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Preparing for Plan B

Sunday, March 19, 2017

Last week, the Government unveiled two of the measures that it has opted to use to finance the $16 billion gap between core revenue and total expenditure that Finance Minister Colm Imbert estimated in his 2017 budget presentation the Government would experience in the current fiscal year.

The administration on Friday signalled that it would withdraw the US-dollar equivalent of about $1.71 billion from the Heritage and Stabilisation Fund (HSF). And earlier in the week, First Citizens executives began discussing the merits of the bank following Monday’s opening of an additional public offering of shares by the Government, through which the Government hopes to raise $1.5 billion.

Apart from the sale of assets and the drawdown from the HSF, Mr Imbert identified in his budget presentation three other measures that he intended to employ to address the $16 billion gap: borrowing, dividends from state enterprises and repayment of past lending.

In the 2017 budget, the minister envisaged that the Government would borrow about $6 billion, while raising close to $10 billion from the one-off measures such as the sale of assets, dividends from state enterprises and the repayment of past lending

Four points need to be made about Minister Imbert’s policy options:

• He did a better job in his 2017 budget speech communicating how he would finance the gap between expenditure and core revenue—which he defined as essentially revenue derived from taxation, royalties and customs duties—than in the 2016 budget;

• In terms of policy options, there is some internal logic and consistency in sharing the burden of raising the finances to address the $16 billion gap among five measures rather than focusing on one or two;

• Partly funding the fiscal gap by raising revenue from one-off measures allows T&T to avoid a sudden and drastic cutback in government spending, which would hit those in the lowest segments of income earners the hardest, increase the pace of retrenchments in the non-energy sector and cause further social dislocations;

• But what Mr Imbert has not done, as yet, is communicate to the population what is his Plan B in the event that the revenues raised during the 2017 fiscal year fall short—either in terms of core revenue or one-off revenue—of the rather optimistic projections made by the drafters of the 2017 budget.

A clearly articulated revenue Plan B is necessary because the estimates of revenue made by the Ministry of Finance in the last budget were significantly higher than the actual outturn.

By Mr Imbert’s own admission, the revenue outturn for the 2016 fiscal year (from October 1, 2015 to September 30, 2016) was $15 billion less than the original budget estimate made on October 5, 2015, and $7 billion less than the estimate made in the mid-year budget review on April 8, 2016.

Also, the $6.25 billion in non-energy revenue the Ministry of Finance estimates it collected in the first quarter of the 2017 fiscal year (October to December 2016) was 29 per cent less than was collected in the comparable quarter in the 2016 fiscal year.

Since total revenue collected in the first quarter of 2017 was $7.98 billion, this suggests that total core revenue for the whole fiscal year may only be $32 billion, which is $5 billion short of the original budget estimate of $37 billion.

In this context, there is an expectation that the Minister of Finance would dedicate a significant portion of next month’s mid-term budget review to informing the population how any shortfall in revenue would be addressed.

Such information would allow the population to prepare for the adjustment that such a shortfall may entail. It would also prevent the Government from having to scramble to borrow money at the end of the fiscal year at unsatisfactory terms, which the previous administration was forced to do to reconcile the fiscal 2015 budget.


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