The 2017 National Budget of the Republic of Trinidad and Tobago

13 October 2016


Shaping a better future: A blueprint for Transformation and Growth – Part Two

On the 30th September 2016 the Minister of Finance, the Honourable Mr. Colm Imbert delivered the second national budget of the current PNM administration.

In this second blog entry on the 2017 budget we look at some of the additional items mentioned by the Honourable Minister of Finance.

The medium term goal – where we are all heading

The central tenet of the 2017 national budget of Trinidad and Tobago is the continuation of the adjustment process started in the first budget of the new PNM administration and the mid-year review.

In addition, the government intends to accelerate its public sector investment programme, and enhance and improve its collaboration with the private sector (particularly in the field of capital projects and construction) in order to stimulate economic recovery, diversification away from the reliance on oil and gas, and a move away from the culture of dependency and entitlement that is considered by the government to be pervasive throughout society.

The government has set specific targets to be achieved by 2020. These include:

  • A balanced budget (meaning the eradication of an annual budget deficit) by 2020
  • Limiting the level of public sector debt to no more than 65% of Gross Domestic Product (GDP)
  • Reducing Trinidad and Tobago’s dependence on energy revenues
  • Containing government expenditures through the elimination of waste and corruption
  • Redirecting expenditure away from subsidies and discretionary transfers and towards spending on essential economic infrastructure

Reducing expenditure on subsidies and discretionary transfers – rolling back the state

The government has already taken steps to reduce expenditure on tertiary education (the GATE program – see below) and on CEPEP and URP. In essence social programs – including the fuel subsidy – are being removed or rolled back reflecting a philosophy that they are no longer desirable or it is no longer economically viable to continue them. In Europe such policies might properly be referred to as “austerity measures” and these policies are unlikely to be popular with many.

Petrotrin

The importance of Petrotrin to Trinidad and Tobago cannot be over-estimated.

Petrotrin provides Trinidad and Tobago with 100% of its liquid energy needs and employs over 5,000 of her citizens. Beyond this, Petrotrin also contributes to foreign exchange earnings because its sells crude oil products throughout the Caribbean and the wider world.

The sharp fall in oil prices since 2014 has had a severe effect on Petrotrin’s fortunes. Falling prices have resulted in sharp cutbacks in drilling programmes and have caused a significant reduction in the level of cash available for maintenance and debt service.

According to the government, Petrotrin faces the critical need to reduce operating expenditure by at least $500 million over the next four years in the event that it cannot significantly increase the profitability of the company by other means. Accordingly, Petrotrin has been identified as a company that needs to review its organisational structure as well as introduce targeted and stringent controls on the amount of money that it spends.

Boosting exports – new initiatives and facilities

The Minister announced a number of initiatives that are aimed at boosting the exports of Trinidad and Tobago and earning additional foreign exchange. Some of these initiatives are up and running and include:

  • The creation of a US$ 10 million revolving loan facility by the EXIMBANK of Trinidad and Tobago to assist exporters to access new markets. This facility was introduced in 2016 and will be extended in scope during 2017
  • The establishment of Special Economic Zones that will replace the current Free Zones operating in Trinidad and Tobago under the Freezones Act
  • The establishment of Agro-Processing Parks in Moruga and Wallerfield and other areas that are yet to be defined
  • Increasing trade with Venezuela
  • The introduction of incentives to support Trinidad and Tobago’s maritime industry

Reforming the oil and gas regime

The government is of the opinion that a rebalancing of the oil and gas regime needs to take place as a matter of urgency. While the government seeks to promote investment by reducing the fiscal burden on projects with low profitability forecasts, it is of the view that it must also seek to assure the public that the extraction of the nation’s natural resources always results in at least the payment of some minimum royalty.

If a project generates a surplus over the total costs of production, including any profit necessary for initial and continuing investment, the government should, under revised rules, share substantially in the surplus.

The government has therefore asked the IMF to provide it with technical assistance with respect to reforming Trinidad and Tobago’s oil and gas regime.

The IMF has delivered an initial report and has recommended:

  • A moderate fixed rate royalty in the region of 10-12% to ensure a minimum income stream
  • A cash-flow tax that will replace the existing Supplemental Petroleum Tax (seen as a disincentive to smaller producers especially when the oil price is close to $50 per barrel)
  • A reformed Petroleum Profits Tax (PPT), where the PPT rate is reduced and harmonised across projects and capital allowances granted are streamlined

The IMF proposals are currently being studied by the major oil and gas companies and will not be implemented until the consultation process has been completed. The IMF has provided these services to Trinidad and Tobago free of charge.

Reforming GATE and the Higher Education System

GATE has been targeted by the government because it is perceived that the programme has led to a significant waste of resources especially as a result of students not completing courses.

In order to assist with the elimination of some of this wastage the government has introduced what is effectively a cost sharing and income based approach to education moving forward.

With effect from the academic year 2017-2018 a means test will be implemented. Students whose household income falls below $10,000 per month will still be eligible for 100% GATE funding. Where household income is above $10,000 per month students will be required to pay 25% of their tuition fees. In situations where household income exceeds $30,000 per month the amount that students are expected to pay towards their tuition costs rises to 50%.

In addition, the Minister announced the following measures in respect of higher education reform:

  • Students over the age of 50 will no longer receive funding
  • Students in the medical programme at St. Georges University in Grenada will no longer receive funding
  • Students will only be funded for one undergraduate programme and one post-graduate programme
  • Students pursuing post-graduate programmes would be funded subject to their programmes being in alignment with the development needs of Trinidad and Tobago
  • The loan ceiling for students studying at local institutions will be raised from $25,000 to $35,000 annually in order to ensure that everyone has the opportunity to attain tertiary education levels

Taken together these policies are expected to reduce the expenditure on the GATE programme from $650 million in 2016 to $600 million in 2017, with a further reduction to $500 million expected in 2018.

Local Government – devolution of central government power

The Minister mentioned that the Government had, following an extensive period of consultation, received a report on local government reform.

Legislation is expected to be laid before Parliament in FY 2017, detailing reforms which include the devolution (or if you prefer de-centralisation) of certain unnamed or defined powers into the hands of the cities, boroughs, and regional corporations.

No free floating exchange rates

Trinidad and Tobago has been plagued by shortages of foreign exchange especially in the last six months. Some have argued that the value of the Trinidad and Tobago dollar should be allowed to float freely against the major currencies of the world on the basis that they consider the Trinidad and Tobago dollar to be over-valued.

The Minister stated that the Government does not consider this to be either a desirable or a sensible move, and at least for the foreseeable future the Trinidad and Tobago dollar will continue to be pegged and managed against other currencies.

The governments reasoning in respect of this is that allowing the Trinidad and Tobago dollar to freely float would expose the country to serious risks including inflationary pressure, a possible wage-price spiral, and inequality of income distribution.

Labour, the Credit Union Movement, and improving the work ethic

The Minister of Finance raised a number of issues in respect of Labour that have implications for all citizens of Trinidad and Tobago.

First the government is actively looking to deepen and strengthen the relationship between the government, labour (meaning the unions), and employees.

Accordingly, the National Tripartite Advisory Council is developing a reform agenda that will cover the following areas:

  • Reform of the Industrial Relations Act and the Retrenchment and Severance Benefits Act
  • Strengthening the co-operative and credit union sectors to allow them to provide improved services to their members. Legislation is therefore likely to be forthcoming in this area
  • The introduction of a Fair Share Programme (FSP) which will target micro and small businesses and allow them to access government contracts up to a value of $1m. So far 1,300 businesses have been signed up into this programme
  • Looking at ways to change the culture of labour which is considered by government to be plagued by a prevalence of low productivity and a culture of dependency and entitlement.

Tobago – getting firmly behind the tourism thrust and boosting enterprise

According to the Minister Tobago has made impressive and important strides in the last two decades. As such there has been significant improvements in Tobago’s physical, social, and educational infrastructure, and its economic fundamentals have also improved. The current situation is:

  • Unemployment stands at around 3% down from 13% in 2001
  • The proportion of the labour force in Tobago with tertiary level education has increased to 19% from 5% in 2001
  • Both headline inflation and food price inflation are now at moderate levels after periods of double digit inflation

To sustain this development, the government plans to significantly develop the tourism sector. This involves:

  • Completing the redevelopment of the airport facilities at Crown Point/ANR Robinson airport
  • Improving the air bridge between Trinidad and Tobago
  • Enhancing the Tobago tourism product and increasing the room stock including a possible Sandals Resort (see below)

In order to boost enterprise in Tobago, the government plans to continue the development of the Cove Eco-Industrial and Business Park providing enhanced opportunities for investors who wish to become involved in export-driven enterprise, together with a continuation and expansion of the Enterprise Assistance Loan and Grant Program.

Attracting Sandals to Tobago, and hopefully other “High-End” brands

The government intends to facilitate the construction of a Sandals resort in Tobago because they believe the construction of a Sandals resort will attract other “High-End” tourism projects to the Island.

The proposed Sandals project comprises of two hotels. A hotel for couples without children and a family hotel. The construction period the project is expected to last 2 ½ years and employ on average 2,000 people. In addition, it is expected that the Sandals resort once operational will purchase an additional $100 million annually in local goods and services.

Overall, once the resort is fully operational it is expected to contribute in the vicinity of $500 million per year to the Trinidad and Tobago economy.

Agriculture – moving towards self-sufficiency, more cocoa and some coconuts

The government is moving towards a position where Trinidad and Tobago can achieve self-sufficiency in its food requirements. In addition to new tax incentives for Agro-Processing discussed in the first blog entry in this series, the government also plans to pursue policies that will revitalise both the coconut and cocoa industries. The initial steps that the government are taking include:

  • Repurposing 900 acres on the east coast of Trinidad through the Coconut Rehabilitation and Replanting Programme
  • Looking in collaboration with the University of the West Indies at ways to promote the Cocoa industry with particular reference to downstream activity that takes cocoa and converts it into high value end products including chocolate

Closing thoughts – time to consider your investing strategies

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