tidings
File photo: UWI economist Vaalmiki Arjoon.
UNIVERSITY OF THE WEST INDIES (UWI) economist Dr Vaalmiki Arjoon questions whether a spotlight has been thrown on what he described as a cost of living crisis in TT. He asked this question in relation to statements made by the Prime Minister, Finance Minister Colm Imbert and other speakers at a “Spotlight on the Economic” event organized by the ministry at the Hyatt Regency Hotel, Port of Spain on September 2.
“As expected, many of our economic fundamentals at the macroeconomic level have improved largely given the rise in energy prices.”
On Sunday, Arjoon said: “With a total deficit of over $64 billion in the last six years at an average of $10.7 billion annually, it is very favorable that the deficit narrows to the projected $3.7 billion – the lowest fiscal deficit since year 2012.”
He attributed much of this to increases in income and profits taxes, which typically make up over 60 percent of state revenue, rising by about $12 billion since 2016.
“This was not only accounted for by companies in the petrochemical sector, but also by the manufacturing sector, which in the last 18 months benefited from the increase in global spending and increased their production to increase their export earnings.”
Arjoon said there needed to be a more efficient tax collection system.
“Obviously, with fewer tax collection and avoidance practices, these taxes would be higher, which underlines the need for a more efficient tax collection system.
He forecast higher energy revenues in the coming months, partly due to the deepening energy crisis in Europe, due to the indefinite shutdown of the Nord Stream pipeline causing further cuts in European gas supplies.
“This will put upward pressure on the price of gas and LNG, as Europe is placing more emphasis on the use of LNG as an alternative to Russian gas.”
Arjoon said, “This price increase will be more visible as winter is around the corner.”
He added that TT would have benefited us even more from this if Atlantic LNG’s Train One was operational.
But while TT’s revenue streams and other macroeconomic indicators are clearly better, Arjoon had a concern.
“That doesn’t change the fact that there is a deepening cost of living crisis, more so for those in the middle and lower income brackets.”
He said that while TT’s 4.9 percent inflation rate remains lower than many other economies such as the United States (8.5 percent) and the United Kingdom (10.1 percent), inflation is the percentage change in prices from one period to another. .
“Prices are currently the highest they have been for generations. Our price index in June 2022 was 116.2 – an increase of 11 per cent since 2016.
Arjoon created a hypothetical scenario to illustrate this point.
“Even if inflation remains low, if a household is already paying a high cost for a basic basket of items per month, say hypothetically $2,000 and inflation is, say, one percent, then the price of that basket increases to 2020 dollars, but the price still remains high – it is the difference that is small.”
Households’ purchasing power is what really matters.
Arjoon said if prices are already high, then purchasing power is low even if there is a fall in the inflation rate.
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“Inflation fell marginally from 5.1 percent in April 2022 to 4.9 percent in June. But it doesn’t mean that prices fell – it means that prices went up, but the pace of that increase was slower.”
While world food costs fell by almost nine percent in July, given a modest increase in grains supplied by the reopening of Ukraine’s ports and increased seasonal availability from countries such as Argentina and Brazil, Arjoon said: “We have yet to see any meaning. relief for household food expenses from falling food prices at the local level.”
He hoped that in the presentation of his budget on September 26. Imbert would “announce measures to mitigate the impact of the high cost of living, such as increased allocations for food stamps and school feeding programs, cash transfers, temporary adjustment of import tax rates, etc. .”
Arjoon suggested that there needs to be a strategy to ensure that our income continues to be healthy if energy and petrochemical prices fall in the short term, or else debt levels will rise again.”
He said this is not favorable for TT’s credit ratings.
“For our next rating exercise, it is highly likely that Moody’s will at least maintain our rating at Ba2, but adjust the outlook from stable to positive, suggesting a possible upgrade by next year as earnings continue be healthy.”
Arjoon admitted that TT has healthy foreign exchange reserves of $6.8 billion and part of it was from foreign loans taken and withdrawals received from the HSF (Heritage and Stabilization Fund).
“We do not spend US dollars in the country, so when the state borrows in US dollars and withdraws from the HSF, these USD have to be converted into TT dollars by the Central Bank for use by the state.
Arjoon said, “The US dollars that are converted now are part of the forex reserves held by the Central Bank.
While Imbert did not talk about any HSF injection on September 2, Arjoon expected him to do so in his budget presentation.
