Economists flag borrowing risks as State’s wage bill rises

Geisha Kow­lessar-Alon­zo

Gov­ern­ment’s de­ci­sion to set­tle long-out­stand­ing wage oblig­a­tions to pub­lic sec­tor work­ers, along­side a re­quest for an ad­di­tion­al $2.93 bil­lion in sup­ple­men­tary spend­ing, is in­ten­si­fy­ing con­cerns among econ­o­mists about how those com­mit­ments will be fi­nanced, with strong warn­ings that in­creased bor­row­ing could deep­en fis­cal pres­sures.

The de­vel­op­ment comes as the ad­min­is­tra­tion moves to ho­n­our years-old in­dus­tri­al agree­ments, even as T&T faces a high debt bur­den.

While econ­o­mists broad­ly agree that work­ers de­serve the long-de­layed pay­ments—par­tic­u­lar­ly af­ter in­fla­tion erod­ed re­al in­comes—they cau­tion that the larg­er is­sue is whether the State has the fi­nan­cial ca­pac­i­ty to sus­tain those com­mit­ments.

Fi­nan­cial ex­pert and for­mer pub­lic util­i­ties min­is­ter Robert Le Hunte said the re­quest for sup­ple­men­tary fund­ing is not sur­pris­ing, not­ing that there were ear­ly doubts about whether the orig­i­nal deficit pro­jec­tion of $3.865 bil­lion ful­ly cap­tured the Gov­ern­ment’s true ex­pen­di­ture oblig­a­tions.

“The lat­est re­quest for ad­di­tion­al fund­ing ap­pears to val­i­date some of those con­cerns,” he said.

Le Hunte warned that the ad­di­tion­al spend­ing ef­fec­tive­ly dou­bles the size of the fis­cal deficit, not­ing that based on the orig­i­nal rev­enue pro­jec­tion of $55.367 bil­lion, he es­ti­mates the deficit has now widened from about sev­en per cent of pro­ject­ed rev­enue to rough­ly 12.2 per cent.

“By any rea­son­able mea­sure, that is a sig­nif­i­cant in­crease and one that war­rants care­ful scruti­ny,” he said.

Econ­o­mists Ronald Ramkissoon and Mar­i­ano Browne shared sim­i­lar con­cerns.

Ramkissoon said the wage pay­ments them­selves are jus­ti­fied, stress­ing that many work­ers have wait­ed years for com­pen­sa­tion while fac­ing ris­ing liv­ing costs.

“The pay­ment to work­ers can­not be fault­ed,” he said.

How­ev­er, he stressed that the key con­cern is how those pay­ments would be fi­nanced, point­ing to the lack of clar­i­ty from the Gov­ern­ment.

With pub­lic sec­tor debt al­ready es­ti­mat­ed at about 84 per cent of GDP, he warned that there is lim­it­ed fis­cal space to ab­sorb ad­di­tion­al spend­ing with­out con­se­quences.

Browne was more di­rect, ar­gu­ing that bor­row­ing is ef­fec­tive­ly un­avoid­able.

“They have no choice but to bor­row it. They don’t have the rev­enue to be able to do it,” he said, de­scrib­ing the State’s fi­nan­cial po­si­tion as frag­ile.

He added that po­lit­i­cal de­ci­sions on wage in­creas­es ul­ti­mate­ly trans­late in­to na­tion­al costs.

“Every po­lit­i­cal promise is paid for by the tax­pay­er and ul­ti­mate­ly af­fects the na­tion­al sit­u­a­tion.”

While high­er oil and gas prices could gen­er­ate in­creased earn­ings, par­tic­u­lar­ly amid glob­al geopo­lit­i­cal ten­sions, both Browne and Ramkissoon cau­tioned against over­re­liance on that pos­si­bil­i­ty.

“You have a fixed amount of nat­ur­al gas… the on­ly thing that could change is the price,” Browne ex­plained, not­ing that pro­duc­tion lev­els have not in­creased. As a re­sult, any ad­di­tion­al rev­enue would de­pend on price move­ments, which are volatile and dif­fi­cult to pre­dict.

Le Hunte echoed that con­cern, point­ing out that no up­dat­ed rev­enue pro­jec­tions have yet been pro­vid­ed. With­out that in­for­ma­tion, he said, it is dif­fi­cult to de­ter­mine whether any gains from the en­er­gy sec­tor would be suf­fi­cient to off­set the surge in ex­pen­di­ture.

“What is clear is that ex­pen­di­ture con­tin­ues to grow at a time when GDP growth pro­jec­tions re­main rel­a­tive­ly flat,” he said, adding that struc­tur­al chal­lenges—in­clud­ing for­eign ex­change short­ages and con­strained ac­tiv­i­ty in key sec­tors—re­main un­re­solved.

For Ramkissoon, the risk is that any fi­nanc­ing gap would ul­ti­mate­ly be filled through bor­row­ing, in­creas­ing debt ser­vic­ing costs and crowd­ing out oth­er pri­or­i­ties.

“Gov­ern­ment must find more mon­ey to ser­vice the debt—mon­ey that could have been spent else­where,” he warned.

Browne added that even if bor­row­ing be­gins do­mes­ti­cal­ly, there are lim­its, and con­tin­ued re­liance on lo­cal fi­nanc­ing could cre­ate ad­di­tion­al pres­sures.

He al­so cau­tioned that in­ter­na­tion­al rat­ings agen­cies are close­ly mon­i­tor­ing the coun­try’s fis­cal per­for­mance, with the risk of a down­grade if a cred­i­ble path to deficit re­duc­tion is not demon­strat­ed. (See more on Page 12)