Minister Karen Nunez-Tesheira makes a point during her record
$49.5 billion budget presentation on Monday. At right is
Energy Minister Conrad Enill.
Infrastructure versus inflation.
The pursuit of infrastructure development and the containment
of inflation are the Governments goals in its 2008/2009
At a glance, its fairly obvious that infrastructure
needs completion: unfinished, unpainted glass-windowed buildings
dominate the Port-of-Spain skyline, the streets flood when
it rains and the almost-completed interchange overpass is
being advanced as the answer to traffic which clogs the
The price of progress has been inflation.
At $49.4 billion, its T&Ts most costly budget.
In its favour is a sustained economic growth and the
high oil and gas prices which have buoyed the economy.
But it comes at a time when theres uncertainty in
world financial markets, energy prices are see-sawing and
inflation is a challenge for most economies.
T&T is not insulated from these global ripples.
The Waterfront Centre.
In presenting her 2008/2009 Budget, Finance Minister Karen
Nunez-Tesheira said that theres no way to measure
how the on-going turbulence in global financial markets
will impact on T&T.
How will the Governments pursuit of infrastructure
affect its aim to curb inflation?
Budget analysts agree that infrastructure spending should
be reduced but that doesnt necessarily mean that inflation
Inflation now stands at 11.9 per cent, fueled by sharply
rising food prices which have plagued the population over
the past year. The Government is committed to bringing it
down to six per cent.
Nunez-Tesheira said the rise in inflation has both external
and domestic causes.
expansion of public and private sector construction activity
has pushed up the costs of labour and raw materials in the
construction sector. This has led the Government to review
its infrastructure development programme to arrive at adequate
solutions including new methods of financing, for example,
using turnkey arrangements which would reduce capacity constraints
thus minimising the liquidity impact and mitigating the
inflationary effect on the domestic economy.
She noted that the Central Bank has used monetary policy
* the primary and secondary reserve requirement,
* the Special Commercial Bank Fixed Deposit, accounts at
the Central Bank,
* the repo rate,
* open market operations,
* issued liquidity absorption bonds on behalf of the Government
* sold foreign exchange
* applied moral suasion
* and launched the Financial Literacy Programme as part
of its response mechanism.
Government recognises that reducing inflation to more acceptable
levels is critical to providing the right incentives for
the business sector, for protecting the purchasing power
and living standards of income earners and is even more
critical for the protection of the lower income groups and
for pensioners on fixed incomes.
To mitigate the impact of food prices, the Government has
allocated $1.7 billion to the agricultural sector.
Nunez-Tesheira said that agriculture offered the most incentives
but that there was a lengthy process to access funding and
land. She said that this was streamlined to better foster
and co-ordinate financing, production and marketing arrangements.
To this end, the executive chairman of the National Agricultural
Marketing and Development Corporation (Namdevco), Noel Garcia,
has also been appointed to chair the Estate Management and
Business Development Company (EMBD) and the Agricultural
Minister in the Ministry of Finance, Mariano Browne, said
food prices were a challenge for the PNM-led Government.
prices is not an issue that you can deal with in any new
measure apart from, for example, putting subsidies, in which
case, you will increase the non-energy deficit. The Government
has a medium-term strategy with regard to bringing the non-energy
sector deficit down. The intention is to carry it down to
between ten and 12 per cent, he said.
Nunez-Tesheira admitted that inflation, the Governments
Achilles heel, will continue to rise in the short term but
the goal is to bring it down to a more acceptable
Central Bank Governor, Ewart Williams, said: The budget
acknowledged that inflation is a serious problem.
The budget recognised that certainly the increase in food
prices may continue for a while and the budget also said
that the Governments objective was to reduce inflation
to five to six per cent over the medium term. My problem
is I am not too sure we can wait for the medium term.
at close to 12 per cent now is far too high and my experience
suggests that unless it is reversed quickly it tends to
become embedded, said Williams on Tuesday.
The pegged oil price of US$70 was seen as high by some analysts.
anything, this was the year to be conservative, said
economist Gregory McGuire, who believed that the Government
should have stayed with last years US$50 price.
fully expect oil prices to moderate as global growth subsides
but this decline in oil prices will be limited to the extent
that current high prices reflect increasing production costs,
market fundamentals, and demand from emerging and developing
economies, albeit at a more moderate pace, said Nunez-Tesheira.
Nunez -Tesheira said, as have energy majors and Energy Minister
Conrad Enill that a pegged oil price did not overly affected
T&T as it is now gas-based.
So, is $4/million metric British thermal unit (mmbtu) conservative?
Well, consider that the price is now US$7.35 ( at the time
of writing) and Enill and bpTT chief executive Robert Riley
have both expressed optimism that the natural gas price
will go higher.
Energy sector revenues support the Governments spend.
T&T has been operating on fiscal surpluses over the
past five years, Nunez-Tesheira said.
But Williams says the Government now has a dilemma
of reconciling the rate of expenditure with monetary policy
with a view of reducing the nations spiralling inflation
He said that the faster the increase in expenditure, the
more is the reliance on monetary policy to reduce inflation
and tightening monetary policy has implications for interest
rates and that has other implications for the rest of the
Nunez-Tesheira laid the Governments case for its sustained
expenditure on infrastructure, stating that investment in
modern physical infrastructure, water, electricity and telecommunications
will generate substantial economic returns.
But $49 billion more for the same projects?
In 2007/2008, the Governments capital expenditure
amounted to $10 billion of which $4.5 billion was disbursed
under the Public Sector Investment Programme and $5.5 billion
under the Infrastructure Development Fund.
youre running a government, youre running a
business, she quipped.
She said that the budget was a report of what took place
in the fiscal year, what was achieved and what was the Government
agenda moving forward.
something was not achieved, due to various reasons, that
doesnt mean that it still isnt a priority for
us. But it will be included, she said in response
to a question posed at the T&T Chambers post-budget
meeting on Tuesday.
With many projects in need of fresh financial injection,
and some facing inflated costs, the Government remains committed
to completion, she said.
Economist Jwala Rambarran was ambivalent.
His budget expectation was that the Government would spend
more but that the expenditure picture would basically be
similar to last years.
He described the budget as irrelevant. He said
that while it recognised inflation as a problem, it read
like a manifesto.
a budget largely ignorant of global realities. It sends
the wrong message that we can afford to be complacent,
In his view, the US financial system is facing a meltdown
and most industrial countries are on the verge of a recession,
yet the Governments picture is that the economy is
robust and resilient.
Hayden Blades, senior economist at RBTT said it read like
a marketing document which did not address bad
news such as crime.
Nunez-Tesheira said that some of T&Ts rapid pace
of development and efforts to improve the quality of life
had created capacity bottlenecks.
is no doubt, for instance, that the expansion of employment,
higher incomes and easier credit availability have led to
an increase in demand for automobiles, contributing to traffic
congestion, she said.
The most significant de-bottlenecking took the
form of an increase in the price of premium unleaded gasoline
from $3 to $4 per litre.
ones who can afford to pay are the ones who have been asked
to pay, said Browne.
was decided as a deliberate measure in terms of the tax
structure to go after the one market segment that can afford
to pay and then leave all the other subsidies intact at
that level and that would mitigate the impact on inflation,
cant build roads fast enough to accommodate the cars.
You have to do something else so you send a price message,