By Arielle Salvary
Undoubtedly, the budget can be a confusing document for the average citizen. Finance terms
coupled with the length of the presentation can leave citizens feeling confused during the
entire process. So, persons may avoid listening to the presentation altogether or they may
choose to listen to commentary from their friends or the media to understand the proposed
plans for the next fiscal year.
However, this budget is probably the most important Appropriation Bill’s in Trinidad and
Tobago’s history. The start of the new decade has brought with it a global pandemic like none seen in recent history. COVID-19 has caused a very significant contraction of the world economy due to the shutdown measures used to mitigate the spread of the virus. Trinidad and Tobago has not been exempt from the economic strife caused by the virus, already the country had been facing severe financial constraints recording fiscal deficits since 2014 with the virus adding additional burden to the state’s finances. The budget will be an essential economic policy tool used to address the financial fall out caused by COVID-19. It will be a balancing act between building economic resilience to foster economic growth and an attempt to protect the social and economic welfare of the citizens of Trinidad and Tobago. This leads us to ask what are the areas we should be paying attention to in Budget 2020-2021?
Economic Diversification
For several decades, there have been calls for economic diversification away from the energy sector, but despite attempts to diversify using the agriculture and the creative industries, none have been sufficient. Economic Diversification is a long-term strategy that involves moving an economy away from one source of income to multiple sources with high growth potential. With the onslaught of the global pandemic the idea of diversification has become more onerous as the government is now facing extremely low oil prices coupled with high public expenditure and increased borrowing which will make the task more difficult. The budget will be important in identifying which sectors they hope can eventually become a source of sustainable income.
In addition, this can provide hope to citizens of where they can see future job creation as the pandemic has also resulted in increased unemployment. Important sectors that should be monitored during the budget presentation are agriculture, tourism and the digital economy which are areas that the government expressed would be given significant attention in their 2020 manifesto and are also areas where future non-energy revenues can be generated.
Fiscal Deficit
The fiscal deficit will also be another area of importance as Minister Imbert has identified that COVID-19 increased the deficit of $5.3 billion to $15.5 billion for 2020 alone. With the cancellation of Carnival 2021 as well as a significant reduction in revenues from energy exports the projected deficit for the coming year is expected to be quite large.
In order to manage this deficit to ensure long-term fiscal sustainability there are expected to be cuts to government expenditure, Minister Imbert in his presentation during Spotlight on the Budget and Economy 2021 identified that these cuts will not come from pensions or social welfare benefits nor retrenchments in public service. However, the expenditure when it comes to subsidies given to state-enterprises as well as the public wage bill should be paid attention to as these may be areas where the government will seek to reduce spending. Another way the government may try to manage the deficit is by mobilizing non-energy revenues like taxes, therefore increased interest should be paid to the tax collection measures like property tax. As these measures directly affect the citizens and allow the government to raise money in a time when traditional sources of revenue are very low.
Devaluation
Devaluation has been one of the most controversial topics when it comes to Trinidad and
Tobago’s economy. There have been valid arguments on both sides when it comes to
deliberating whether the government should devalue the TT Dollar. Currently, T&T has a
managed float where the Central Bank is allowed to intervene in the foreign exchange market
to affect the value of the currency. At present, this has resulted in an overvalued exchange
rate which makes imports cheaper and more attractive and our exports expensive and less
attractive.
For the argument of devaluation, it will allow our exports to become more
competitive and will increase our foreign exchange reserves and increase foreign direct
investment which would be a source of revenue. On the flip side, against the argument of
devaluation, it is recognized that many essential goods like medication are imported if there is a
devaluation then it would cause the cost of essential imported goods to increase. In the tough
economic times currently being experienced this will further increase the cost of living
especially on society’s most vulnerable. The Minister of Finance has indicated that devaluation will not be part of the budget, however the Prime Minister has said that only in the case that
conditions worsen, devaluation would have to be considered. Nevertheless, it will still be
interesting to assess that decision and how it will affect the rest of the Government’s proposed
Appropriation Bill.
Overall the next coming years will be very difficult economically due to the COVID-19 pandemic
coupled with Trinidad and Tobago’s already contracting economy. The government will be
facing very tough decisions as they attempt to promote economic development during a severe
global economic downturn. However, by paying attention to these areas in the budget the
public will be made knowledgeable on how the government intends to address the serious
recession that Trinidad and Tobago is facing.
This article was edited on 5th October, 2020 and differs slightly from the version originally published.
Sunday Market Network 