New Research Administration Structure RetreatJune 23 & 24, 2006

Office of the Vice President for Research and Compliance

2017 BUDGET REVIEW

Presenter:

Daren A. Conrad, Ph.D.

Lecturer, The University of the West IndiesOctober 4th, 2016

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FSS

AGENDA

2016/2017 Budget Review

2016 Economic Performance

2016/2017 Budget Concerns

Conclusion

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Shaping a Brighter Future – A Blueprint for

Transformation and Growth

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THE CURRENT FISCAL POSITION

The 2017 budget was based on an oil price of US$48 perbarrel and a gas price of US$2.25 per mmbtu.

Currently they trade at around US$48 per barrel andUS$2.4 per mmbtu respectively (CBTT).

Imports have fallen and demand for foreign exchangeremains persistently high.

Projected fiscal gap of TT$16bn for 2017 (PwC BudgetMemorandum 2017).

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FSS

MACROECONOMY 2015/2016(Source: CBTT)

Economic activity declined by 3.0 percent (year-on-year)

in the fourth quarter of 2015 due to a 5 percent

contraction in the energy sector.

Unemployment declined marginally from 3.3 percent at

the end of 2014 to 3.4 percent in the third quarter of

2015.

Consumer and business sentiment declined from

sharply to -30.8, down from -13.9.

Headline inflation is at 3.4% (contained).

International crude oil and gas prices continue to

recede.5

FSS

FISCAL CHALLENGES (ONGOING)

Since fiscal year 2009 the government has spent more

than it collected in tax revenue.

Transfer and Subsidies make up more than half of

recurrent expenditure since 2008.

Net Public Sector Debt has risen from 37.5% to 43.5% of

GDP (CBTT) and continues to rise.

Public expenditure would remain relatively high in this

fiscal year.6

FSS

FISCAL DEFICIT REVISITED

2017 2016 2015

Total Revenue $47.441 $60.287 $55.041

Total Expenditure $53.475 $63.048 $61.398

Deficit $6.034 $ 2.761 $ 6.357

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REVENUE PROJECTIONS 2017

Total Revenue ($bn)

2017 2016 2015 2014

Total $47.441 $60.287 $60.351 $55.014

Oil $ 2.575 $ 5.449 $21.223 $23.374

Non Oil $44.866 $54.838 $39.128 $31.667

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FSSALLOCATIONS TO KEY MINISTRIES ($bn)

2017 2016

Education & Training $7.222 $9.763

National Security $7.625 $10.81

Health $6.250 $6.088

Public Utilities $3.293 $4.452

Housing $0.664 $1.663

Local Government $1.9189 $2.272

Works & Transport $2.087 $1.915

Transport N/A $1.653

Agriculture $0.773 $0.831

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60

80

100

120

140

160

180

200

220

240

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

RE

AL

G

DP

20

00

=1

00

Real GDP growth, petroleum and non petroleum, 1995-2014

Real GDP Growth - Non-Petroleum Sector - 2000=100 Real GDP Growth - Petroleum Sector - 2000=100

Real GDP Growth - Total - 2000=100

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PROPOSED FISCAL MEASURES (2017)

Introduce the Revenue Authority;

Implementation of Property Tax;

Increase excise duty on alcohol and tobacco;

Increase tax rate for high income individuals;

Introduce tax on online purchases

Increase diesel gas prices by 15 percent

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CONCERNS OF THE CURRENT FISCAL POSITION

The 2016 budget was based on an oil price of $45 and a gas price of US2.75.

Currently they trade at around US$48 and US$2.9 respectively (CBTT) but remain

volatile at best.

What is the long-term impact of the sale of capital assets (TT$9bn forecast) to

finance short term obligations.

Real GDP Growth -1.7 percent (March 2015, CBTT) and projected to be no more

than 1 to -1.4 percent per year.

Inflation 5.4% (March 2015, CBTT).

Further falls in energy prices can lead to further increases in public debt.

VAT revenues fell by TT$207.3m. (Is this a collection issue? If so, what about new

taxes?). 12

FSS

TRINIDAD AND TOBAGO HAS SHOWN STABILITY

DESPITE GLOBAL DEPRESSION

Stability has come at the price of:

•Higher debt levels.

• Increased government expenditure.

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2016/2017

Human Capital - Innovation• Investing in education – What are the strategic HR gaps that will guide and

support the revised GATE policy.

Health and Wellness

Subsidies need to be more targeted – means testing

Crime Reduction• Effectiveness of allocations

Poverty Reduction• How will new social grants/programmes address the issue of poverty

reduction

Return to a Savings Culture (Savings Bonds, Housing

bonds, Education Bonds)

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THE WAY FORWARD

Imperative to develop the non-energy sector

• Less reliance on non-renewable diminishing natural resource and

more dependence on long term potentially sustainable sources of

income (sustainability)

As we develop non-energy sector, diversify sources of income

(sustainable development)

• Income fluctuations from shocks in any sector/market likely

tempered (volatility)

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FSS

Trinidad and Tobago economy faces several basic

problems

• Increasing its competitiveness in the global economy

• Increasing productivity

•Crime

•Deteriorating education infrastructure

• Lack of political will to dismantle make work programs

• Fiscal indiscipline from a SBI perspective, rethinking

government expenditure

• The immature political culture of successive

governments putting aside good projects, thinking and

initiatives developed/pursued by a previous government

(and doing so at a great price)

• Lack of an appropriate supporting VALUE system

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FSS

94000

104000

114000

124000

134000

144000

154000

22

27

32

37

42

47

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Transfers and subsidies / Govt Expenditure otupt per worker

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FSS

Some Performance indicators in the manufacturing sector,

2005-2015

Capacity

Utilization Employment

2004 Na 60290

2005 Na 56599

2006 Na 56184

2007 Na 55378

2008 Na 56000

2009 68.3 56000

2010 66 53100

2011 67.9 50178

2012 64.3 49713

2013 64.3 49976

2014p 70.2 504402015 66.1 49780

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FSS

Solutions to competitiveness

So how do we increase domestic competitiveness?

How do we reduce domestic price levels, we need to produce more. How do we

produce more efficiently, we need to invest in technology and skill upgrading and

remove make work programs that stifle the natural momentum of the labour

market

We need to relook the formula for putting money into the heritage and

stabilization fund as it is based on oil whilst we are living in a gas based economy.

We need to practice more supply side spending especially in the infrastructural

sector of the economy that provides the hard ware with which to work and in the

primary school system from which the software is formed – access roads, eteck

parks, ports such as Point Lisas and push the LED strategy

For the services sector there is a need to increase productivity. As a start the

government may want to back track a bit on GATE and downsizing CEPEP and

URP. Clearly some form of FARMPEP program is needed given the state of

domestic agriculture.

Enhance University to company collaborations as this is ranked low on the GCI

scale

We need to find strategies that would enhance our performance in Mathematics

and English19

FSS

MAJOR CONCERNS GOING FORWARD

The lack of diversification in the TT economy

The extent of underemployment in the economy

The size of the public debt and the persistence of fiscal deficits.

The stagnation of the energy sector and the shale gas threat in the

USA.

A stagnating agricultural sector and a manufacturing sector that has

been losing workers whilst the Make Work programs thrive.

A rising transfer and subsidies outlay. Fuel subsidies and

subsidies and GATE programs

Continued increases in salaries and low level of productivity of public

servants

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FSS

THANK YOU

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