Six things to expect from the 2017/2018 budget
On Monday 2nd October, 2017, the 2017-2018 fiscal budget of Trinidad and Tobago will be addressed by the Minister of Finance, the Honourable Mr. Colm Imbert. As part of the upcoming budget, there will be a recap of the 2016-2017 fiscal year which will report on the current state of the economy and determine how the future economy will shape-up.
1. Negative GDP Growth
In 2014 and 2015 GDP growth was -0.6%, which further increased negatively to -2.3% in 2016. The IMF (International Monetary Fund) expects for 2017, that there will be a positive GDP growth of 0.3% due to an increase in production in the energy sector with regards to natural gas and relative production stabilization within the oil industry.
2. Decreased Energy Sector Contribution to GDP
In 2012, the petroleum sector accounted 41% of GDP (approximately $60.5 billion). In 2016, the sector generated around $27.5 billion dollars or 19% of GDP fortune. The non-energy sector contributions would have remained relatively constant over the years.
3. Decreased Revenue
Lower levels of production mean that less energy commodities can be manufactured and exported, therefore generating less revenue.
The Government Total Revenue in 2012 was $47.1 billion dollars, where 29 915 000 barrels per day were being produced, in comparison to $41.7 billion in 2016 (26 164 000 barrels were produced per day).
Total Revenue is directly proportional to the Energy Revenue which stems from the amount of crude oil being produced, and by extension, natural gas as well.
4. Increased Expenditure
In 2015, central government expenditure stood at TT$ 31.8 billion and it increased by 1.8% (TT$ 0.4 billion) to TT$ 32.2 billion in 2016. There were not many changes to the composition of the total expenditure, and it must be noted that Transfers & Subsidies usually account for roughly 50% of all government expenditure.
5. Increased Fiscal Deficit.
A fiscal deficit occurs when a government's total expenditures exceed the revenue that it generates, excluding money from borrowings.
In 2016, there was a decrease in revenue and an increase in expenditure. This meant that there was an increase in the fiscal deficit by TT$ 3.9 billion, from TT$ -5.5 billion in 2015, to TT$ -9.4 billion in 2016.
6. Increase in Debt-to-GDP Ratio
The debt-to-GDP ratio is the ratio of a country's public debt to its gross domestic product (GDP). By comparing what a country owes to what it produces, the debt-to-GDP ratio indicates the country's ability to pay back its debt. A low debt-to-GDP ratio indicates an economy that produces and sells goods and services sufficient to pay back debts without incurring further debt. A high debt-to-GDP ratio means that an economy does not sufficiently produce and sell goods and services to pay back debts without incurring further debt.
The total Debt-to-GDP Ratio increased from 58% in 2015 to 61.5% in 2017.
As stated above, the current state of the economy is not in the best position right now.
We can expect further cuts to subsidies (such as gas and possibly electricity), amendments to current welfare programs (such as GATE) and possibly the implementation of the property tax.
It is evident that revenue needs to increase and expenditures need to decrease if there is to be any improvement in our economic climate.