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The T&T economy is in deep trouble and the Finance Minister cannot avoid cutting the size of the public service and increase utility rates.
In a devastating critique of the government’s economic performance, economist Dr Terrence Farrell said the country is running out of time to take strong action to live within our means.
“So absent a miracle, there is no way that the level and composition of government expenditure cannot not now be addressed; and that will involve reducing head-count in the public service, closing state enterprises, and increasing rates for water, electricity, and transportation. As an economist and a citizen, I get no joy from stating this. But the reality is that we will have to come to learn to live within our means,” Dr Farrell told the Business Guardian via email on Tuesday.
The former Deputy Governor of the Central Bank said he was not surprised by the minister’s revelation that the country was now borrowing money to pay public servants salaries.
He said those who understand what is happening in the economy and paid attention to the budget presentation recognised immediately that the revenue projections were extremely optimistic and therefore all the risk in respect of the budget deficit was to the downside.
He said: “There seemed to be a curious notion that the non-energy economy and hence non-energy revenues are completely independent of energy sector revenues, which is not correct.”
The senior economist admitted that the country was now running out of fiscal space to make the changes to the structure of the economy that is required.
“As I have maintained from the outset in 2015 in my occasional commentaries, the critical constraint is and has been the external account, the balance of payments. That is where the shocks emanate, and that imbalance is what needs to be addressed, first and foremost. The fiscal deficit derives from the collapse of energy sector revenues, due to falling prices as in 2015, and due to falling production, as obtains today.
“We have failed to address what I believe is a structural imbalance in the external accounts because it has been represented as a cyclical downturn, and as a result we have allowed the foreign exchange reserves to decline far too far and resorted to external borrowing and HSF drawdowns.”
The economist rubbished the possibility of a “soft landing” as a “delusion and simply bad policy.”
He pointed out that former Prime Minister George Chambers elected to do that in 1982-1986 with disastrous results.
He said, “Lengthening the ‘glide path’ to adjustment of the external and fiscal imbalances just uses up scarce foreign exchange and fiscal resources (eg transfers and subsidies paid out) which will never come back. Import cover is a shorthand, but potentially misleading, indicator of reserve adequacy, made more so by the informal exchange controls we have introduced since 2016.
“The government was advised back in 2015 and in 2016 to adjust quickly, let the Central Bank use exchange rate adjustment proactively to eliminate exchange rate over-valuation, eliminate immediately all the fuel subsidies, and restructure and reform the portfolio of state enterprises.”
Dr Farrell noted that the World Bank advised further on public expenditure reforms. The EDAB also counselled separation of the HSF so that the Heritage component could be protected and used for long-term development and transformation not, as now, to pay public service salaries and the IMF’s reports supported these views and recommendations as well.
“So we are seeing now a replay of Chambers’ policy mistakes, coupled with a puzzling indifference or even hostility to advice, whatever the provenance of that advice, and a delusional view that the energy sector will turnaround and deliver us from collapse. But when critical decisions are postponed and the can repeatedly kicked down the road, the eventual reckoning becomes all the more difficult and painful as we saw in the 1987-1992 period.” Farrell warned.
Dr Farrell said the real questions are: how do we develop and transform this economy, and how do we maximise growth which is ultimately the way to reduce poverty and sustainably increase wealth? How we choose to answer those questions should then define the role of the government.
He noted that for the last 50 years, the Government, gifted with oil and gas revenues, has seen itself as the “prime mover” in the economy. He said what it has done instead is, through transfers and subsidies, including a subsidised exchange rate, fostered dependency throughout the economy, and sidelined or ignored the private sector.
“That is why the productive sectors—agriculture, manufacturing, tourism—have not performed, and why lamentably, there are now apparently 90,000 public servants, not counting those ensconced in the many state enterprises and statutory bodies. There is really no aspect of fiscal policy that is driving economic growth and development.
He said what we have as “budgetary policy” is an annual exercise in bookkeeping or “arithmetic” as Lloyd Best used to say.
“And even the numbers are misleading because government continues to use cash accounting which allows it to simply not pay VAT refunds and other payables, delay wage negotiations, and then claim a misleading budgetary outturn, which of course would be contradicted by proper accrual accounting.” Farrell lamented.
He said if there are strategies for growth he does not know what they are. The economist asked what has become of the Roadmap to Recovery?
He pointed to the continued problem of the quality of economic data available for decision making as being terribly deficient.
Dr Farrell told the Business Guardian “Our unemployment data (and unemployment is a lagging indicator) are almost two years out of date, not to mention other key labour market indicators (wage rates, productivity, etc.) which are important in any modern economy.
“We have no national income accounts; we don’t know what the investment rate is, and where in the economy investment is taking place; we don’t know the domestic savings rate; we can say nothing about consumption.
“Key data on fiscal operations and on trade are reported with unacceptably long lags. The detailed balance of payments reports are also dated.
“Ask yourself: how would you feel to be in a plane high up in the air with a pilot who doesn’t know where he is or how high, how fast the plane is going, or how much fuel he has left. That’s where we are in terms of the data supporting economic management here today.”
He said judging by the quality of the presentations in the last and previous media conferences, he is deeply worried about the quality of technical expertise available to the Finance Minister and the advice and support he is getting internally.
daring dragoon wrote:That is why the productive sectors—agriculture, manufacturing, tourism—have not performed.
Habit7 wrote:It is easy to attack the individual or the party, but the problem T&T facing now are accumulated over different govts and whoever is in govt or wants govt, needs to make the tough decisions.
TT govt is too big, meaning it is too involved in daily market forces. Too many subsidies, welfare and prolong incentives have created artificial market forces that now cannot be sustained because external factors such are O&G prices and world travel have not kept up. And even now that O&G prices are climbing, our production is flat because we have at least a year again until major projects come on stream.
This govt made the bold claim that they not cutting the public service and they haven't. Barbados had no other choice but do it and sent home up to 25%. Manning admin agreed to start cutting the fuel subsidy, Kamla admin agreed as well, the Rowley admin is finally doing it totally and there are complains from both sides. Petrotrin was restructured and complains from both sides. T&TEC hasn't made a profit since 2011 and in 2014 they were going to raise rates but it wasn't politically expedient so it was passed on to 2018, that too was still too close to elections, now we have no choice. WASA was trimmed under Manning, expanded again under Kamla and now they have to both to be trimmed, rate increased and install metering. BWIA was restructured in 2008 and began making a profit, made some acquisitions and was making a loss, finally it was doing good recently after trimming a lot of fat and then covid-19 hit.
The constant issue is that once govt allows for the market to balance and set the prices it would moderate the use and allow for less need to subsidise and let the money go to more needed things. A smaller public service would allow for more efficiency by force but a bloated one will just perpetuate the problem. A stable TTD is allowing for low inflation but the inaccessibility of USD is draining our reserves. Cheap water and electricity is allowing for waste and inefficiency.
Where the politics come in is which party is willing to risk the popularity and make the tough decisions. I applaud the PNM for what was finally done to Petrotrin to create profitable Heritage and Paria, BWIA to profitable CAL and totally removing the fuel subsidy while keeping inflation low.
But can PNM or UNC cut the public service, allow utilities to be set to market prices, only allow GATE for programs that are needed, cut welfare or have ppl being weaned off, cut excessive make-work programs, cut subsidies on the air and sea bridge, have toll roads to fund road maintenance?
Everybody wants their party in power but not willing to sacrifice so that country has a better future. They want some super PM with super ministers to stop crime and grow the economy all without they themselves being demanded to do anything.
Habit7 wrote:It is easy to attack the individual or the party, but the problem T&T facing now are accumulated over different govts and whoever is in govt or wants govt, needs to make the tough decisions.
Everybody wants their party in power but not willing to sacrifice so that country has a better future. They want some super PM with super ministers to stop crime and grow the economy all without they themselves being demanded to do anything.
Sundar wrote:Cut? where? Budget Division severely under staffed. Forced to hire retires on contract> more costly. fix the Broken Systems. Wth. Recover revenue lost from corruption. Millionaire Ministers need their salaries? Steups. Nah lewe cut the public servants who struggling already.
Habit7 wrote:Sundar wrote:Cut? where? Budget Division severely under staffed. Forced to hire retires on contract> more costly. fix the Broken Systems. Wth. Recover revenue lost from corruption. Millionaire Ministers need their salaries? Steups. Nah lewe cut the public servants who struggling already.
A simple thing like digitisation of govt services will eliminate the need for many clerks whose job can be automated and backup by a centralised IT support system even over several ministries. A good example is in the licensing office where you can conduct several services online and pay via VISA debit or credit card eliminating for several cashiers who need start an hour late and leave an hour early to sum up.
Greenday wrote:Habit7 wrote:Sundar wrote:Cut? where? Budget Division severely under staffed. Forced to hire retires on contract> more costly. fix the Broken Systems. Wth. Recover revenue lost from corruption. Millionaire Ministers need their salaries? Steups. Nah lewe cut the public servants who struggling already.
A simple thing like digitisation of govt services will eliminate the need for many clerks whose job can be automated and backup by a centralised IT support system even over several ministries. A good example is in the licensing office where you can conduct several services online and pay via VISA debit or credit card eliminating for several cashiers who need start an hour late and leave an hour early to sum up.
Totally agree with this , government workers brought this on themselves.
All government cash services should be done on line rather than deal with a casher or clerk that has an attitude problem .
Rovin wrote:govt & govt workers must do their work effectively & efficiently without so much wastage
also stop teefin out d treasury & blaming d previous govt for ur current failures ....
adnj wrote:daring dragoon wrote:That is why the productive sectors—agriculture, manufacturing, tourism—have not performed.
What was not mentioned fully was the condition and impact of the services sector on the economy. In developing economies, agriculture, tourism and manufacturing play a much less significant role in GDP growth in comparison.
It is entirely possible to export design, IT, communications, and financial services.
Sundar wrote:Greenday wrote:Habit7 wrote:Sundar wrote:Cut? where? Budget Division severely under staffed. Forced to hire retires on contract> more costly. fix the Broken Systems. Wth. Recover revenue lost from corruption. Millionaire Ministers need their salaries? Steups. Nah lewe cut the public servants who struggling already.
A simple thing like digitisation of govt services will eliminate the need for many clerks whose job can be automated and backup by a centralised IT support system even over several ministries. A good example is in the licensing office where you can conduct several services online and pay via VISA debit or credit card eliminating for several cashiers who need start an hour late and leave an hour early to sum up.
Totally agree with this , government workers brought this on themselves.
All government cash services should be done on line rather than deal with a casher or clerk that has an attitude problem .
I totally agree with online payments. Them stink attitude ppl could go yes, but there are diligent workers in the public service as well so don't accuse the entire system if you not in it to see it.
No disagreement here.Devourment wrote:adnj wrote:daring dragoon wrote:That is why the productive sectors—agriculture, manufacturing, tourism—have not performed.
What was not mentioned fully was the condition and impact of the services sector on the economy. In developing economies, agriculture, tourism and manufacturing play a much less significant role in GDP growth in comparison.
It is entirely possible to export design, IT, communications, and financial services.
Yes and look at those lab.tt people, we could develop an offshore IT, Data Sci, Software Development industry easily. Financial services as well, comms yes, and many other markets.
We're a fairly educated English speaking country right on the US's doorstep, furthermore, we have tonnes of educated Venezuelans who can be used as human resources for SA and LA markets.
Agriculture, Tourism and manufacturing all have a strong place here too.
If the oil money hadn't made us lazy and complacent we could have been like Singapore.
j.o.e wrote:Habit7 wrote:It is easy to attack the individual or the party, but the problem T&T facing now are accumulated over different govts and whoever is in govt or wants govt, needs to make the tough decisions.
TT govt is too big, meaning it is too involved in daily market forces. Too many subsidies, welfare and prolong incentives have created artificial market forces that now cannot be sustained because external factors such are O&G prices and world travel have not kept up. And even now that O&G prices are climbing, our production is flat because we have at least a year again until major projects come on stream.
This govt made the bold claim that they not cutting the public service and they haven't. Barbados had no other choice but do it and sent home up to 25%. Manning admin agreed to start cutting the fuel subsidy, Kamla admin agreed as well, the Rowley admin is finally doing it totally and there are complains from both sides. Petrotrin was restructured and complains from both sides. T&TEC hasn't made a profit since 2011 and in 2014 they were going to raise rates but it wasn't politically expedient so it was passed on to 2018, that too was still too close to elections, now we have no choice. WASA was trimmed under Manning, expanded again under Kamla and now they have to both to be trimmed, rate increased and install metering. BWIA was restructured in 2008 and began making a profit, made some acquisitions and was making a loss, finally it was doing good recently after trimming a lot of fat and then covid-19 hit.
The constant issue is that once govt allows for the market to balance and set the prices it would moderate the use and allow for less need to subsidise and let the money go to more needed things. A smaller public service would allow for more efficiency by force but a bloated one will just perpetuate the problem. A stable TTD is allowing for low inflation but the inaccessibility of USD is draining our reserves. Cheap water and electricity is allowing for waste and inefficiency.
Where the politics come in is which party is willing to risk the popularity and make the tough decisions. I applaud the PNM for what was finally done to Petrotrin to create profitable Heritage and Paria, BWIA to profitable CAL and totally removing the fuel subsidy while keeping inflation low.
But can PNM or UNC cut the public service, allow utilities to be set to market prices, only allow GATE for programs that are needed, cut welfare or have ppl being weaned off, cut excessive make-work programs, cut subsidies on the air and sea bridge, have toll roads to fund road maintenance?
Everybody wants their party in power but not willing to sacrifice so that country has a better future. They want some super PM with super ministers to stop crime and grow the economy all without they themselves being demanded to do anything.
Couldn’t have said it better.
De Dragon wrote:Don't you love how Habit7 and PantyMan Plastic Bag conveniently embrace collective responsibility?
PantyMan Plastic Bag was actually arguing that in 5 years from 2010-2015 the PP wrecked the economy single- handedly. It appears that prior to that, everything was perfect
Imbert facking up royally right before our very eyes, and these clowns still find it necessary to mount a full-throated defence, even after Impsy himself has admitted abject failure, and that he lied to us. Thankfully, only LFDRFD PNM clowns like Pornsie and Panty take that chain up
De Dragon wrote:Don't you love how Habit7 and PantyMan Plastic Bag conveniently embrace collective responsibility?
PantyMan Plastic Bag was actually arguing that in 5 years from 2010-2015 the PP wrecked the economy single- handedly. It appears that prior to that, everything was perfect
teems1 wrote:When it's time for the taxpayers to get something, tighten your belt. Subsidies are one of the few places many people see a return on their tax dollars.
Redress10 wrote:Is Manning who invited Rowley into the PNM and introduced him to politics.
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