How we got here
The 2015 budget was prepared on an anticipated oil price of $80 a barrel. The prices of our major exports have declined by as much as 70 per cent for crude oil, and 45 per cent for natural gas. If that were not serious enough, our levels of production of both crude oil and natural gas have been falling.
What these developments mean is that the country's export earnings have dropped significantly. It is also evident that oil and gas prices will not recover any time soon. Some analysts are of the opinion that oil prices will recover to about US$80 per barrel in 2020, some five years from now.
The most recent projections of the World Bank indicate that crude oil prices will recover to only about US $65 by 2020.
Fellow citizens, there is simply no way that other sectors of the economy can realistically be expected to compensate for the loss of export earnings from oil and gas; not in the short run (one -two years) and not even in the medium run (three-five years).
Burning through our forex reserves
We have approximately US$10 billion in official reserves. Residents of Trinidad and Tobago have approximately US$3.6 billion in deposits in the local commercial banks.
Insurance companies, mutual funds, pension funds and the National Insurance Board also have a significant amount of foreign assets overseas, as permitted by the legislation. We have US$5.6 billion in the Heritage and Stabilisation Fund.
In addition to all of that, some experts estimate that citizens of Trinidad and Tobago have assets and cash overseas amounting to hundreds of millions of US dollars. But given the rate at which we have been consuming foreign exchange, all of our reserves and most of our other savings would be exhausted before oil and gas prices recover or before production levels increase to the immediate rescue.
If we set about to rapidly consume the foreign exchange which we have now then at that point, we would not have sufficient reserves to finance investment and restore growth as quickly as possible. First, we have already used up almost US$2 billion of our foreign exchange reserves in 2015.
Use more TT$ than US$
We can reasonably expect that the balance of payments will continue to be in deficit in 2016 and 2017. Therefore while some further decline in the foreign exchange reserves is to be expected in 2016 and 2017, we have to minimise that decline as much as possible.
We have to ensure that by the end of 2017, the balance of payments deficit is stabilised so that the foreign exchange reserves remain stable at around at least six months import cover.
We have to restrain expenditure overall and also to change the mix of expenditure so that the demand for foreign exchange is reduced whilst local dollars are put to maximum use.
Housing
There will be new initiatives which would encourage private capital to accelerate construction on private or state lands for pre-arranged priced units which upon completion the State, through the HDC, will receive and direct these units quickly to mortgagees who will access and service facilities which will be readied at TTMF, etc.
The objective here is to quickly move private capital into the housing market to service a sector which forms the HDC client base without initial state cash outlay.
We will encourage housing construction by the private sector and simultaneously, we will accelerate the implementation of the Trinidad and Tobago Mortgage Bank through the merger of the TTMF and the Home Mortgage Bank to provide the financing for the mortgages for those new homeowners.
We will encourage homeowners and businesses to increase expenditure on maintenance activities. New home construction and building maintenance will sustain employment of plumbers, carpenters, masons and electricians and will also lengthen the life of our buildings and improve the appearance of our homes and communities.
Better revenue collection, less borrowing
Land and building taxes will be restored from January 2016 and the revised VAT regime will be implemented from mid-January. The Minister of Finance will also be seeking to collect arrears of taxes which are considerable.
We will ensure that our debt levels are sustainable over the medium term. As far as is feasible we will maximise the use of local dollars and projects largely driven by equipment and materials that are already within the country, e.g, housing, road construction and maintenance, agriculture, tourism and afforestation.
The Ministry of Finance, together with the Central Bank, will monitor the country's debt profile, including the debt of state enterprises and statutory bodies and ensure that the type of borrowing and the terms of the loans are consistent with a manageable debt profile, even with lower export earnings and reduced government revenues.
Public sector cuts, excluding jobs
Our ability to reduce government spending in fiscal 2016 has been severely constrained by the overhang of unpaid liabilities, settlement of negotiated wage increases and incomplete projects which must be finished and put to use. Towards this end I have today instructed the Minister of Finance to direct the management of every State Enterprise, statutory body and each ministry and the Tobago House of Assembly to review their operations and make identifiable adjustments of seven per cent reduction in proposed operating expenses (eliminating waste and/or inefficiencies) not relating to job cuts at this instance.
New measures
First, we will bring legislation to Parliament to separate the Heritage and Stabilisation Fund into two distinct funds. We intend to leave the bulk of the existing fund in the Heritage component and allocate the remainder to the Stabilisation Fund.
We intend to use approximately US$1.0 billion for stabilisation purposes in FY 2016 and perhaps another US$0.5 billion in FY 2017. Using the Stabilization Fund will also help to finance the projected budget deficit and minimize increases in government borrowing.
There are specific activities that Government will seek to encourage. We have already had extensive discussions with the authorities in Venezuela in respect of producing gas from the Loran-Manatee Field which straddles our common border.
The relevant companies are engaged in discussions and we anticipate that work in developing that field can begin in the not too distant future. We will continue investment in infrastructure projects to be funded by the IADB and other multilateral and bilateral agencies. These projects will help to sustain a reasonable level of construction activity and employment.
Third, the rationalisation of the VAT regime will take particular note of those items which may be included in the basic list or must be retained in the list in light of these measures.
This will cushion the effects of any increases in prices of basic food items. However, imported salt and fat dietary items, their local counterparts and luxuries will all be subjected to the full tax regime.
Fourth, the personal income allowance has already been increased in the Budget and this will give citizens in the lower income brackets higher disposable incomes.
Fifth, Government will intensify its support to the vulnerable in our society through the Ministry of Social Development, Education, the Children's Authority, the Tobago House of Assembly and the Regional Corporations.
These will be tasked with monitoring those households in their communities which may be adversely affected and providing specific assistance in a timely fashion. Teachers will be tasked with heightened monitoring of the children under their care for signs of stress or difficulty arising from loss of employment by parents or guardians.
Sixth, we will maintain our expenditure on the Unemployment Relief Programme and on CEPEP, even as we are striving to eliminate corruption and to make those programmes more efficient and effective.
Together they account for approximately a billion dollars in expenditure. This alone demands that there be some significant output from these programmes even as they exist as unemployment relief expenditures.
Avoiding the IMF, job cuts
If we fail to adjust now, we will find ourselves as we did in 1986 with an economy with insufficient foreign exchange reserves and having to restructure our debt under a series of IMF programmes.
This administration will not take this country back to that kind of situation. But success will require sacrifice and adjustment on the part of all sections of the national community.
The Government will initiate tripartite discussions with the labour movement and the business community with the objectives of maintaining employment as far as possible, moderating demands for wage increases and discouraging excessive profits. These tripartite discussions will commence early in the new year.
Interest rates and the private sector
Private sector expenditure also needs to be examined. Some curtailment will occur automatically as overall expenditure falls.
However, the Central Bank is also expected to evaluate current and prospective monetary conditions and take appropriate action on interest rates that will assist in moderating credit demand and keeping private sector expenditure in check.
The business community can help by seeking out cheaper sources of imports and finding cheaper substitutes of imported goods.
We the citizens can help ourselves by shifting more of our consumption with a recognition and preference for quality, locally produced goods which will have the added benefit of helping to create or sustain employment in the local economy.