Arjoon: Macro-economy has some breathing room

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Econ­o­mist Dr Vaalmik­ki Ar­joon says the mid-year bud­get re­view de­liv­ered by Fi­nance Min­is­ter Colm Im­bert in­deed sug­gests that the macro-econ­o­my fi­nal­ly has some breath­ing room es­pe­cial­ly af­ter six long years of neg­a­tive eco­nom­ic per­for­mance, wors­ened by the pan­dem­ic.

How­ev­er, while this is en­cour­ag­ing, the coun­try’s re­al GDP per­for­mance is still not bet­ter than pre 2020 lev­els, Ar­joon added.

He not­ed that T&T’s fis­cal space has now deep­ened giv­en the dra­mat­ic in­crease in glob­al hy­dro­car­bon com­mod­i­ty prices, bring­ing a sur­plus of $1.98 bil­lion at the end of April 2022.

This, Ar­joon said, is en­cour­ag­ing es­pe­cial­ly since the econ­o­my’s Re­al GDP would have de­clined by over 11 per cent from 2016 to 2021, with a to­tal deficit of $63.9 bil­lion in that pe­ri­od.

«With such a deficit, we nat­u­ral­ly didn’t save, and there­fore, had to bor­row to meet our fis­cal spend­ing re­spon­si­bil­i­ties, bring­ing the debt bur­den to over $130 bil­lion at the end of 2021,» Ar­joon added.

Us­ing the IMF’s pro­jec­tions, he al­so not­ed that the econ­o­my’s Re­al GDP is pro­ject­ed to grow by 5.47 per cent in 2022, with a val­ue of $149 bil­lion.

This, how­ev­er, Ar­joon added, is still low­er than 2019’s val­ue of $154.6 bil­lion but high­er than the Re­al GDP for 2020 and 2021.

Ad­di­tion­al­ly, he not­ed that it is al­so very en­cour­ag­ing that the debt to GDP ra­tio has fall­en to 72 per cent, which he added will cer­tain­ly be looked up­on favourably by the cred­it rat­ing agen­cies, to­geth­er with the in­crease in rev­enues.

How­ev­er, ac­cord­ing to Ar­joon, the key rea­son that the debt to GDP val­ue has fall­en by such a sub­stan­tial amount is not due to a mean­ing­ful fall in the pub­lic debt, but be­cause of the de­nom­i­na­tor, nom­i­nal GDP, which ac­cord­ing to the Min­is­ter of Fi­nance in­creased to $180 bil­lion.

«This val­ue has in­creased pri­mar­i­ly due to price in­creas­es, more so than pro­duc­tion in­creas­es re­call that prices as a whole have in­creased as the prices of all raw ma­te­ri­als used in the pro­duc­tion process and im­port­ed goods have risen sharply due to glob­al sup­ply chain com­pli­ca­tions to­geth­er with the cost of ship­ping and, most of all, en­er­gy prices,» Ar­joon said.

He ex­plained this means that nom­i­nal GDP, which is the to­tal val­ue of goods and ser­vices pro­duced at cur­rent prices, will nat­u­ral­ly be much high­er, there­fore caus­ing the debt to GDP val­ue to fall.

Ar­joon ad­vised that it would be more mean­ing­ful to ex­plore the rev­enues to debt ra­tio, as state rev­enues are need­ed to ser­vice the na­tion­al debt.

In fis­cal 2016, Ar­joon not­ed, rev­enues to debt ra­tio was 50.9 per cent, «sug­gest­ing that 50.9 per cent of our debt could have been cov­ered by fis­cal rev­enues.»

This val­ue fell to 28.3 per cent in fis­cal 2020 but is pro­ject­ed to in­crease to 37 per cent in this fis­cal pe­ri­od giv­en the Fi­nance Min­is­ter’s es­ti­mates of rev­enues.

«If we are care­ful, the surge in rev­enues from the en­er­gy sec­tor can help with bet­ter debt re­pay­ment ca­pa­bil­i­ties, but these ad­di­tion­al rev­enues must be in­vest­ed to build our pro­duc­tive ca­pac­i­ty and gen­er­ate at­trac­tive re­turns to not just pay off the debt but al­so re-in­vest in na­tion­al de­vel­op­ment,» Ar­joon added.

Al­so, he said the ad­di­tion­al sup­ple­men­tary funds to be paid as ar­rears to con­trac­tors and con­tract work­ers, wages to WASA em­ploy­ees and grants such as the se­nior cit­i­zens grants will cer­tain­ly help the re­cip­i­ents to cope with the in­creased cost of liv­ing brought on by the high­er prices of con­sum­ables and fu­el costs.

LINK ORIGINAL: The Trinidad Guardian

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