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:

• Inflation at a low of 1%.
• Government revenue increasing from the low levels witnessed in 2016.
• A significant reduction in government expenditure through fiscal consolidation and the elimination of waste.
• A fall in the fiscal deficit to 2.5% of GDP in 2019 (In 2016 the fiscal deficit stood at 9.5% of GDP).
• A low and stable interest rate regime.
• An improving balance of payment situation.
• A stable foreign exchange rate against the US dollar.
• Foreign exchange reserves of US$7 billion and a healthy US$6 billion invested in the Heritage Stabilisation Fund.

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.

The Government of Trinidad and Tobago (GORTT) has taken the following steps to contain, control and mitigate the impact of COVID-19:

• The closure of international borders on the 22nd March 2020.
• The introduction of a targeted social safety net to protect the most vulnerable in our society. The provision of this safety net has a budgeted cost of TT$6 billion with TT$4 billion having already been spent at the time of the budget presentation.
• The slow and controlled reopening of the economy in a safe manner.
• The hiring of additional medical personnel and equipment including PPE and specific facilities targeted to treat COVID-19.
• The creation of a robust parallel heath system.
• Providing financial assistance to companies and individuals.
• Introducing amendments designed to maintain the flow of credit to the business sector.
• Making special arrangements to assist Tobago

Financial support has been provided to companies and individuals including:

• Accelerated income tax refunds to over 25,000 individuals.
• Over 5,000 small and medium sized businesses with a per VAT cycle threshold of TT$500,000 received accelerated VAT refund payments in cash.
• 460 companies with up to TT$10 million in refunds per VAT cycle received fully tradable VAT bonds. The total cost of this initiative amounted to TT$3 billion.
• 142 small and medium sized businesses have received zero interest loans that are guaranteed by GORTT.
• 50 business owners have received loans through the Credit Union Loan Facility at a cost of TT$382,000.
• 5,000 micro enterprises are expected to receive grants with 528 grants having been disbursed as at the date of the budget presentation.
• 124 importers of essential items have received US$75 million through the Special Import Forex Window operated by the EXIMBANK. An additional US$75 million has been approved for further use under this facility.
• GORTT are expediting TT$2 billion in payments to contractors and suppliers.

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:

• Reduce their prime lending rates by 2% to 7.5%.
• Provide a moratorium on mortgages and instalment loan payments through the lockdown period.
• Reduce rates on credit cards.

GORTT has taken the following steps in respect of Tobago:

• The provision of TT$50 million to the Tobago House of Assembly (THA) to fund the Tobago Regional Health Authority with its COVID-19 expenditure. 
• The provision of TT$5 million to the Enterprise Development Programme to assist small businesses.
• The creation of a Special Fund of TT$50 million to provide grants to Tobago Hoteliers for upgrade work and financial support.

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:

• Raising just over TT$1 billion on the domestic capital market under the Development Loans Act (under this act a total of TT$10 billion can be raised).
• Emergency drawdowns from the Heritage and Stabilisation Fund of approximately US$900 million. As at the end of September 2020 the remaining balance on the fund is US$5.73 billion.
• Sourcing US$300 million from agencies including the World Bank, Inter-American Development Bank and the Development Bank of Latin America.
• Sourcing US$250 million on external capital markets.

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:

• Establishing the Trinidad and Tobago Revenue Authority: The bill to establish this was laid in Parliament in 2018 and scrutinised by Parliamentary Committee over a year ago. A fully functioning Revenue Authority is expected to close the tax collection gap by as much as TT$5 billion per year.
• Establishing the Gaming Commission: This bill has also been around for some time and would allow for the regulation of the gaming sector as well as the efficient collection of taxes.
• The National Statistical Institute: The creation of this institute will allow for the publication of trade and economic data in real time. Access to this type of data should be considered vital to planning future initiatives and policies.

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:

• The provision of high-speed broadband internet access to all citizens.
• The creation of an electric population register, or e-identity for every citizen.
• A national single electronic window for business related services improving trade performance and ease of business. Effectively this is a measure designed to cut “red tape”.
• A new government delivery system to allow for the prompt delivery of passports, registration documents issued by government offices and the payment of allowances to citizens such as pensions.
• As an incentive grants and tax breaks for setting up businesses operating in the digital arena will be available (we expand on this in a future blog entry in this series).
• A Tech Investment Fund and a Tech Promotions and Development Company will be established to assist digital tech start-ups.

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:

• Targeting the production of items that can derive higher value through processing and packaging in areas as diverse as agro-processing, cosmetics, paper, packaging and pharmaceuticals.
• Using products to expand the tourism industry.
• Producing bioethanol and biodiesel from waste.
• Investing in livestock farming technology.

The Minster set an ambitious target of doubling manufacturing output by 2024.

To support this manufacturing thrust the government will:

• Improve the ease of doing business through the implementation of a single electronic window.
• A voluntary compliance programme for bona fide importers of raw materials.
• A more efficient VAT refund system to improve manufacturers cash flows.
• Continued use of the EXIMBANK to provide much needed foreign exchange.
• eTecK will become a facilitator for commercial development of niche industries including chocolate, export of the Moruga Scorpion Pepper and Moruga Hill Rice.
• Transform the existing free zone regime into a Special Economic Zones Framework in order to attract new dynamic and sustainable investments.
• Revisit the aluminium industry.
• Promote textile and garment manufacturing together with the domestic fashion industry.
• Promote downstream activity in the petrochemical sector.

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.