Budget 2021: UWI economist outlines 7 measures to tackle national debt
University of the West Indies economist Dr Roger Hosein said sensible measures are needed to pull the country out of debt and back on course toward growth.
Speaking with Loop News ahead of the 2021 national budget presentation on October 5, Dr Hosein said Finance Minister Colm Imbert will have his hands full to steer the country out of debt.
According to the Central Bank’s July 2020 Economic Bulletin, there was an overall deficit of $10.7 billion during the first nine months of the fiscal year 2019-2020.
At the end of July 2020, the country’s outstanding net public sector debt increased to $120.5 billion (71.7 per cent of GDP) from $103.2 billion (62.2 per cent of GDP) in September 2019.
The Central Bank said the country’s deficit is projected to increase to $14.5 billion because of the COVID-19 pandemic.
Dr Hosein said sensible solutions are now needed:
‘The Minister of Finance’s hands are filled in terms of having to get economic growth to return to this troubled economy.’
‘The economy in 2020, according to the Prime Minister, would have crashed by 10 per cent, that’s a dramatic decline, and the economy has not seen any real economic growth since 2008.’
‘We’re dealing with a badly battered economy, one in which those who hold the reins of power will have to intervene sensibly in order to try to get growth to return.’
Dr Hosein outlined seven measures which could help get the country’s economy back on track:
1. Increase workforce flexibility
Dr Hosein suggested facilitating flexible working solutions to adapt to the new COVID-19 paradigm:
‘Let’s consider labour for example: The Minister will have to consider ways in which he can boost the productivity of the labour force which may include ensuring that a wide cross-section of the labour force becomes more digitally capable so they can participate in the greater digital economy which has characterized the setting of the COVID-19 pandemic.’
‘At the same point in time we may need to introduce flexible work hours into the workplace so that people, especially people with children, will be able to both work and see about their children.’
2. Economic incentives
Dr Hosein suggested incentivizing production for export which could increase foreign exchange reserves.
‘Changing the incentive structure [is needed] so that labour, capital, land and entrepreneurship are properly incentivised to participate more in the economy.’
‘In terms of capital, government will have to work closely with the commercial banking system as well as the Agricultural Development Bank and Exim Bank to see what changes could be made to promote new investment.’
‘Take for example Exim Bank; a special rate could be offered to any firm that is increasing exports for new products or of old products to new markets. In that way, the incentive on the margin encourages even more exports than before, helping to bring in scarce foreign exchange.’
3. Maximise agricultural land usage
Dr Hosein suggested measures which would make the most efficient use of agricultural lands:
‘In terms of land, government will have to see how best to make more agricultural land available and increase the use of existing agricultural land and ensure that it remains for agricultural purposes.’
4. Spur entrepreneurship through micro finance training
Dr Hosein also suggested the development programmes targeting entrpreneurship.
‘In terms of building entrepreneurship, I think we need to promote more micro financial arrangements that come with training; for example a good role model would be the types of programmes offered by BP and Atlantic LNG.’
‘Perhaps the time has come for other large multinational companies and successful local companies to assist with micro finance opportunities of that nature in rural parts of the country. For example, perhaps BHP Billiton could be wooed to open a mircofinance programme in Toco, and Shell could open a similar programme in Moruga, and perhaps Ansa McAl can open a similar programme in northeast Tobago.’
‘In this way we increase usage of our underutilized entrepreneurs and bring them more fully into use.’
5. Re-composition of transfers and subsidies
Dr Hosein suggested cutting expenditure where possible and amending transfers and subsidies to increase capital where possible:
‘Of course, the Minister would have the task of cutting the extent of government expenditure which is currently about $53 billion. I’m suggesting it be brought down to $45 billion by cutting transfers and subsidies but at the same time increasing capital spending so the very composition of expenditure, changes.”
‘So that while we cut the overall expenditure, the composition changes in favour of capital goods and expenditure so we increase the chance that the economy gets to widen from a capital perspective.’
Dr Hosein emphasised the need to divert away from energy revenue sources:
‘An overarching theme in the world going forward has to be a focus on non-energy export production. In this regard, a summary intervention and the way the capital should be deployed is to focus on the E-Tech park system.’
‘This system has to generate foreign exchange and there has to be some degree of partnering either with foreign firms or the diaspora, or local firms producing for the foreign market.’
7. Improving T&T’s Ease of Doing Business
Dr Hosein said it’s also imperative that the country improve its global Ease of Doing Business ranking:
‘Of course, none of these things will really work unless we improve the ease of doing business in Trinidad and Tobago from a ranking of 105 to say, around 25, by the year 2025. That should be our theme: Improving the Ease of Doing Business rank to 25 by 2025.’
Dr Hosein said the task is difficult but not insurmountable.
‘If we pursue some of these things in a direct way, we start the process of putting the economy on the right path.’