Thursday 8th June, 2006

 

Extra $$ not bad...but Govt must watch non-oil deficit

 
 
 
 
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Jwala Rambarran

Gerald Yetming

BY ASHA JAVEED

While the Government’s decision to increase its $34 billion budget by $4 billion has raised a few eyebrows, it hasn’t been meet with much scepticism.

Last year, the Government’s $31 billion budget was increased by $3 billion after its mid-term review, which raised questions about wild spending, deja vu and inflation.

This time the Government’s allocation for its $4 billion increase seems justified.

Except to the Opposition UNC who claim that a forensic audit should be conducted on the use of the $34 billion budget since the effects of this or the GDP growth are not being felt by the public.

Economist Jwala Rambarran and former Finance Minister Gerald Yetming agree that this time around it isn’t “as bad as it seems.”

Yetming admitted that if he were the finance minister he may have done the same thing. He believes that the Government has given sufficient justification for the increase and there wasn’t much room for argument.

Rambarran noted that of the $1.35 million of the $4 billion would be transferred to two funds: the Revenue Stablisation Find and the Infrastructure Development Fund which are not expenditure items.

Last week, Cabinet approved the $4 billion increase, just three months before the end of the financial year.

And it’s allocated almost $2 billion out of the $4 billion to the Finance Ministry to assist T&TEC, WASA, BWIA and to state-owned Petrotrin to provide a gasoline subsidy.

“Now, $650 million is going to Petrotrin to keep the subsidy and how much of this amount can you really argue? Oil prices are higher than anticipated but if you want to maintain the subsidy and see prices fixed at the pump then you have to be prepared to pay this amount. And we can afford to,” Rambarran explained.

He continued that while the Government “is not going to raise prices as yet it has signaled that it could look at rolling back the subsidy because if oil prices remain high, you have a higher level of subsidies to contend with.”

He said that T&T had the luxury of being an oil producer and could afford to maintain a gasoline subsidy for an obviously longer period than any of its Caribbean neighbours.

Yetming added that the citizens of T&T benefited at the pump from the oil and gas wealth.

“In isolation, there is little to argue with,” said Yetming.

Rambarran, using a summary of Government’s fiscal performance released in the Central Bank’s April monetary report, said Government has received $1.1 billion more in revenue than it had budgeted.

But he noted that in terms of the oil revenue, it is just $500 million below what was budgeted. The Government had budgeted $8.7 billion in oil revenue but by March 2006 had only received $8.2 billion.

“This is pretty strange given that oil prices are so much higher. So this obviously says they were forecasting a higher level of production with a given oil price of $35,” he explained.

He pointed out that the non-oil revenue is significantly up from $6.8 billion to $8.5 billion compared to what was budgeted. This, he attributed to higher corporate taxes and greater return on VAT.

The Government’s total expenditure of $13 billion, which is $4.1 billion lower than the $17.6 billion budgeted, is the reason why Rambarran is not too concerned about the increase.

“The Government is not spending as we thought they would be spending or it is just not spending as fast as anticipated. Typically, this happens at the mid-term but as you move towards the end of the financial year, the spending will pick up. But I don’t expect them to pick up to such an extent,” he said.

Rambarran told the Business Guardian that both current and capital spending was behind “which meant that when you take the revenues and expenditure together, they are running a surplus.

“They have a surplus of $3.3 billion versus a budgeted deficit of $2 billion which means that they were $5.3 billion ahead by the end of March. So, if they are running a surplus and expenditure is $4 billion behind budget, coming to ask for $4 billion more simply means you are making up for what you did not spend,” he said.

But while that’s “the good part of the story,” the bad part emerges when you look at the performance of the non-energy deficit, said Rambarran.

He said the deficit is up significantly and when it is financed, pushes liquidity into the system which has spillover effects into the foreign exchange markets.

“If you extrapolate the same performance into the end of September, you’ll see the non-oil budget deficit is going to be about $13.8 billion, which is equivalent to 20 per cent of non-oil GDP. This is a significant amount. It means more liquidity, the Central Bank intervening in the money market even more and bigger interventions in the foreign exchange markets,” Rambarran predicted.

“The Government really needs to think about how they are spending now at the aggregate level and there is time for restraint, you need to cap it. Same time next year, you can’t continue at this pace, you going to have to cap expenditure at $30 billion and work with that because it is having significant impact on your money market and foreign exchange market. And the eventual outcome on all of this is the inflation market,” he added.

Where the money is going

A gas station attendant descends from an NP loading truck. The government has allocated part of its $4 billion budget increase to subsidise the price of gasoline.

Guardian file photo

An additional $371.6 million is earmarked for the Public Sector Investment Programme

$2.5 billion of funding into the Revenue Stabilisation Fund (over 91 per cent of surplus oil revenue for fiscal year 2006) bringing its balance to $7.9 billion

$650 million to Petrotrin for a gasoline subsidy

the Government would shell out $282.4 million to assist T&TEC in servicing its 2005-2006 debt obligations in relation to a $22 million Fincor Bond of 1991 and a $500m RBTT bond of 2001, plus a $431 million NGC medium-term loan.

An additional $630 million is required to meet the equity injection in the recapitalisation of BWIA.

Also, $750 million is allocated for infrastructure development fund and $600m for savings.

$292.5 million, will help WASA meet its operating deficit and support a Water Sector Improvement Programme with a further $15.7 million will support projects under a development programme.

 

 

 

 

 

 

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