget. The
Finance Minister chastised those who dare to question
the spending of the Government. Such criticisms
he says, are based on "spurious indicators
of absorptive capacity."
We are not told about what Mr Manning's preferred
indicators may be, but a widely recognised indicator
is the non-energy budget deficit. This is simply
a statistic that measures the extent to which the
Government is dependent on energy sector incomes
to run the non- energy economy.
Benchmarks established by the IMF and others suggest
that for an economy like this the non-energy fiscal
deficit should be no more than 12 per cent of non-energy
GDP. For 2006, the non-energy fiscal deficit was
up to 26 per cent of non-energy GDP, compared with
just nine per cent in 2002. In other words while
Trinidad and Tobago is basking in the glory of
energy revenues, the economy has grown more energy
dependent and is therefore much more vulnerable
to external shocks. It is a situation which is
much more serious than the reserves non-issue because
it can happen suddenly and without warning.
To have ignored these facts, in my mind, is one
of the major deficiencies of the Budget. In a context
like this one would have expected a greater focus
on the plans for consolidating the gains in energy
while seeking to broaden transformation of the
economy.
Instead
the Budget statement was little more than a rehash
of energy sector projects, mega farms
for agriculture, and the seven new target sectors.
The Prime Minister boasted that the reserves
situation poses no threat to the current plans
for energy sector expansion. Exploration and
production companies will get some incentives
to increase exploration activity but these seem
likely to be targeted to specific areas - deep
water, and heavy oil, rather that be applied
across the board. The plans for agriculture reflected
some of the suggestions coming out of the consultation
on food prices. These included the establishment
of a prices council and a special squad to deal
with praedial larceny. One of the few new initiatives
in the Budget is the proposed involvement of
the large fertiliser producers directly in the
development of 100-acre demonstration farms.
The manufacturing sector would probably be very
unhappy as the Budget seems to have remained
silent on incentives to enhance their competitiveness.
The Prime Minister highlighted that major expansion
on tourism plant in both Trinidad and Tobago, including
the Hyatt Hotel on the waterfront. The hope is
that the country could make a major push into the
conference tourism business, beginning with several
major conferences in Port of Spain over the next
two years. In terms of the other new areas for
non-energy economic activity, very little seems
to have transpired over the last year. In repeating
plans for these and other sectors perhaps the Prime
Minister is indicating his strong conviction in
their viability.
This confidence is reflected in the continued
growth in Government recurrent expenditure. The
increases in the minimum wage, salaries to workers
in the Government-sponsored welfare programmes,
Government pensions, were not unexpected. Some
have deemed the lump-sum retroactive 15 per cent
increase to CEPEP, URP and reforestation to be
inflationary.
However,
historical data on the inflation process do not
support this view. The Prime Minister
had hinted of a possible scaling down of the
CEPEP and URP programmes to release labour to
other sectors however there was no word of this
in the Budget. Expenditure on education reform,
crime and security, public health institutions
capacity and service, and housing represent a
continuation of Government's thrust in these
areas.
In
sum the 2008 Budget was very predictable. It
identified initiatives, some old others new,
to
deal with the most pressing short term problems
of crime, food prices, road infrastructure, health
sector problems and the reform of education.
Moreover,
it responded to the plea of the masses for Mr.
Divider to "run something". It reiterated
longer term solutions for transformation in terms
of new sectors, and mega farms. However, there
is a huge gap between announcements and action.
The ongoing challenge will continue to be one of
implementation and ensuring that the state gets
value for money.
The Prime Minister may succeed in winning the
elections but the long term viability of the economy
remains under threat.
Gregory
McGuire is a lecturer in Economics at UWI, St Augustine. Petroleumworld
not necessarily share these views.
Editor's
Note: This article was first publish in Trinidad
Express, Tuesday, August 21st 2007. Petroleumworld
reprint this article in the interest
of our readers.
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Petroleumworld
08/26/07
Copyright ©2006
Gregory
McGuire . All Rights Reserved.
