Mar­i­ano Browne

Last week’s col­umn re­viewed the IMF’s con­clud­ing state­ment and list­ed its key points. Re­ports from in­ter­na­tion­al agen­cies like the IMF and the In­ter-Amer­i­can De­vel­op­ment Bank (IDB), as well as rat­ing agen­cies (Moody’s, S&P, Fitch), are im­por­tant be­cause they pro­vide an in­de­pen­dent view of the econ­o­my’s per­for­mance and of­fer rec­om­men­da­tions for more ef­fec­tive ap­proach­es.

These di­ag­nos­tic as­sess­ments are use­ful to in­vestors, whether lo­cal or for­eign, in for­mu­lat­ing their busi­ness or in­vest­ment strate­gies. Bud­get state­ments made by fi­nance min­is­ters al­so play a piv­otal role. How­ev­er, there are fun­da­men­tal dif­fer­ences be­tween a bud­get state­ment and an as­sess­ment by these agen­cies. First, a bud­get state­ment is full of rhetor­i­cal and as­pi­ra­tional state­ments or ob­jec­tives. Sec­ond­ly, they are writ­ten with a po­lit­i­cal or mo­ti­va­tion­al pur­pose to por­tray the ad­min­is­tra­tion in the best light, blam­ing op­po­nents for past or cur­rent fail­ures while mes­sag­ing sta­bil­i­ty, growth, and hope. Hence, the lofty bud­get ti­tles and the em­pha­sis on find­ing cure-all “game chang­ers.”

Re­ports by in­ter­na­tion­al agen­cies fo­cus on facts, not on po­lit­i­cal par­ties or per­son­al­i­ties. They em­pha­sise ob­jec­tive per­for­mance mea­sures and whether pol­i­cy ob­jec­tives im­prove the coun­try’s eco­nom­ic po­si­tion. This ap­proach helps iden­ti­fy bar­ri­ers, dys­func­tion­al pol­i­cy mis­match­es that con­flict with pri­or­i­ties, and re­veals risks or gaps that could af­fect pol­i­cy goals. They pro­vide co­gent qual­i­ta­tive and quan­ti­ta­tive analy­ses.

Both the IDB and IMF have sound­ed ur­gent alarms over per­sis­tent struc­tur­al weak­ness­es in every re­port. Heavy de­pen­dence on the en­er­gy sec­tor leaves the econ­o­my dan­ger­ous­ly ex­posed to in­ter­na­tion­al price volatil­i­ty. Fail­ure to di­ver­si­fy the econ­o­my and de­vel­op oth­er ex­port­ing sec­tors has be­come a crit­i­cal bot­tle­neck. Bu­reau­crat­ic red tape ur­gent­ly needs to be sim­pli­fied to ac­cel­er­ate ap­proval time­lines and im­prove the ease of do­ing busi­ness. The for­eign ex­change sys­tem con­tin­ues to elic­it sharp crit­i­cism. Mount­ing fis­cal deficits, soar­ing pub­lic and debt ser­vice re­quire­ments, and a sus­tained de­cline in labour pro­duc­tiv­i­ty now de­mand im­me­di­ate at­ten­tion.

Gov­ern­ment pol­i­cy doc­u­ments and state­ments echo the mul­ti­lat­er­als’ com­ments and iden­ti­fy these is­sues. For ex­am­ple, both mul­ti­lat­er­al di­ag­nos­tics and gov­ern­ment plan­ning (Vi­sion 2030) see di­ver­si­fi­ca­tion as cru­cial. How­ev­er, IMF/IDB cri­tiques stress ur­gency and mea­sur­able com­mit­ments. By con­trast, the Vi­sion 2030 doc­u­ment pre­sent­ed broad goals with no de­tailed time­lines or per­for­mance in­di­ca­tors, there­by weak­en­ing ac­count­abil­i­ty. The Re­vi­tal­i­sa­tion Blue­print is sim­i­lar—a long list of un­cor­re­lat­ed projects that do not ad­dress sec­toral pri­or­i­ties with no time­lines.

If mul­ti­lat­er­al di­ag­nos­tics and gov­ern­ment state­ments for­mal­ly agree on the big struc­tur­al is­sues: di­ver­si­fi­ca­tion, in­sti­tu­tion­al qual­i­ty, pro­duc­tiv­i­ty, and so­cial de­vel­op­ment, why isn’t im­ple­men­ta­tion pro­ceed­ing apace? The big di­vide lies in op­er­a­tional de­tail and mea­sur­able mon­i­tor­ing. For ex­am­ple, the opac­i­ty of achieve­ment time frames clear­ly il­lus­trates this mis­match. Noth­ing ex­plains the gap be­tween state­ment and ac­tion more than the bud­get deficit and the im­pact of pub­lic sec­tor salary ne­go­ti­a­tions.

These ne­go­ti­a­tions re­mained un­re­solved for 12 years, cov­er­ing four ne­go­ti­a­tion pe­ri­ods. The cur­rent ten per cent set­tle­ment cov­ers on­ly six years, leav­ing six years un­re­solved and un­paid, while ig­nor­ing the cur­rent ne­go­ti­at­ing pe­ri­od. To ad­dress pro­duc­tiv­i­ty and per­for­mance, ne­go­ti­a­tions must in­clude the cur­rent pe­ri­od, cov­er­ing the next three years. It can­not be ad­dressed by ne­go­ti­at­ing for past pe­ri­ods. The Gov­ern­ment’s ap­proach is hope­less­ly late. Con­se­quent­ly, the deficit this year and next will ex­ceed 5.0 per cent in 2027 if ad­dressed.

The rat­ing agen­cies have all in­di­cat­ed that the next cred­it rat­ing cy­cle will hinge on how the Gov­ern­ment man­ages (re­duces) the fis­cal deficit. How­ev­er, the ad­di­tion­al com­pli­ca­tion is that fis­cal deficits are ex­pan­sion­ary and in­crease de­mand, there­by in­flat­ing for­eign ex­change de­mand. As a re­sult, main­tain­ing a de fac­to fixed ex­change rate means de­mand will ex­ceed cur­rent for­eign-ex­change earn­ings, lead­ing to on­go­ing short­ages and de­plet­ing of­fi­cial re­serves, even with tighter pol­i­cy.

This “tar­di­ness” cre­ates a cash flow man­age­ment co­nun­drum. Bud­get­ing means plan­ning to match rev­enues and ex­pens­es. Fi­nance min­is­ters strug­gle be­cause pay­ing pri­or-pe­ri­od oblig­a­tions re­stricts in­vest­ment in the cur­rent year, mak­ing cur­rent and fu­ture tax flows hostage to past back­pay and pay­roll oblig­a­tions. What is the pay­roll in­crease for the 2020-25 pe­ri­od, and when will ne­go­ti­a­tions for the cur­rent pe­ri­od be set­tled?

The im­pli­ca­tion of the fore­go­ing is that any cash flow im­prove­ments that may re­sult from the Man­a­tee project or the re­vival of the Drag­on project have al­ready been spent. This could com­pro­mise T&T’s cred­it rat­ing, lead­ing to high­er in­ter­est rates, high­er debt ser­vice pay­ments, and greater bor­row­ing, since there will be no sur­plus to re­duce the debt. Mon­ey for de­vel­op­ment pri­or­i­ties will not be read­i­ly avail­able, and the bor­row­ing ca­pac­i­ty will be lim­it­ed.

Nei­ther the IMF, IDB, nor the rat­ing agen­cies are the en­e­my. Their rec­om­men­da­tions may be po­lit­i­cal­ly dif­fi­cult to im­ple­ment and may lead to aus­ter­i­ty, but they are nec­es­sary changes if T&T is to con­front and over­come its struc­tur­al weak­ness­es. Man­age­ment and lead­er­ship are the keys to un­lock­ing im­proved per­for­mance. This re­quires a fo­cus on re­duc­ing sys­temic weak­ness­es by iden­ti­fy­ing spe­cif­ic, mea­sur­able, at­tain­able, re­al­is­tic, and time-bound goals.

What is miss­ing? Or­gan­i­sa­tion­al dis­ci­pline and a fo­cus on a few key pri­or­i­ties. The pub­lic dis­course must shift from brag­ging about small in­cre­men­tal changes to em­brac­ing con­tin­u­ous, sys­tem-wide im­prove­ments as a na­tion­al goal. To sur­vive amidst the pletho­ra of geopo­lit­i­cal risks, T&T must be ef­fi­cient and com­pet­i­tive in a glob­al­ly net­worked world. Con­cert­ed ac­tion, not talk, is re­quired to achieve this. Ef­fec­tive gov­er­nance is a re­lay race in which peo­ple wear red, white, and black, not yel­low or red.

Mar­i­ano Browne is the Chief Ex­ec­u­tive Of­fi­cer of the UWI Arthur Lok Jack Glob­al School of Busi­ness