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Friday, November 17 2017 @ 10:45 PM AST

After all the oil & gas produced over 100+ yrs, how did Trinidad & Tobago end up with $100b in debt?

Q&A with UWI Senior Economics Lecturer Dr Roger Hosein

Q: Does Trinidad and Tobago still remind you of the 'fat and fertile soil' referred to by Jean Bodin?

A: In terms of Trinidad and Tobago still being a ďfat and fertile soilĒ, I donít think we are as fat and fertile as we were in 1999 or 1998. We still, however, produce about 240 million barrels of oil and gas equivalent per annum and there are still sizeable pockets of gas in our waters, so we may be a bit slimmer but we still have some fat.

HOW MONEY WAS SPENT IS THE ISSUE, NOT WHETHER MONEY WAS COLLECTED

Even more, and comparatively speaking, we are much fatter than Dominica, St. Lucia, Antigua, Barbados, Guyana, St. Vincent and the Grenadines and Grenada, so I think we still have much cause for relative celebrations, and therefore yes, we are still a fat and fertile soil by some standards, and the dilemma has not really been revenue collection. It has been expenditure utilizations.

In many regards, we badly managed our fiscal revenues, including our energy revenues, and so we have hung our hats where we cannot reach, and today, therefore the economy is experiencing sharp and persistent fiscal deficits, and our stock of debt by the end of fiscal 2018 can climb above $100 billion, terrible for an economy that has produced 4.3 billion barrels of oil and gas equivalent.


Q: What impact would the total removal of fuel subsidy have on the economy if any? Are we, in fact, now paying a fuel tax, in other words, have we gone 360 degrees from where we were with the fuel subsidy?

A: Personally, I donít think the fuel subsidy amendments made by the minister is one that we should lament. The world over has seen a removal of fuel subsidies. What he needed to have considered was a parallel improvement in the public transportation system so that commuters would have a reasonable low-cost alternative in the form of public transportation. I donít think this has been properly put in place, and so, this may be a bit of a dilemma for some affected households, when transportation cost increases, as they would now have to move from a preferred mode of using their own cars, or private taxis, to the public transportation system, which, given the current mode of delivery may have all types of ripple implications.


GAMBLING TAXES WISE

Q: Do you support the increased taxes on gambling? Would increased taxes in the budget be enough to put casinos out of business? Would this lead to a return of or growth of 'whe whe' and other underground gambling?

A: The Minister is in my view following good economic wisdom in going after taxes on gambling, in the sense that gambling represents one of these goods that is relatively price inelastic, and therefore, I do not see any significant changes that would occur on account of taxing the gambling sector more. Letís ask the question in a different way: Do people smoke less and or drink less because of taxes on those commodities?

What the minister should be careful about, in going after the gambling sector, in terms of consumption, is the cost of utilization, which may increase. It may also sprout an increase in the informal sector in some of these firms. To avoid taxes, they migrate underground, so the surveillance by the State would have to increase.

However, in terms of the taxes on the sector, the State has no choice, when non-energy revenues are $32.4 billion and energy sector revenues is $6 billion. The state must find a further $12 billion dollars to balance the budget, and if its capital revenues are only $6 billion, the State is left with a predicament, and therefore, the taxes on gambling represents a fair and reasonable avenue amidst competing alternatives such as food and housing.



Q: Were the measures affecting the auto industry enough to curb the number of cars on the road and ease traffic congestion? Were the measures affecting the auto industry enough to put small operators out of business?

A: I donít think the measures take in the budget were enough to reduce traffic congestion. Indeed, I think the removal of the traffic lights on the East-West corridor will create problems of its own, and therefore the State would have to be mindful of that.


Q: The PM and the Finance Minister in pre- and post-budget fora have reiterated ad nauseam that they are not going to let the TT dollar depreciate. Can T&T prosper despite the fact that Govt has vowed not to let TT dollars slide?

A: As concerns the need for a devaluation, there are many views on this. I myself would have to support the call for devaluation if (a) the average propensity to import is not cut from 52% to 35%, if labor productivity continues to fall, if the non-energy current account deficit cannot be arrested, and then reversed, and if wages outstrip the growth of productivity.

I think more should have been done to stimulate the non-energy export sector as well. The government indicated that, in an attempt to ease the foreign exchange burden on manufacturers, it will allocate US$100 million to the EXIMBANK (for that institution to lend). This is a good start. It represents around 25% of the needs of the manufacturing sector.

The minister mentioned that with time it can be revisited and supplemented if needed. He also noted that some proportion of profits, made by the manufacturing firm, would have to be redeemed in the local banking system.

The export allowance has some merit. The minister indicated that he would set a framework that allowed for a reduction in taxes from incremental exports to existing markets. This is a good idea, and helps the firm push for extra export revenues. It may make sense to tie it to preferential treatment for foreign exchange as well as to generate more exports from firms.

WHERE WILL THE LABOUR FOR FARMS COME FROM?

The State also mentioned a farmerís entrepreneurial grant. But where will the labour for diversification come from? In my view, regardless of all the hard work by the Ministry of Agriculture, nothing will happen, as there are no warm bodies to do the farm hand and other similar type of work.

Ministerial oversight in the award of the successful participants of the program, like shark tanks and planting seeds, will probably stifle the process, and if the process works, there must be a clear element that rewards strategies that can generate foreign exchange.

Some additional policy suggestions the State may want to consider for the non-energy export sector is whether all major commercial banks in T&T should be encouraged to provide a special rate for capacity expansion of non-energy export sector firms targeting exporting to the extra-regional market.

Ideally the State needs to set up a team that can facilitate 100 non-energy exporting firms to double their exports within a 2-year time. This should be done as a matter of priority to augment the stock of foreign exchange.

OPPORTUNITIES IN PEPPERS, HONEY, TURMERIC, GINGER & COCOA

A cluster analysis of agro-processors in T&T should be undertaken to determine the obstacles to expansion. There are non-trivial niche opportunities in peppers, honey, turmeric, ginger, and cocoa for example, because of local and global consumption patterns.

The State would also want to consider increasing the pool of labour available to export agriculture, and export manufacturing by reallocating CEPEP workers under some appropriate arrangement.

This can involve a direct training program for transfer into unskilled labour jobs in the manufacturing sector as well as a literal cutting of some of the CEPEP staff, so that they can, on their own, seek employment in these various companies.

T&T HAS UNUSUALLY HIGH MURDER RATE RIGHT NOW

However, the State must take responsibility (with regard to) controlling the murder rate as, at its current pace. (The murder rate) has a debilitating effect on local investment, and may perhaps be directly related to the existence of 33% spare capacity in the manufacturing sector. As it stands the murder rate is drifting ever closer to 500, and that is not business as usual!

'EXPORTING MADE EASY' MANUAL NEEDED

The State would also want to consider the design of a 'How to Export Manual'. This could be perhaps done by conducting a survey of the 50 best non-energy exporters, pooling the results together. To export is intimidating to some firms that may have never exported before, and this manual could be the basis of a training seminar involving some of the more successful exporters interviewed for the development of the manual.

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