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Dear Editor,
Introduction
The recent report from the Central Bank’s July 2023 Economic Bulletin highlights a fiscal surplus of $88 million in the first nine months of the current fiscal year (government receipts exceeds spending).
However, a deeper analysis reveals that this surplus may not signal a positive economic outlook. The report mentions an uptick in the economy but the data do not support the claim.
Looking at the economic indicators it becomes evident that the underlying factors challenge the notion of this surplus as an indicator of economic prosperity. The report seems to be designed to turn the facts away from their natural conclusion to this political conclusion. For example, as stated in the report:-
- While the fiscal surplus for the first nine months was $88 million, this is much lower than the $3 billion in the same period last year. However, the phenomenal projected deficit for the next three months of $6.5 billion will be financed by borrowings up to $6 billion.
- Government expenditure increased by $5.2 billion largely driven by transfers & subsidies.
- Central Government debt grew by $925 million to $140.3 billion for the first three quarters in 2022/2023. In Dec 2019 the debt was $122 billion. The government borrowed $18 billion dollars since that time despite an energy windfall.
- $3 billion in VAT bonds that matured in May and July 2023 had to be refinanced and an additional $3 billion in VAT bonds were issued to assist in settling outstanding VAT Refunds. This means a total of $6 billion in VAT bonds to be repaid.
- External debt increased by $100 million from Sept 2022 to $32.2 Billion in June 2023.
- Non-Energy Receipts declined by $139 million.
- Energy companies converted less US dollars in the local market.
- The Energy Commodity Price Index declined by 37.4%.
- Trading on the Stock Exchange decreased from $1007 million to $720 million
- Foreign reserves declined by US $370.9 million compared to December 2022.
- Non-Energy Fiscal Deficit increased to $20.9 Billion from $15.6 Billion.
Energy Revenue Dominance
One of the key drivers of the reported surplus is the increase in energy revenue. The report emphasises a rise in energy revenue by $2.4 billion, primarily from petroleum taxes imposed on energy companies. However, this has been accompanied by significant declines in energy production. So we have sold less product, for a higher price. The issue of concern is the declining production, not market volatility.
Non-Energy Revenue Conundrum
Parallel to the surge in energy revenue, the report states a decline of $139.4 million in non-energy sector revenue, particularly in taxes from goods and services, including Value Added Tax (VAT) receipts.
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On the issue of VAT, the manipulation of paying VAT refunds by bonds impacts on thegovernment revenue side and is giving a false impression of an increase in revenue. Adjustments should have been made for the VAT refunds paid by bonds. The business community continues to clamour for their cash refunds as Government has not honoured its commitment to make the payments.
Expenditure Growth
The report acknowledges a year-on-year growth of $5.2 billion in central government expenditure, mainly attributed to transfers and subsidies. How will development be funded?
Rising Government Debt
Amid claims of a fiscal surplus, a simultaneous increase in general government debt is concerning. The report reveals growth of $925.6 million in general government debt in just nine months. The practice of accumulating debt while claiming a surplus raises questions about the sustainability of the economic trajectory and the transparency of the reported figures.
External Debt Accumulation
Another red flag is the rise in external debt by $100 million within the same period. While the report cites disbursements from international institutions for various projects, it fails to address the long-term implications of increased external debt.
Revenue projections
The revenue projections appear to be grossly exaggerated. non-tax revenue, which is mainly royalties from energy companies, amounted to $4.8 billion from Oct- June 2023. However, the amount projected for the next three months of Fiscal 2023 is also $4.8 billion. Surely this must be an overstatement. Based on the trends, this appears to be overstated by $1.5 billion. This is supported by the Energy Commodity Index which is trending downwards.
Conclusion
In conclusion, the reported fiscal surplus in the CBTT’s 2023 publication may not be as indicative of a positive economic outlook as initially portrayed. The heavy reliance on energy revenue, the decline in non-energy revenue, the growth in expenditure, the mounting government debt, and the increase in external debt all cast doubt on the true health of the economy. I trust that the country will not witness the Government dipping its hands into the HSF in the near future or engaging at any time in fire sale of state assets.
It is essential to critically analyse economic indicators beyond the surface level to gain a comprehensive understanding of a country’s economic performance. A holistic approach that considers diversification, responsible fiscal management, and the long-term implications of policy decisions is crucial for a sustainable and resilient economy.
Dinesh Rambally
Chaguanas West MP
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