This article is a 20 min read.
This article is a 20 min read.
On the 5th October 2020 the Minister of Finance, the Honourable Mr. Colm Imbert delivered the sixth national budget of the PNM administration following on from the national election that was held on the 10th August 2020.
This election returned the PNM to power albeit with a reduced majority.
The uncertainty in respect of COVID-19 means that future planning will be shaped by the decisions that need to be taken to fight and control the pandemic.
This will not be an easy or simple road to transgress.
Policy processes and what happens to the world and by extension, Trinidad and Tobago, will be governed by what is necessary and can be achieved to control and hopefully eradicate COVID-19.
Against this backdrop it is clear that 2021 may well be as challenging as 2020 has proven to be. Global trade is expected to collapse by 12% in 2020 with the advanced economies – excluding China – expected to contract by 8%.
The road that we all must traverse will not be an easy one.
At the start of fiscal year 2020 the Minister stated that the economy of Trinidad and Tobago was returning to sustainable growth with the following key characteristics:
According to the Minister, COVID-19 has dramatically changed the picture not just for Trinidad and Tobago but for the whole world.
On the 11th March 2020, the World Health Organisation (WHO) declared the COVID-19 virus to be a pandemic and some two days later the first case occurred in Trinidad and Tobago. COVID-19 is an efficient, fast and deadly enemy!
Trinidad and Tobago took prompt action to contain the virus. Between March and July these actions were recognised internationally as a success, but from July the infection rate began to increase as the economy was slowly reopened.
Clearly, we are walking a narrow road. Striking the right balance is key.
The Minister hopes that Trinidad and Tobago will be able to take decisions in the near future with a view to balancing the efforts necessary to contain the virus with those required to maintain livelihoods. The Minister acknowledged that it is unlikely that the world economy will emerge with a dramatic recovery unless affordable and effective vaccines are found that are able to contain and eradicate COVID-19.
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The Government of Trinidad and Tobago (GORTT) has taken the following steps to contain, control and mitigate the impact of COVID-19:
Financial support has been provided to companies and individuals including:
In order to maintain the flow of credit to the business sector, GORTT has reduced the Central Bank reserve requirement for the commercial banks by 3% to 14% and the Repo Rate by 1.5% to 3.5%. This is designed to increase liquidity in the financial system.
Banks are also being encouraged to reduce mortgage interest rates, and credit unions to exercise forbearance on overdue loans.
The reduction in reserve requirements and repo rates is designed to provide an incentive to the commercial banks to:
GORTT has taken the following steps in respect of Tobago:
GORTT are projecting a fiscal deficit of TT$16.8 billion representing approximately 11% of Gross Domestic Product for the close out of fiscal year 2020.
The fiscal deficit has been funded by:
According to the Minister, the Commissioner of Valuation will shortly be making mandatory requests of property owners under section 29 of the Valuation Land Act with a view to commencing collection of property taxes in fiscal year 2021.
The taxation of commercial, industrial and agricultural properties will follow the taxation of residential property owners in that order.
To deal with the problem of COVID-19, an online platform for the submission of information by the property taxpayer will be available shortly.
In March 2020 an amendment to the Heritage and Stabilisation Fund Act was approved allowing the withdrawal of up to US$1.5 billion during the financial year in the event of a health crisis, natural disaster or precipitous drop in budgeted revenue.
Under this amendment US$900 million was withdrawn from the HSF in order to assist with funding the fiscal deficit.
At the end of September 2020 foreign exchange reserves stood at US$7.3 billion and the balance on the HSF at US$5.7 billion. Taken together these two amounts equate to approximately 59% of GDP – still a substantial buffer.
The Minister expects Trinidad and Tobago’s output to shrink by 6.8% in 2020 despite the debt to GDP ratio reaching 80%.
Recovery will be driven by the Digital Economy (see later blog entries in this series) together with a recovery in the global economy. This is not expected to materialise until 2022 and is predicated on the finding of a cheap, safe and effective vaccine for COVID-19.
The need to borrow today – as nearly all economies in the world are doing – is necessary to support jobs and businesses because the loss of those jobs and businesses now would have a larger and more sustained impact on the economy and would prolong the amount of time required for the economy to recover post COVID-19.
Should events go to plan the minister expects the debt to GDP ratio to fall back to its pre-crisis level of 65% by 2023/24. Recovery in economic activity is also expected to lead to a balance of payments surplus by 2022, as energy exports increase, and the level of imports stabilises.
A number of initiatives announced by the Minister of Finance – most of which have been on the agenda for some time – require the active support of the opposition.
These initiatives include:
The National Insurance Board: With expenditure on benefits now exceeding contributions on an annual basis, GORTT plans to examine an increase of the retirement age to 65.
The Minister of Finance noted that moving forward, Trinidad and Tobago’s developmental model must be anchored on the newly emerging digital economy.
A fully digital Trinidad and Tobago is seen to be central to the growth and diversification of the economy.
Initiatives under this heading include:
Agriculture contributes less than 1% of Trinidad and Tobago’s GDP.
Consequently, food imports consume over $4 billion per year.
Such a situation is neither desirable nor sustainable. For the next five years GORTT are placing expansion of the domestic food supply at the top of our national policy agenda.
A $500 million stimulus package is being established and funded in 2021. According to the Minister this represents a 70% increase over the allocation granted to agriculture in the budget for 2020.
To support the industry, a Centre of Excellence in Agriculture and Bio-Technology will be established to assist with training in sustainable agricultural practices.
Planned agricultural initiatives include:
The Minster set an ambitious target of doubling manufacturing output by 2024.
To support this manufacturing thrust the government will:
The construction sector will be incentivised over the next two years through fiscal incentives and tax relief for approved development projects similar to the incentives already granted for tourism and hotel projects.
GORTT intends to unlock the economic and employment creating potential of the creative sector. This includes marketing Trinidad and Tobago as an arena for the production of international films and the expansion of the local fashion industry.
New programmes will be introduced to assist single parents and to target vulnerable children and youths. GORTT plans to tackle the challenging issue of youth in urban and semi-urban communities with high crime rates, through the provision of training, support schools, day care centres and fully funded domestic violence centres.
Tomorrow we continue with the second (and final) part of #TTBudgetAnalysis on the 2021 National Budget of the Republic of Trinidad and Tobago.
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