BUDGET STATEMENT 2008/2009
INTRODUCTION
Mr. Speaker, it gives me great pleasure to present to this Honourable House and to the
nation, the first Budget of this new People's National Movement administration. On a
personal note, this is also a special occasion for me since it is my first Budget Statement as
Minister of Finance.
Mr. Speaker, when the People's National Movement Government returned to office in 2001,
we embarked upon a journey, based on a vision - Vision 2020. As Honourable Members
are aware, this Government's vision is to transform Trinidad and Tobago into a developed
nation on or before the year 2020. We articulated a vision to redefine Trinidad and
Tobago's place in an increasingly globalised world. The transformation to developed country
status is founded on well sequenced- well calibrated- social and economic reforms in -
among other areas- Education, Health, Housing, Social Services, Water Electricity,
Telecommunications and Transport. It also involves transforming our major cities, beginning
with our capital city into modern metropolitan centres.
This vision is premised on the optimal utilization of resources in the energy sector and on
the meaningful diversification of the non-energy sector so as to ensure sustainable
economic growth. Accordingly, in the short term, this requires substantial capital investment
to build the necessary productive capacity toward the realisation of the objective of
achieving developed country status that is Vision 2020.
Mr. Speaker, countries just like individuals, and firms, must spend, save, and invest in order
to secure their future.
Our vision commits us to the nurturing of a caring society: by ensuring that the benefits of
economic success filter throughout the population, bringing prosperity to all; by providing
assistance to those in need and by looking after those who cannot do so for themselves.
Mr. Speaker, our approach to governance and economic management is founded on the
principle that the main purpose of government is the welfare of the people and that all
economic and social programmes must redound to the individual and collective well-being.
Mr. Speaker, these are the principles on which our Republic is built. These are the
principles upon which the People's National Movement was built. And these are the
principles which inform the philosophy of this Budget.
While the Government is committed to implementing the policies and programmes to
facilitate the development of our nation, each citizen must continue to seek out and take
advantage of the opportunities afforded him or her. Our hopes and aspirations for ourselves
as individuals and for our nation are the foundation upon which Vision 2020 was developed.
Our development agenda is targeted to accommodate economic restructuring, sustained
growth and competitiveness, complementing an environment that fosters social equity,
equal opportunity, and positive values.
Ours will be a society where the touchstone for measuring the validity and efficacy of all
efforts is the impact on the future of its sons and daughters. A society that celebrates its
achievements and adheres to its commitments. A society set to be on par with developed
nations, yet distinct in the richness of its diversity. It is in this context that the theme of this
year's Budget: “Shaping Our Future Together”, is placed. Mr. Speaker, by this we mean
that all of us, including not just those of us in this Honourable House, but the teacher, the
student, the farmer, the business man, the homemaker, all have a part to play in shaping
the future of Trinidad and Tobago.
Mr. Speaker, a cardinal principle of this Government is the collaborative approach. Our
development model envisages complementary roles for the state, labour and the private
sectors. We see the state as both investor and facilitator, providing the appropriate
investment climate, and investing in the necessary strategic infrastructural facilities which
are necessary pre-requisites to allow private sector activities to flourish. While the State's
main role is the provision of public goods and services that are fundamental requirements in
the growth process, it also has a responsibility to intervene in selected areas to support
strategic investment, or where private investment is non existent or slow to materialize.
Mr. Speaker our developmental approach puts a premium on the participation of all our
citizens. This role is particularly critical now as we deal with crime; it is critical as we
formalize new governance arrangements for local government and agriculture and it is
equally critical, in this new global inflationary environment, where consumers need to be
conscious of their tremendous power to influence market forces.
Mr. Speaker, during 2002-2007, Trinidad and Tobago made significant economic and social
progress on the road to transforming our country into a developed nation. The international
rating agencies acknowledged our success by upgrading our investment rating and the
people of Trinidad and Tobago demonstrated their support for our strategies and for our
management of the country's economic and social affairs by giving us a resounding
endorsement at the polls in November 2007.
Mr. Speaker, the Government's commitment is to build on its achievements of the past six
years and to accelerate the pace of development in all areas of national life.
As part of our economic strategy we have announced plans for deeper industrialization,
involving downstream energy sector spinoffs and for intensified focus on economic
diversification. Agriculture was also identified as a priority sector to address the urgent
challenge of food price inflation and to contribute to the achievement of food sufficiency.
In the social sectors, our strategy for the next five years recognizes the need to continue to
provide affordable housing, especially for low income households; and to pursue further
improvements in health care, emphasizing accessibility and affordability.
Mr. Speaker, infrastructural development has been identified as a special priority over the
next several years; specifically on an improved water supply; a comprehensive drainage
programme; enhanced power generation and distribution facilities and a major expansion of
transportation infrastructure. I will have more to say on this later.
Mr. Speaker, human resource development is pivotal to achieving our medium and long
term goals. This explains our comprehensive interventions into education, starting from early
childhood care, through primary and secondary education, and up to tertiary education. It
also explains the significant investment in training programmes over the past few years.
Mr. Speaker, permit me to take this opportunity to express my profound appreciation to the
many public officers, especially those in the Ministry of Finance, who persevered beyond the
call of duty in the preparation of the various documents laid in this Honourable House today.
I would also like to thank the Honourable Prime Minister, and my Cabinet colleagues for
their assistance. In addition, I would also like to say thanks to all those individuals and
organizations that have provided invaluable contributions which also added considerably to
the Budget process.
Economic Review
Mr. Speaker, this year's Budget is set against a robust and resilient economy. Our country
has benefited from sound economic management that has brought steady growth and
development and this Budget follows the long tradition of prudent economic management
that has characterized this Government.
Over the past twelve months, against the backdrop of financial strains and dramatic surges
in commodity prices, the global economy has confronted perhaps its most serious setback in
decades. While the growth slowdown originated in the United States, precipitated by the
failure in the US credit market, it quickly spread to the other industrialized countries, most
notably those in Europe. Growth in developing countries also slowed, though less than in
the developed countries. However, almost all developing countries continue to face
significant increases in inflation, to levels not seen since the late 1980s.
Even the best performing emerging market countries were not spared. This year, in China
inflation reached 6.3 percent; 11.9 percent in India and an average of 9-10 percent in Latin
America. In the Caribbean region, inflation reached 16.8 percent in Jamaica, 7.4 percent in
Guyana and according to the recent IMF report, inflation is projected to reach 9 percent in
Barbados by the end of 2008.
This resurgence in inflation has resulted largely from the astronomical increases in food and
oil prices. During 2008, the increase in global wheat prices reached 75 percent; corn prices
33 percent, dairy products and soy bean prices 63 percent, all staple ingredients in our diet.
Mr. Speaker, a number of significant global financial events have unfolded over the past few
weeks. In a fundamental sense the changes taking place in the international financial
system are unprecedented; with the collapse of two of the world's largest investment banks,
Lehman Brothers and Merrill Lynch, as well as the American Insurance Group (AIG) the
world's largest insurance company, being given a lifeline of US$85 billion by the United
States Government. When coupled with the bail out of Bear Stearns a few months ago, and
more recently of Fannie Mae and Freddie Mac - two of the largest mortgage companies in
the United States-, the cumulative effect implies a major restructuring in the international
financial system.
At this point no one can be certain how the on-going turbulence in the financial markets will
impact Trinidad and Tobago. We 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.
Volatility has always been a characteristic of the oil market and our budgeting processes
recognize this. It is for this reason that the oil price for the budget is determined on a moving
average basis. It is our assessment that oil prices will align to market fundamentals over the
medium term and therefore we do not believe that there is any need to revise the
assumptions on which our budget is based.
It is perhaps heartening that Trinidad and Tobago is facing this difficult situation with
significantly less macroeconomic vulnerabilities than in past episodes of financial market
disruption. This country has been operating on fiscal surpluses for the past five years. In
addition, we have been constantly reducing our external debt as a percentage of GDP and
our exchange rate arrangements provide additional flexibility for such a situation.
Mr. Speaker, it should be noted that while our financial system is quite robust by any
standard, it is still at an early stage of development. Perhaps that is our strength in this
particular situation, as our exposure to the international financial system is not yet large
enough and therefore minimises our vulnerability to such contagion effects.
If there is any message that the current turmoil brings, it is the critical importance for
Trinidad and Tobago to tighten the regulatory regime for all financial institutions. And for all
financial institutions, banks and insurance companies, the message is the need to put in
place adequate risk management strategies to protect from adverse developments. I will
expand on this later.
Mr. Speaker, the Trinidad and Tobago economy has shown remarkable resilience in this
turbulent international environment - and here are some of the salient macro-economic
statistics to illustrate the point:
o
GDP has almost tripled from $55 billion in 2001 to $152 billion in 2008. It is
projected to rise to over $165 billion in 2009. Mr. Speaker, this is an incredible
performance even by global standards;
o
Preliminary data show that real GDP is estimated to grow by at least 3.5 percent in
2008 which is comparable with the average global growth rate;
o
While the growth in the energy sector levelled off in fiscal 2008, the non-energy
sector continues to register rapid growth; in fact, for the first time in many years, the
non-energy sector grew at a faster rate than the energy sector;
o
Growth in the non-energy sector has been broad-based, covering construction
activity, manufacturing, tourism, wholesale and retail trades and financial services,
consistent with Government's economic diversification policy;
o
The unemployment rate at the end of the second quarter of 2008 stood at 4.2
percent, unprecedented in our nation's history and favourably comparable with
developed countries such as United States and the United Kingdom. This reflects
the creation of more than 75,000 new sustainable jobs since 2002;
o
Our external accounts have continued to strengthen reflecting the high oil and gas
prices;
o
As a result of the above, our external reserves have increased to US$8.52 billion
the equivalent of 11 months of import cover. This excludes, Mr. Speaker, the sum
of US$2.46 billion now lodged in the Heritage and Stabilization Fund, which
represents more than 10.2 percent of GDP and is considerably higher than the
level of our external debt.
o
Today our external debt stands at 6 percent of GDP while total pubic sector debt is
28 percent of GDP, down from 58.3 percent in 2000.
o
In macro-economic terms, Mr. Speaker, our Achilles heel has been the increase in
headline inflation which rose to 11.9 percent in August and all indications are that it
will continue this upward trend in the short term before falling to a more acceptable
level. I will return to discuss our inflation challenge later.
Mr. Speaker our economic performance has not gone unnoticed. Just last month Standard &
Poor's Ratings Services raised its long-term foreign currency sovereign credit rating of
Trinidad and Tobago from 'A minus' to 'A'. Standard & Poor's also raised the country's
transfer and convertibility risk assessment rating from 'AA minus' to 'AA'. According to the
highly reputable international rating agency: "the upgrade reflects the continued
strengthening of the Republic's fiscal and external accounts," Such a rating makes Trinidad
and Tobago an extremely attractive destination for foreign direct investment.
Mr. Speaker, the Government has leveraged its favourable position in the petroleum and
petrochemical sectors to fundamentally impact every facet of the Trinidad and Tobago
economy. Currently we are the world's fifth largest exporter of liquefied natural gas,
supplying more than 70 percent of US domestic needs. Our share of global energy business
now stands at 3 percent, a remarkable accomplishment given that Trinidad and Tobago has
only 0.3 percent of the world's gas reserves.
Mr. Speaker, this year marked seven years of sustained, comprehensive transformation of
the education system. We provided five hundred places in ten newly constructed, state of
the art, Early Childhood Care Centres (ECCE) centres. We also created an additional five
hundred Advanced Level places, in furtherance of the goal of 25,000 new places by 2012;
completed the deshifting of secondary schools; provided networked computer laboratories to
340 primary schools; and we trained 680 primary school teachers under the Primary
Schools Computerization Programme. In addition, significant progress has been made in
the areas of curriculum development and standardization, in the provision of student support
services; and in teacher training and development.
Mr. Speaker, as we accelerate our efforts to transform the economy, of paramount
importance is the strengthening of our human resource base, continuing our focused drive
towards a knowledge and skills-based society and the facilitation of universal access to
knowledge and skills training.
In 2008, more than 32,000 persons are expected to graduate from formal training institutions
such as the National Energy and Skills Centre (NESC); the Trinidad and Tobago Hotel and
Tourism Institute (TTHTI); the Metal Industries Company/National Skills Development
Programme (MIC/NSDP); the College of Science, Technology, and Applied Arts of Trinidad
and Tobago (COSTAAT); the University of the West Indies (UWI) and the University of
Trinidad and Tobago (UTT), and the University of Southern Caribbean. In addition, the
National Training Agency (NTA) estimates that programmes such as On the Job Training
(OJT), the Community Environmental Protection and Enhancement Programme (CEPEP)
and the Unemployment Relief Programme (URP) will have trained a further 64,145
persons.
Mr. Speaker, we have made significant progress in transforming the capital city. The 428
room Hyatt Regency, and the largest conference centre in the English-speaking Caribbean,
wholly owned by the Government and people of Trinidad and Tobago,is doing remarkably
and is projected to turn a profit in 2009, one full year ahead of schedule. The soon to be
completed Government Campus project will provide a fully integrated, modern administrative
centre to more effectively meet the changing needs of the public.
Mr. Speaker we are aware that a reliable and efficient transportation network is pivotal to a
well-functioning society. In the last fiscal year we made substantial improvements to the
transportation network. In December, we will bring even further relief to the travelling public
with the introduction of the Water Taxi Service from San Fernando to Port-of-Spain. Inter-
island transport has also been vastly improved with the purchase of the two fast ferries and
the commissioning this year of modern passengers facilities at the new Port-of-Spain Ferry
Terminal.
Mr. Speaker these achievements in education, training, health and infrastructure are pivotal
to the shaping of the future of our nation.
THE MEDIUM TERM FRAMEWORK
Mr. Speaker, let me now on behalf of the Government outline the three year medium term
policy context in which the Budget is framed. This framework assumes that:
o
Real GDP growth will continue at a rate of about 5 percent a year over the period
2009-2011;
o
One objective of the Budget is to reduce the rate of inflation to a sustainable level of
6 percent;
o
To this end, the objective is to reduce the non-energy fiscal deficit from its current
level of 16 percent of GDP to a range of 10-12 percent of GDP by fiscal 2011 as
part of our strategy to ensure long term sustainability through increasing revenues
from non energy sources.
Addressing Inflation and High Food Prices
Mr. Speaker, as noted earlier, headline inflation in the advanced economies, underpinned by
the rise in oil prices, has greatly outstripped targeted rates and is now at the highest levels
since the late 1990s. The resurgence in inflation has gone much further in developing
countries, led by higher oil prices and soaring food price increases. Trinidad and Tobago,
like most emerging and developing countries worldwide, has had to confront this rise in both
food prices and headline inflation.
This Honourable House may recall that after reaching 10 percent in October 2006, headline
inflation declined to 7.3 percent in October 2007. Since that time, which is roughly when
global commodity prices began to soar, the 12-month food price index has risen to 11.9
percent as at August 2008.
Mr. Speaker, the rise in inflation in Trinidad and Tobago has both external and domestic
causes.
Firstly, we are affected by global food prices which have been trending sharply upwards as
a result of booming demand by some fast growing emerging economies mainly India and
China; by increasing demand for biofuels and by restrictive trade policies in some countries.
Secondly, the 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 minimizing the liquidity impact and mitigating the inflationary effect
on the domestic economy.
And finally public sector demand has increased as the Government has stepped up the
implementation of its development programme. This has raised some challenges which I
will address later. Private sector demand has also increased as evidenced by the significant
growth in bank credit expansion, notwithstanding the steady hikes in domestic interest rates.
Mr. Speaker, the Government working with the Central Bank, has adopted a range of
measures to deal with the surge in food prices and headline inflation. The Government has
focused on the supply side, and on initiatives in the agricultural sector that improve the
efficiency of the distribution sector, most notably the establishment of farmers markets to
reduce the margins between the producers and consumers. We have also eliminated or
significantly reduced import duties and value added taxes on a wide variety of food items. I
will also say more on this later.
Mr. Speaker, on the demand side, the Central Bank has used it monetary policy instruments
including 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. In addition Mr. Speaker the Government has introduced legislation to facilitate
the issuance of Treasury Bonds and increased the borrowing limits of the Central Bank.
Mr. Speaker, the Government recognizes 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. This Budget addresses this
issue. Let me state, Mr. Speaker, that inflation reduction is an urgent economic and social
imperative of this Government.
We want to renew our call to the citizens of Trinidad and Tobago to recommit to a sustained
savings effort. We all need to understand that the culture of credit and instant gratification
that has taken hold of society makes us vulnerable and ultimately impoverishes not only our
selves but future generations.
We consider that the most pressing priority is to invest the country's energy wealth into
creating a dynamic and diversified economy, capable of generating income well into the
future. Mr. Speaker, the benefits of savings are significant. Essentially savings provide a
cushion against the vagaries of the future; it ensures that we have an emergency nest egg
at hand; it supplements our retirement funds and ensures that we can live comfortably in our
twilight years; it secures a legacy for our children and provides funds for productive
investment and the attainment of nationwide developmental goals.
For the individual and the family we have partnered with the Central Bank to launch the
National Financial Literacy Programme which has proven to be a tremendous success. The
Government wishes to urge every citizen to make full use of the services on offer and to
manage their personal finances for maximum future return. The Government has led the
way in saving as evidenced by the substantial current account balances being generated
and the continued commitment to making quarterly deposits to the Heritage and
Stabilisation Fund which, as I indicated previously, stands at US$2.46 billion.
In addition, the country also has US$8.5 billion in foreign reserves, and a balance of TT$5.1
billion in the Infrastructure Development Fund. Let me repeat, Mr. Speaker, US$8.5 billion in
foreign reserves, US$2.46 billion in the Heritage and Stabilization Fund, and a balance of
TT$5.1 billion in the Infrastructure Development Fund.
Mr. Speaker, the temporary growth in the non-energy deficit reflects Government's
prioritization of its investments in education, health, housing, and social services and in this
fiscal period infrastructure becomes another one of our major priorities. We recognize that
these investments generate economic growth and provide considerable impetus for the
expansion of the non-energy sector.
THE SECTORAL STRATEGY
Let us now address the Government's strategy towards sectors relating to energy,
agriculture, industry, tourism and financial services.
Mr. Speaker, the Energy Sector will continue to shape the economic future of Trinidad and
Tobago, well into the next decade. Energy security and climate change are among the most
critical challenges facing the world today. Energy security is back on the front burner of the
global political agenda as increasing prices have precipitated the problems associated with
energy supplies. This means that the demand for oil and gas far outweighs the supply of
this limited but vital resource.
Mr. Speaker, as an oil and gas producing country, these issues are important to us and the
Government understands the implications for Trinidad and Tobago, which is why the
People's National Movement Administration took the decision in the early 1990s to further
diversify the energy sector. Our strategy involved moving further away from an oil-based
economy and propelling the economy into one in which natural gas took greater
precedence. This initiative paved the way for further diversification as it created
opportunities for increased downstream activities. The success of this strategy is
unparalleled in our nation's history, as Trinidad and Tobago is now on the world's energy
map as the fifth largest producer of Liquefied Natural Gas, and the world's largest exporter
of methanol and ammonia.
Mr. Speaker, Trinidad and Tobago is responding to the changing dynamics in the global
energy market. It is now necessary for us to put special arrangements in place that will bring
incremental benefits to the country beyond the tax-take to Government. We propose to
increase the Government's ownership of assets along the value chain in the natural gas
market. The Trinidad and Tobago LNG Company will play a key role in this process.
Our economic reality is that the energy sector will continue to be the main engine of growth
for the next several years. The Ryder Scott report issued in early 2008 pointed to significant
gas potential, which, in order to be realized, required an intensification of oil and gas
exploration. Against this background, one of the Government's major priorities for 2009, and
for the next few years, is to provide incentives for increased oil and gas exploration, to
maximise the benefits which would accrue to all citizens of Trinidad and Tobago.
Mr. Speaker, exploration will continue in the upcoming fiscal year with the drilling of six
wells, in addition to the 14 that were drilled under existing Production Sharing Contracts and
Exploration and Production Licenses. A comprehensive review of the fiscal framework
governing the sector is now underway and will be completed before the end of this year.
Mr. Speaker, an aggressive development programme is being undertaken by operators to
bring natural gas on line for the projected growth in the demand on the domestic market.
Three new field developments are in progress and two will commence shortly. In addition
the Government has agreed to offer acreage in the Trinidad and Tobago Deep Atlantic Area.
This activity will commence in mid 2009.
An independent certification of this country's natural gas reserves will be completed by the
end of May 2009 to ensure that the data is available to enable strategic planning for the
downstream natural gas sector. An independent certification of the country's oil reserves
will be completed by January 2009. This will form the basis for the formulation of plans for