Budget Commentary 2017 – Trinidad and Tobago Issued by The Bankers Association of Trinidad and Tobago (BATT)
The Bankers Association of Trinidad and Tobago (BATT) recognizes the challenges faced by the Government of the Republic of Trinidad and Tobago (GORTT) in the presentation of its 2017 fiscal budget. Our country operates in an open market, and relies heavily on the earnings from oil and gas products which are traded on the international commodities market.
In 2014, the earnings from oil and gas industry contributed close to 40% of Trinidad and Tobago’s GDP and generated close to 50% of GORTT’s revenue when prices averaged US$93.17. With global oil prices plummeting by more than 50% over the last two years and a steady reduction in domestic production levels, Trinidad and Tobago’s balance of payments and fiscal positions have been severely impacted.
With a low level of diversification into other industries, the impact of this external shock to the domestic economy, if not properly managed has the potential to create widespread economic displacement. During the second quarter of 2016 for example, it was estimated by the Central Bank of Trinidad and Tobago that the oil & gas industry declined by approximately 10% and it was projected that overall real GDP would decline by approximately 2.3% for the fiscal year 2016 relative to the similar period of the previous year. With this level of decline in real economic activity, BATT holds the view that one of the primary objectives of this year’s budget should be to outline short-term initiatives aimed at stabilizing the decline in the real sector, whilst protecting low income earners and the most vulnerable in our society. This occasion provided an opportunity for the GORTT to outline plans which could lay the foundation for long-term transformation and sustainable development.
BATT is in full support of the short-term fiscal measures presented which are geared towards protecting low-income households. In this regard, BATT views positively the utility rebate and new low income housing initiatives. We would also like to express our support for tax relief and tax exemptions for builders of multifamily dwelling units, organizations involved in public private partnerships, approved agro-processors and the establishment of an entrepreneurial grant. These initiatives can provide some short-term relief and on a smaller scale assist with the thrust towards long-term economic diversification.
With respect to short-term fiscal policies aimed at stabilizing real sector activities, one of the most effective fiscal initiatives is likely to be fixing the tax administration and collection through the introduction of the Revenue Authority. In light of the economic downturn, increases in marginal tax rates could be ineffective in generating incremental revenue and could be contractionary. While we appreciate the need for short term asset sales to stem the current fallout from revenue shortages, we believe the short term fiscal priorities to generate growth should critically be focused on fixing the tax administration and collection system, further reduction in inefficient subsidies and transfers, and a renewed focus on efficiency and elimination of waste in the public sector organizations.
We support GORTT’s view that the energy sector will continue to be an important contributor to Trinidad and Tobago’s economic development in the foreseeable future. In light of present projections for low energy prices, BATT recommends the engagement of the industry in discussions around fiscal reform / incentives, which could further encourage long-term investments and production, while at the same time provide sustainable growth in revenue to Government.
In the longer-term, one of the key policies of GORTT should be to encourage long-term diversification away from any single industry, in this case oil and gas. BATT welcomes the discussions and steps that have been taken to further develop the hospitality industry in Trinidad and Tobago. The presence of one of the strongest brands in the international tourism industry may bode well for Tobago’s tourism product. Before this development happens, however, there needs to be wider dialogue with citizens about the potential value proposition and the potential benefits to the country.
The tourism industry is just one of the many areas that could be further developed. There is real potential in the Information Technology and Communications industry, Business Process Outsourcing and Financial Service, Film and Creative Arts, Marine repairs, Agriculture and Agro-processing, to name a few. In exploring long-term diversification opportunities, it is important that GORTT engage a wide cross section of stakeholders in developing credible plans for the industries. In the development of the country’s Vision 2030 plan, we encourage the Government to ensure some level of consensus for policy continuity.
The performance of the financial sector is integrally linked to the real sector. The stronger and more robust our financial sector, the healthier our economy. Proper legislative and regulatory frameworks are essential elements of a stable and robust financial system. Speedy enactment of the FACTA legislation is important for smooth running of the financial system. It is expected that the focus will be intensified around legislation, dealing with anti-money laundering and anti-terrorism financing activities. It is therefore important that we foster the legitimate development of the domestic financial sector through the implementation of regulations, especially those that are focused on high risk industries such as the domestic gaming and betting industry.
In closing, the critical challenge remains one of implementation. BATT holds the view that the GORTT recognizes the difficult tasks at hand within the prevailing economic environment, the need to improve operational efficiencies of public sector entities, while ensuring that there is a significant level of accountability. The country’s resources must be managed in a way that fosters optimal effectiveness. The GORTT is ultimately required to set an example that the population can emulate as we navigate through these challenging times.
As always BATT remains committed to collaborating with the GORTT and the Minister of Finance for the benefit of our great country, its citizens and future generations.
For further information info, please contact:
Kelly Bute-Seaton-Executive Director
Bankers Association of Trinidad and Tobago