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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

 

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