Post by otis corbie on Sept 8, 2009 15:29:15 GMT
The following is the verbatim Budget Speech 2010 read by the Honourable Karen Nunez-Teshiera, Minister of Finance of Trinidad and Tobago, as released by the Ministry of Finance.
BUDGET STATEMENT
INTRODUCTION
Mr. Speaker, it is a distinct privilege to present to this Honourable House and to the people of Trinidad and Tobago the 2009/2010 Budget. This is the second budget of this Administration in which we continue to implement a progressive programme of development intended to improve the quality of life of our nation’s citizens.
Mr. Speaker, it is almost impossible to personally thank all the people whose ideas and advice have helped to shape this Budget. However, a very special word of thanks is due to the officers in the Ministry of Finance whose professional skills, patience and patriotism led to the preparation of documents laid before this Honourable House today. I wish also to thank the many individuals and organizations who contributed a slate of ideas which served to inform the Budget. My profound appreciation is also extended to the Honourable Prime Minister and my Cabinet colleagues who share with me collective responsibility for the integrity of this Budget.
Mr. Speaker, next Monday, September 15, will be one year since the total collapse and bankruptcy of Lehman Brothers-one of the largest and most successful financial institutions in the marketplace. This event, more than any other, changed the way in which the emerging financial crisis would impart its legacy to the international economy. This collapse drastically accelerated the negative spill-over effects of the housing credit crisis in the United States and resulted in a full- blown recession in many developed and developing economies which have had to review their fiscal assumptions. The CLICO experience in Trinidad and Tobago and its impact on the economies of the Caribbean brings this reality closer to us, we will return to this matter shortly. Mr. Speaker, we have observed that since the last Budget was presented to this Honourable House, the international financial system has been brought to its knees and this has debilitated the economies of most developed and developing countries. Trinidad and Tobago however has not been affected to the same degree as these countries as we shall demonstrate in the course of this presentation.
Certainly Mr. Speaker, the financial turmoil which resulted in plunging equity markets and which consumed Wall Street imperilled the world’s economy and precipitated a severe decline in both business and consumer confidence. Even the once dynamic economies of China and India have wilted under the financial shock.
Many countries across the globe are experiencing minimal or negative economic growth. By way of illustration, the United States economy is projected to contract by 2.8 percent by the end of 2009 and Canada by 2.5 percent. This contraction has led to unemployment rates of just under 10 percent in both countries. In July alone, 247,000 persons, or one percent of the population of the United States lost their jobs, while for the same period 45,000 persons were placed on the breadline in Canada.
Mr. Speaker, protectionism has become a growing phenomenon as nations opt for direct and indirect barriers to trade. The Governments of the major economies, former proponents of globalization, are now staunch advocates of protectionism, which has adverse implications for countries such as ours. Indeed the World Bank has recorded almost 90 new restrictions to international trade since October 2008. Today there are new iron and steel tariffs in Russia, agricultural restrictions in Argentina and Brazil and explicit “buy U.S.” and “buy China” policies: a once bundled world is fast loosening.
As a direct response to these developments Governments around the world have had to implement massive fiscal stimulus packages, accompanied by financial sector bailouts and corporate rescue packages to contain rising unemployment levels and forestall a prolonged contraction. And while, Mr. Speaker, the prognosis for the developed economies is for some growth, though weakened, the International Monetary Fund (IMF) has cautioned against the withdrawal of this policy support prematurely, lest policy makers take these initial signs as self sustained recovery. Mr Speaker, our Caribbean neighbours have not been spared the onslaught of the global recession. The majority of these countries have faced steep declines in remittances and revenue from tourism; reductions in financing including foreign direct investment and grants and rising debt and unemployment. As a result, these countries are experiencing deep fiscal stress and have had to turn to the IMF for financial assistance.
Mr. Speaker, in the face of this challenging economic climate, one may indeed ask: how has Trinidad and Tobago managed its affairs? How are we weathering this storm? Mr. Speaker, under prudent and responsible stewardship, which is the hallmark of this Government’s management approach, we have succeeded in minimizing the impact of the international crisis, while at the same time, maximizing the national welfare.
Faced with the impact of the contagion effects of this downturn, our economy has shown remarkable resilience. This, Mr. Speaker, is a direct result of the government’s deliberate policy to use the opportunity during the period of high oil and gas prices to strengthen our economic fundamentals; run fiscal surpluses, build our domestic savings and our external reserves, while containing public sector debt.
Economic Review
Mr. Speaker, I now turn to a review of our economic performance for fiscal 2009 which was a challenging year for the Trinidad and Tobago economy. For 2008 as a whole, economic growth measured 2.3 percent. The annual growth rate does however, mask the economic slowdown which began towards the end of 2008 and has continued in 2009. Real GDP is estimated to have declined by 1 percent in the last quarter of 2008, and this decline continued in the first quarter of 2009, when real GDP fell by 3 percent. Several other indicators including falling retail sales, declining construction activity, and contracting private sector credit, seem to suggest that the decline has continued beyond the first quarter. This is projected to be our first year of negative growth since 1993.
It is important to note, however Mr. Speaker, that by international standards, a 1 percent decline in economic growth in the current circumstances would be viewed as creditable performance. Let me provide some comparative statistics. The International Monetary Fund (IMF) projects that real GDP will decline by 2.8 percent in the United States in 2009; over 4 percent in the United Kingdom and Euro Area and over 6 percent in Japan. In the region, real GDP is projected to decline by 3.5 percent in Barbados and close to 3 percent in Jamaica. While official statistics are not available, all the OECS countries are expected to register negative growth.
In Trinidad and Tobago, the unemployment rate for the first quarter of 2009 stood at 5 percent, up from 3.9 percent in the last quarter of 2008, but still within the definition of full employment. This notwithstanding, the Government will continue to take steps to contain the rise in unemployment. Mr. Speaker, the decline in energy exports combined with the rise in foreign exchange demand for current and capital transactions has led to a significant increase in Central Bank foreign exchange sales. This notwithstanding, our official reserves remain robust at US$ 8.6 billion, the equivalent of 11 months import cover well above the international benchmark of 3 months.
The country’s total debt stock which stood at 60 percent of GDP at the end of 2001 declined to 37 percent of GDP at the end of 2008 and is estimated to rise to 39 percent at the end of 2009. This is well below that of many of our regional and extra regional economies and is in line with the accepted international benchmark.
Mr Speaker, even our inflation which has been one of our biggest challenges has shown a remarkable decline. Headline inflation has steadily retreated in recent months from a high of 15.4 percent in October 2008 to a low of 5.9 percent in July 2009: the lowest rate since 2005. Food price inflation has significantly declined over the same period moving from 33.4 percent in October last year to 10.1 percent in July this year. In fact the current rate of food price inflation is the lowest recorded since July 2004. This achievement was most notably buttressed by improvements in local agriculture production, and international food price reversals. This decline in the inflation rate leaves ample room for a significant fall in the prevailing domestic interest rates.
Mr. Speaker, this Honourable House may recall that consistent with the prices prevailing at the time, the 2009 Budget was based on an oil price of US$70 per barrel and a gas price of US$4.00 per million cubic feet. By December 2008, oil prices had plunged to US$35 per barrel and gas prices declined to US$3.25 per million cubic feet. With Government revenues projected to be some $4,252.5 million below the original Budget projection, we were proactive in making the necessary budgetary adjustments in November and again in January when it was communicated to the national community that there was a shift in the fiscal target from a positive overall balance to a deficit of 1.3 percent of GDP.
Mr. Speaker, the decline in economic activity in 2009, decreasing private sector expenditure and the threat of rising unemployment prompted the Government to re-introduce many of the capital programmes that were postponed in January. As a result, the preliminary fiscal outturn is for an overall deficit of approximately $8,455.5 million, the equivalent of 6.3 percent of GDP. This is comparable to major advanced economies which as a group average over 10 percent. In making the decision to continue our expenditure program, the records will show that we got it right, since to do otherwise, would have plunged the economy into a prolonged contraction, with disastrous consequences for unemployment and personal welfare.
Mr. Speaker, earlier this year, the Government was faced with the near collapse of the insurance giant CLICO which posed a systemic risk to the entire financial sector. Honourable Members would recall that in late January 2009, the Government and the Chairman of the CL Financial signed an agreement for the provision of a package of financial support for CLICO, British American (BA) and CLICO Investment Bank (CIB), after these institutions found themselves in acute financial difficulties.
This action was taken principally to protect the financial sector from the negative repercussions that could result from a disorderly collapse of the largest conglomerate in the region. The strategy involved the provision of resources to protect the third-party policy holders of CLICO and BA and to support the third party depositors of CIB. Underpinning the strategy is the assumption that as economic activity increases, CL Financial will return to profitability and as a consequence the statutory deficit will be eliminated.
The implementation of the strategy has generally proceeded as envisaged. As you know:
• A new Board of Directors and new management have been appointed to CLICO and BA.
The Government has approved funding to CLICO of up to $5 billion. As of now about $ 1.5 billion has been drawn down.
• About 40 percent of third party depositors of CIB have been paid, while the remaining depositors have made a seamless transition to First Citizens.
• Recently, CL Financial shareholders approved the reconstitution of the CL Financial Board, in which a majority of the members were appointed by Government. The Board’s mandate is to restructure the enterprises of the CL Financial Group to meet the re-imbursement requirements of the Government and Central Bank in the first instance and the other creditors.
Following the Central Bank’s intervention in the affairs of CLICO, confidence in the company has slowly returned and the level of roll-over activity has increased and now stands above 50 percent. At the same time the flow of income from premiums for traditional life insurance has almost returned to normal, traditional long term business has been conserved. The strategy of the Government to support the Central Bank to intervene in the CLICO restructuring was absolutely appropriate.
CLICO’s recovery has now entered its second phase, during which confidence and stability are expected to continue to grow as reflected in a further increase in rollovers and a surge in new business. This second phase is being characterized by a new business model, involving new products, interest rates more in keeping with current market trends, robust risk management, new markets and new delivery channels.
Regulators now acknowledge the inescapable fact that those large, significant institutions must be subject to even more stringent regulation so that they do not become a burden on the public purse. The regional contagion from the CLICO crisis has convinced regional regulators that they need to collaborate much more closely.
Mr. Speaker over the past year, the Government has undertaken a very comprehensive legislative agenda for the reform of the Financial System. Honourable Members will recall that the Parliament has approved a new Financial Institutions Act (FIA) and debate on a new Securities Bill is still to be completed. By year-end we expect that a new Insurance Act and new Credit Union legislation would have been presented to Parliament.
Even beyond new legislation, the lesson is clear that we must be more aggressive in regulatory enforcement and that we must find a more effective way of imposing sanctions on institutions that are not in compliance. While recourse to the courts should be a measure of last resort, the Regulator must be given greater authority to act in the event of non-compliance. Mr. Speaker, we also need to foster more robust regulation in the accounting and auditing professions which have a critical role to play in the regulatory process.
Notwithstanding the fiscal challenges of 2009 our prudent fiscal management continues to be a major factor behind our economic resilience. Indeed, because of our economic management over the past several years, we are now able to sustain moderate temporary fiscal deficits in the short to medium term. We have built up our foreign reserves, accumulated fiscal savings and contained our external and domestic indebtedness. The country’s successes are not by chance as those on the other side would have you believe but the result of sound well-crafted, deliberate policy- making. This Government is intent on preserving these hard-won gains.
Mr. Speaker, the Government’s creditable performance in these difficult times has not been limited to macroeconomic fundamentals but extend to the more tangible elements critical to achieving our
Vision 2020 objectives.
These include maintaining our programmes in Health, Education, Housing and social development programmes while at the same time pursuing, at a more measured pace, the infrastructure projects necessary to sustain our growth and development. These will be elaborated upon in our discussion on the various sectors.
Mr. Speaker, it is within the context of the current economic landscape of volatile energy and commodity prices, which call for new risk management tools to better protect against economic instability and which encourage the use of efficient methodologies to complement the efforts of Government, that the theme of this year’s Budget is framed: “Vision 2020: Strengthening Efficiency, Addressing the Challenges”.
This theme emphasizes the Government’s commitment to maximizing the use of our resources, strengthening capacity, harnessing potential, prioritizing projects and improving the quality of service delivery to all our citizens. This approach, Mr. Speaker, requires adjustments in concepts, mindsets and institutional frameworks. It means the Government committing itself to being even more transparent and accountable, more prompt in its effective response to problems. Efficiency also means we must build partnerships with stakeholders to produce better results and insist on compliance with performance indicators and higher standards in both the public and private sectors. Mr. Speaker, as a people and as a Government we must ensure that efficiency is our motto, we must put technology to use wherever it will maximize returns and improve the quality of service. The present international financial crisis tests our resolve to steer a course for long-term economic stability. We are reaping the benefits accrued since 2001 – a robust economy based on sound fiscal discipline and the enhanced credibility of our monetary policy framework.
Mr. Speaker, Vision 2020 identifies the achievement of self-sustaining growth as one of its principal objectives. Our economic strategy recognizes that our energy resource is a finite asset, the returns from which should be employed to diversify the productive base and transform the economy. Vision 2020 mandates the extension of the frontiers of the energy sector and the development of an export-based internally dynamic non-energy sector. The transformation of the economy along these lines will guarantee self-sustaining growth, deliver high quality jobs, lift per capita income to first world levels and improve income distribution and social welfare for the benefit of the society at large.
Mr. Speaker, consistent with this approach, our strategy is to continue to generate economic growth by adopting a medium term approach; utilize output budgeting to further enhance our economic management; foster efficiency in the various sectors and promote institutional reform in several areas of activity including local government administration, pension and property tax administration and our customs and tax administration through the formation of the Trinidad and Tobago Revenue Authority.
MEDIUM TERM FRAMEWORK
Mr. Speaker, since the turn of this decade we have made significant progress towards our long term objectives. In the period 2001 - 2006, real GDP increased at the average annual rate of 8.9 percent, driven by the expansion of the petro-chemical sector and the impact of buoyant domestic demand in the construction and services sector. In 2007, economic growth began to level off, reflecting the completion of some large energy sector projects. In the last quarter of 2008, the international recession began to take its toll on the domestic economy, directly through a reduction in both demand and prices of our energy exports, and indirectly, by dampening business confidence and consumer spending.
Economic activity started to decline in the last quarter of 2008 and this fall in economic activity has continued into 2009. The current projections are for a decline in real GDP of 0.9 percent in 2009. As we have clearly illustrated, our current economic performance is creditable by any standard. The experts emphasize that the recovery of the advanced economies from the sharp economic recession will be slow. In the United States for instance, the projection is for economic growth to be flat in 2010, rising to 3.5 percent in the following year. Growth is projected to contract in the United Kingdom and the Eurozone by 0.4 percent in 2010.
We also expect the recovery in economic growth in Trinidad and Tobago to be gradual. Our projections are for real GDP growth of around 2 percent in 2010, rising to 4 percent in 2011 and to 5-6 percent in 2012. We see these growth projections as easily achievable based on the global outlook and the economic policies that the Government intends to implement over the next few years.
Mr. Speaker, we envisage that the world recovery will increase demand for energy products which will positively impact both product prices and output of the petro-chemical sector. In addition, there are also several projects, in various stages of implementation, designed to extend the energy sector downstream. In the non-energy sector, the end of the global recession, lower domestic inflation and the consequent decline in interest rates are expected to boost consumer confidence and stimulate private demand which will further stimulate activity in construction and other services. In addition, we will continue to work with the private sector in establishing new industries to enhance our transformation effort.
Mr. Speaker, the Government has had considerable success in reducing inflation from the high rates recorded in 2008. Our policies will be directed to ensure that the gradual return to a more sustainable long term growth rate will be achieved in a low-inflation environment. We are committed to an inflation target in a range of 5 to 7 percent over the medium term.
We also envisage that the projected rate of growth over the next two to three years would generate sufficient jobs to keep the level of unemployment at a sustainable rate of around 5-6 percent of the labour force.
Our recent experience suggests that in the current fiscal year, the Government’s fiscal policy stance contributed significantly to limiting economic growth slowdown and to containing the loss of jobs. All the relevant indicators show a dramatic decline in private demand in this fiscal year. Given the sharp fall in fiscal revenues, maintaining government expenditure at the levels proposed in our budgetary review in January of this year served to support aggregate demand and limit the loss in output and employment.
As noted, the Government expects only a gradual resurgence in domestic demand in 2010 with the pace expected to pick-up in the subsequent two years. The medium term fiscal strategy is therefore designed to compensate for the continuing weak private demand in 2010 and for the easing of fiscal impulse thereafter, as exports and private demand become the main engines of growth.
Given the current state of the economy, the maintenance of some fiscal stimulus in the new fiscal year is essential to ensuring that the economy does not continue to contract, with all the adverse consequences for employment and the welfare of our population. The medium term fiscal strategy is therefore to gradually withdraw this stimulus in tandem with the recovery of the global economy. On this basis Mr. Speaker, we project a fiscal deficit of around 5 percent of GDP in 2010, with progressive improvement to fiscal balance in 2012.
Mr. Speaker, in 2010 we will once again be challenged by reduced energy revenues. According to the experts, while oil prices are expected to continue to strengthen, gas prices are projected to remain depressed in 2010 because of excess supply conditions in international markets. The muted economic growth expected in 2010 will also have its impact on non-energy revenues. While the establishment of the Trinidad and Tobago Revenue Authority in the new fiscal year is expected to boost domestic revenues, the full impact of this very important fiscal reform is not expected for another year or so. The fiscal outlook is therefore for a much stronger performance beginning in 2011 and continuing as our fiscal, monetary and structural reforms begin to take effect. In the context of the medium term fiscal strategy, Government expenditure is projected to remain at around 27 percent of GDP, which is below the average of the past few years. This Mr. Speaker puts the lie to the criticism that the root of our temporary fiscal deficit lies in lavish spending.
Over the past several years the Government has expended considerable effort in search of new modalities for the efficient delivery of government services and for ensuring timely and cost- effective project implementation, while adhering to the highest standards of transparency and accountability.
Our present fiscal constraints, however, require that we do even better in project selection, in the phasing of capital projects and in ensuring that we get value for money. Now more than ever, efficiency in government spending must be our watch word. To this end all Ministries have been asked to examine the phasing of their projects to match funding availability and to avoid bottlenecks in project implementation.
Mr. Speaker, after consultation with various stakeholders the Government has adopted a number of fiscal, monetary and sectoral policy prescriptions that will underpin the economic recovery and strengthen our existing platform for the creation of sustained growth and development. In outlining our sectoral policies, we recognise the role of the private sector as our partner in the growth process and in the context of the prevailing economic climate, the Government is acutely aware that this partnership needs to be expanded. The Government will continue to apply the appropriate enabling environment to consolidate this partnership.
In terms of our investment programme, we will intensify our focus on infrastructural development to ease existing production bottlenecks – in the transportation network, electricity, water, drainage and telecommunications. At the same time, we will continue ongoing initiatives in health, education, housing, social protection and national security.
OUTPUT BUDGETING
Mr. Speaker, it is becoming increasingly clear that if we as a country are to continue to thrive in a more global and market-oriented environment, we must adjust the way our institutions function, including their budget systems. The Government recognizes the tremendous benefits to be gained from the introduction of an Output-based Budgeting system as part of the Public Expenditure Management System of the Government. An output-based budget would incorporate non-financial performance information into the decision making and resource allocation process with the goal of ensuring value for money in the use of public expenditure.
Output-based budgeting will provide the information that would focus on the achievement of Government’s programme objectives and their alignment with Government’s vision and policies. This will be achieved through greater use of performance targets and performance information along with other qualitative information for the determination of priorities and measurement of performance. Output-based budgeting will also make performance information more publicly available in a more user friendly format thereby increasing the level of accountability and transparency in the conduct of Government business.
There is significant consensus that an Integrated Financial Management Information System (IFMIS) represents the backbone of financial and information management, and of the benefit and efficiencies that an IFMIS could potentially introduce. Given current capacity constraints, the Government proposes to introduce an IFMIS which will focus in the short run on the implementation of the financial functionality which is currently cash based and use this system as a platform for the introduction of the Output-based Budgeting.
In the interim, the Government is harmonizing the various efforts to strengthen the planning, monitoring and evaluation functions. The Ministry of Planning, Housing and the Environment will co-ordinate and lead this process; the Government will realize the benefits from synergies and consensus building on standard methodologies and reports to be generated that would satisfy all stakeholders’ needs and provide for the necessary linkages to Output-based Budgeting.
The Government also proposes to use the monitoring and evaluation framework, coupled with the case management system currently being implemented by the Ministry of Social Development, as a means to facilitate a pilot programme to introduce Output-based budgeting within the government service, to be followed by an incremental roll-out to other Ministries and Departments.
The provision of greater access to such information will enhance the transparency of the budget process by providing an easier linkage between the use of public resources and the intended results. This will result in the promotion of a broader participation by policy-makers, interested civil society groups and individuals.
ENERGY
Mr. Speaker, Pillar 3 of our Vision 2020 Strategic Plan is “Enabling Competitive Business” which includes the development of a business climate that attracts investors. In this context, providing the right enabling environment to stimulate investments in the energy sector continues to be the major challenge. The review of fiscal incentives, the identification of new acreage for exploration and the decision on new opportunities both upstream and downstream will set the platform for providing sustainable growth of the sector.
The Government is in the process of discussing a new fiscal incentive regime with stakeholders in the energy sector. This regime will encourage exploration and development activities, offer a more equitable sharing of economic returns to reflect the optimal use of our natural resources while maintaining the global competitiveness of our major sector.
Mr. Speaker, as part of the discussions, the proposal will introduce a single-regime Supplemental Petroleum Tax (SPT) to govern all licences and sub-licences. This Tax will be computed on a field- by-field basis. Under this regime, reduced oil prices and low production levels per field will attract little or no SPT thus creating the incentive for development of small fields and the extension of the life of mature fields.
Mr Speaker, the proposals for our Production Sharing Contract regime are also being reviewed to reflect the following objectives:
• encourage exploration and production activity in deep water;
• improve the competitiveness with respect to deep water exploration and production;
• make multi-well exploration programmes attractive and
• ensure the development of relatively small fields.
Mr. Speaker, in addition to our fiscal review, we propose to offer six bocks in the shallow-water competitive bid round. The plan is to recommence promotion of these blocks once the fiscal review is completed. The plan also includes a rollout of the Production Sharing Contracts intended for use in the bid round which is scheduled to commence in the first quarter of 2010. The blocks to be offered in the deep water will involve a nomination process by which companies will be able to identify open areas in which they have an interest. A deep water study was completed which supports the decision to go into deep acreage. It is intended that these blocks be offered for competitive bidding in the third quarter of 2010.
The Government’s policy is to deepen the industrialization process by diversification through gas- based downstream industries aimed at achieving increasing returns along the energy value chain. This builds on the current strategy of the monetization of gas reserves through primary products such as urea, ammonia and methanol. The Government is pursuing the further development of downstream industries in metals and plastics. In particular a steel plant, a polypropylene plant and an aluminium smelter are the centre of the Government’s strategy.
The National Oil Audit is nearing completion and will inform the type of fiscal regime that is needed to encourage the development of the heavy oil deposits. It is estimated that in excess of one billion barrels of heavy oil are in place in the defined acreage. Most of these deposits are to be found offshore and a new fiscal regime will be implemented to promote the development of these resources.
Mr. Speaker, the Governments of Trinidad and Tobago and Venezuela signed a Framework Agreement in July 2009, for the Unitization of the Cross Border Reserves that extend across the delimitation line between both countries.
On the basis of the Framework Agreement, representatives of both governments have finalized negotiations and have submitted for consideration, a Draft Unitization Agreement for the Loran-Manatee fields that extend across the delimitation line of both countries.
Mr. Speaker, notwithstanding this country’s robust hydrocarbon base, the inclusion of targeted conservation and renewable energy in the country’s energy mix is important to our economic sustainability. It is essential that Trinidad and Tobago begins to develop and utilize its renewable energy resources and increase research and development in related technologies. To this end the Government will formulate a Green Paper which is intended to foster renewable energy development, educate the national community and promote widespread recognition and acceptance of the opportunities for renewable energy development.
Another area of the Government’s focus, to improve the quality of service in the energy sector and to apply best practices, is in the area of retail sales. The modernization of retail gas service stations nationwide to ensure safe and reliable service began in 2005 with tank replacements and storage capacity enhancement, modern underground storage facilities and with the rebuilding of sites to include gas bar or full service facilities. It is our intention to increase the number of service stations retailing Compressed Natural Gas (CNG) throughout the country before the end of the new fiscal year, as we promote an environmentally friendly, cleaner and cheaper fuel which will also reduce transportation costs to the benefit of commuters and the national economy. As the number of service stations offering CNG increases, we will be able to reduce the subsidy on gas as a more economical source of fuel will be available to our people. We will also support the cost of CNG conversion kits as well as the importation of CNG ready vehicles.
AGRICULTURE
Mr. Speaker, in an increasingly globalised world, nations all aspire to achieve an appropriate level of food security for their citizens through the sustainable growth of their agricultural sectors. Mr. Speaker, the era of cheap food is behind us. However, this Government in keeping with Pillar 4 of its Vision 2020 Strategic Plan: “Investing in Sound Infrastructure and the Environment”, has been successful in providing an enabling environment for investment in the sector and the promotion of efficient and sustainable agricultural business, infrastructure and development. As a result, employment in the agricultural sector increased by 30.7 percent in the quarter ending March 2009 to reach 21,300. In addition, increased production, most notably from the Tucker Valley large farm initiative, improved distribution and supply of agri-produce through the National Agricultural Marketing and Development Corporation (NAMDEVCO) and the farmers’ markets, all contributed to a significant reduction in the cost of agricultural produce to our citizens during fiscal 2009. Mr. Speaker, this Government has significantly intensified its efforts to accelerate the transformation of the agriculture sector. The transformational plan highlights two developmental paths aimed at strengthening efficiency in the agriculture sector. The first is to promote greater food security based on increased local and regional production and the second, to develop a range of new value-added products which can meet domestic and international market requirements. This revolution is intended to infuse new life and sustained dynamism into the sector thereby enhancing its contribution to national development.
Mr. Speaker a coordinated and collaborative approach is required in addressing the key obstacles faced by farmers and stakeholders to ensure that limited resources are used effectively and efficiently. Priority will be given to development and maintenance of access roads; providing distribution and marketing support as well as improved storage and packaging facilities to farmers; reducing the cost of agricultural inputs; improving the administrative processes by which farmers access financing; the regularization of land for farmers which will give them the legitimacy they need to access agricultural incentives and credit facilities and the implementation of measures to reduce flooding on agricultural lands and reduce the incidence of praedial larceny.
Mr. Speaker, agricultural access roads will be built through a public-private sector initiative between the Agricultural Society of Trinidad and Tobago (ASTT) and the Estate Management and Business Development Company (EMBD) where the EMBD will provide technical and engineering support while the Agricultural Society will provide the labour, supervision and security. The Rio Claro area benefited from the work of the Agricultural Society which was able to deliver quickly, efficiently and at a remarkably economical cost, the rehabilitation of much needed access roads to agricultural lands. Approximately 1.2 kilometres of agricultural access roads were rehabilitated at a cost of $200,000 for the benefit of some 92 farmers.
We estimate that there are approximately 500 kilometres of agricultural roads requiring urgent rehabilitation. Improved access to farm lands will reduce production costs and increase the supply of agricultural produce on the local market. This initiative, with farmer groups supplying the labour and security for the material, may be replicated in other agricultural zones to speedily resolve the problem of the quality of access roads at a fraction of the originally estimated cost.
Mr. Speaker, sustainable development in agriculture requires the effective marketing of agricultural produce as well as the provision of adequate packing and processing facilities. Our farmers have sought Government’s assistance in those areas which are crucial to putting downward pressure on food prices, while improving farmers’ return on investment.
The establishment of farmers’ markets is also important, since in several cases in excess of 500 percent price mark up is placed on produce from the time it leaves the farm to the time it is offered for retail sale.
The number of farmers’ markets as well as packing houses will be increased. Small scale packing houses or processing facilities have the advantage of providing a secure location for farmers to operate on a cooperative basis to add value to their goods by packaging them for supply to various markets. Farmers using these facilities will benefit from technical support and marketing advice from the National Agricultural Marketing and Development Corporation (NAMDEVCO). A number of locations have been identified for packing and processing facilities: Rio Claro/Tabaquite; Sangre Grande; Chaguanas/Couva, Tableland/Barrackpore and a temporary facility at the Port in Port of Spain.
Mr. Speaker, our farmers are challenged by a lack of timely and affordable land preparation services. The Registered Farmers’ Associations will be encouraged to develop a data bank of affordable land-preparation service providers for its farmers. The Agricultural Development Bank (ADB) will assist these Associations by providing finance on favourable terms to purchase the necessary machinery and equipment and the Estate Management and Business Development Company (EMBD) will provide oversight.
Mr. Speaker the Government has been exploring with YARA Trinidad Limited, a major local ammonia producer and one of the world largest suppliers of mineral fertilizers, the possibility of using the company’s extensive global production network in sourcing a cheaper supply of compound fertilizer for sale to local farmers. Government has accepted the offer by YARA Trinidad Limited to import up to 2,000 tonnes of compound fertilizer on behalf of the Government for resale at cost, inclusive of distribution, to registered local farmers. The National Flour Mills will be designated as the agency to purchase the fertilizer from YARA Trinidad Limited on behalf of the Government and has been given the responsibility for storage, distribution and resale of the fertilizers to local registered farmers. The implementation of this measure will significantly reduce the input costs to farmers and thus reduce the final cost of agricultural produce to our consumers. Mr. Speaker, there are a large number of successful farmers occupying lands for which they do not have any tenure and are thus neither entitled to the incentives available to farmers nor to financing to improve their operations available through the ADB. The Government proposes to accelerate the land regularisation process at the EMBD especially for those farmers with expired leases awaiting renewal; farmers with lands already assigned to them and survey plans approved; and farmers who have occupied land for over 10 years and who have already applied for regularisation. A more efficient and time sensitive solution will be available in the short term through a system of farmer recognition supported by a document from the EMBD which will identify the bearer as a state lease recipient. This will permit the farmer to source short term funding from the ADB, not previously accessible to untenured farmers, up to the market value of the property leased. The document may also be used to register under the Ministry of Agriculture, Land and Marine Resources’ Farm Registration programme. The third group of farmers will be provided with a probationary tenancy agreement which may be used to access financing through the ADB. These initiatives will allow a greater number of farmers to gain recognition, access to funding and to NAMDEVCO’s farm certification programme. This will result in improved quality produce, heightened productivity and increased capability of our nation’s farmers, which will translate into lower prices for consumers as well as increased returns on investments and improved standards of living for our farmers and their families.
Mr. Speaker, the ADB has designed a micro credit facility through the Agri-Development Portal to assist persons who lack the collateral and technical support and land tenure: prerequisites to qualify for financing, but who have good business initiatives and who may become successful agri- entrepreneurs if provided with an opportunity.
This Portal will build the capacity of micro entrepreneurs through technical assistance; generate employment and be a tool for social development. This credit package will also involve the support of NAMDEVCO and Trinidad and Tobago Agri-Business Association (TTABA).
Farmers will also be able to access financing at the ADB through a Probationary Tenancy Agreement - an incentive to boost production and stimulate the sector. This arrangement will give farmers a greater degree of freedom in accessing capital at competitive rates. To support the ADB’s credit facility initiatives, we propose to allocate $75 million to the Bank and an additional sum of up to $75 million will be made available if needed.
Mr. Speaker, the Water Management and Flood Control Project was launched in 2009. The goal is to reduce flooding by dredging water channels, building embankments and by installing pumps, culverts and overpasses to minimize the incidence of flooding. This initiative will relieve the plight of our farmers who suffer grave losses to crops as a result of flooding.
Mr. Speaker, praedial larceny is a major disincentive to agriculture. This Government is committed to putting an end to this illegal activity and will soon implement the Agriculture Ranger Squad (ARS) to reduce the incidence of theft within agricultural communities. The Squad will provide a 24-hour police presence in designated agricultural areas.
The first phase of the project is earmarked for the county of Caroni with focus on the Carlsen Field community. Mr. Speaker, the Government is committed to the development of a vibrant and sustainable agricultural sector and will continue to partner with and support initiatives to empower our private sector to promote quality agricultural produce while reducing costs and increasing returns to the farming community.
INDUSTRY AND TRADE
Mr. Speaker, the Government recognizes that in the present international climate countries such as Trinidad and Tobago are challenged to do more with less and that we must strengthen our export potential.
In furtherance of “Enabling Competitive Business” and “Promoting Effective Government”, enshrined in the nation’s Vision 2020 Strategic Plan, we will continue to bolster the private manufacturing and service sectors as we work to increase export revenues offering attractively priced, higher quality exports. We will continue to provide incentives and support to manufacturers, negotiate increased market access, foster electronic trade and improve our business facilitation model.
Mr. Speaker manufacturers in Trinidad and Tobago benefit from a range of incentives vis-à-vis their competitors in the region. This Government has been aggressive in providing an enabling environment for the private sector by negotiating free trade agreements to enhance market access to the international market place. We encourage the private sector to take advantage of the myriad of free trade agreements which the Government has negotiated over the years. In the context of international trade relations, the Government will focus on securing new market opportunities for our exporters, especially those to be created by the CARIFORUM/EC Economic Partnership Agreement (EPA) which will allow an increased thrust in our trade promotion drive in the European Market. In addition, emphasis will be given to securing predictable market access to the United States which today accounts for approximately 60 percent of our exports.
Regionally, we will consolidate and expand trade relations to include Haiti -which has commenced its CARICOM programme of activities and the Dominican Republic, which has joint obligations with this country as a member of the CARIFORUM Grouping. In addition, it is anticipated that by the last quarter of 2009, negotiations for a CARICOM/Canada Trade and Development Agreement (TDA) would have commenced.
In keeping with our Vision of making Trinidad and Tobago a preferred destination for investment in the Americas, the Government will stimulate increased investment through the new Investment Policy which will modernize the legislative environment for investment, provide greater protection for investors and make the investment facilitation processes more transparent and efficient. A new Investment Bill as well as a Fair Trading Bill will be laid in this Honourable House, Mr. Speaker, in early 2010.
We will be partnering with the business community to develop new support mechanisms to assist manufacturing and services sectors to improve export performance. The Government is reviewing the support services offered to businesses by agencies such as the Venture Capital Incentive Programme (VCIP), Business Development Company Limited (BDC), the Exim Bank and the Evolving TecKnologies and Enterprise Development Company (Eteck) to better and more effectively support export-led growth. The Minister of Trade and Industry will elaborate further on the outcome of this review in his contribution to the Budget Debate.
Mr. Speaker in keeping with the Government’s thrust to enable a competitive business environment, we remain focused on providing the required infrastructure to facilitate industrial growth and diversification; expand local business; create employment opportunities; increase domestic production and expand our export base. Development work continues on new light industrial parks for business activities such as garment manufacturing, soya bean oil processing, distillery operations, steel fabrication and coating, welding and the manufacture of steel products. The existing 17 industrial parks have over 500 tenants. An additional 8 new Industrial Parks are carded for future development.
In addition Mr. Speaker, the Tamana InTech Industrial and Technology Park will further our diversification drive in the non-energy sector. The Park when completed will provide incubator facilities, research and training in Information Technology and will promote the expansion of downstream energy products and thereby expand our export base.
Mr. Speaker, one of the seven industries in which we have already identified our strategic traditional resource base, established linkages and competitive advantage, is the Merchant Marine Industry. Our geographical location, outside the hurricane belt and strategically located between key trade routes, connecting North and South America, promotes our potential competitiveness. The Government envisions a world class maritime cluster, focusing on the development of three sub sectors – ship maintenance, ship building and maritime construction. Emanating from this niche, we have identified investment opportunities such as small vessel ownership and management, rig and offshore platform construction, logistical support services and ship building and repair services. We have also identified onshore operations investment opportunities, such as ship inspection and certification, crewing agencies and services, shipping agents and ship chandlers and port management.
Mr. Speaker the Government in the new fiscal year will introduce a Single Electronic Window (SEW) for Business Facilitation which will improve our international competitiveness by facilitating electronic trading and the transfer of information simultaneously thereby ensuring efficiency in the local trade and business facilitation process.
The introduction of this Window will complement the already operational ASYCUDA system at the Customs and Excise Division and will also improve the quality of trade data, facilitate services such as electronic payments of duties which may be interfaced with the local commercial banks; and allow the Central Statistical Office (CSO) to generate trade data two weeks after the end of each month. This system will also support business-to-business transactions which are vital for any trade facilitation platform.
This project will be implemented in collaboration with a Singaporean company through a Memorandum of Understanding on Information and Communication Technology (ICT) Cooperation between this Government and the Government of Singapore. Implementation of this project will commence in October 2009 and is expected to be operational by October 2010.
Mr. Speaker, this project will give greater efficiency to our national business facilitation architecture as it will reengineer and simplify processes of Government agencies and departments involved in Trade and Business Facilitation. It will also complement the implementation of the Trinidad and Tobago Revenue Authority (TTRA) and will provide a seamless platform for the trade community.
continued
BUDGET STATEMENT
INTRODUCTION
Mr. Speaker, it is a distinct privilege to present to this Honourable House and to the people of Trinidad and Tobago the 2009/2010 Budget. This is the second budget of this Administration in which we continue to implement a progressive programme of development intended to improve the quality of life of our nation’s citizens.
Mr. Speaker, it is almost impossible to personally thank all the people whose ideas and advice have helped to shape this Budget. However, a very special word of thanks is due to the officers in the Ministry of Finance whose professional skills, patience and patriotism led to the preparation of documents laid before this Honourable House today. I wish also to thank the many individuals and organizations who contributed a slate of ideas which served to inform the Budget. My profound appreciation is also extended to the Honourable Prime Minister and my Cabinet colleagues who share with me collective responsibility for the integrity of this Budget.
Mr. Speaker, next Monday, September 15, will be one year since the total collapse and bankruptcy of Lehman Brothers-one of the largest and most successful financial institutions in the marketplace. This event, more than any other, changed the way in which the emerging financial crisis would impart its legacy to the international economy. This collapse drastically accelerated the negative spill-over effects of the housing credit crisis in the United States and resulted in a full- blown recession in many developed and developing economies which have had to review their fiscal assumptions. The CLICO experience in Trinidad and Tobago and its impact on the economies of the Caribbean brings this reality closer to us, we will return to this matter shortly. Mr. Speaker, we have observed that since the last Budget was presented to this Honourable House, the international financial system has been brought to its knees and this has debilitated the economies of most developed and developing countries. Trinidad and Tobago however has not been affected to the same degree as these countries as we shall demonstrate in the course of this presentation.
Certainly Mr. Speaker, the financial turmoil which resulted in plunging equity markets and which consumed Wall Street imperilled the world’s economy and precipitated a severe decline in both business and consumer confidence. Even the once dynamic economies of China and India have wilted under the financial shock.
Many countries across the globe are experiencing minimal or negative economic growth. By way of illustration, the United States economy is projected to contract by 2.8 percent by the end of 2009 and Canada by 2.5 percent. This contraction has led to unemployment rates of just under 10 percent in both countries. In July alone, 247,000 persons, or one percent of the population of the United States lost their jobs, while for the same period 45,000 persons were placed on the breadline in Canada.
Mr. Speaker, protectionism has become a growing phenomenon as nations opt for direct and indirect barriers to trade. The Governments of the major economies, former proponents of globalization, are now staunch advocates of protectionism, which has adverse implications for countries such as ours. Indeed the World Bank has recorded almost 90 new restrictions to international trade since October 2008. Today there are new iron and steel tariffs in Russia, agricultural restrictions in Argentina and Brazil and explicit “buy U.S.” and “buy China” policies: a once bundled world is fast loosening.
As a direct response to these developments Governments around the world have had to implement massive fiscal stimulus packages, accompanied by financial sector bailouts and corporate rescue packages to contain rising unemployment levels and forestall a prolonged contraction. And while, Mr. Speaker, the prognosis for the developed economies is for some growth, though weakened, the International Monetary Fund (IMF) has cautioned against the withdrawal of this policy support prematurely, lest policy makers take these initial signs as self sustained recovery. Mr Speaker, our Caribbean neighbours have not been spared the onslaught of the global recession. The majority of these countries have faced steep declines in remittances and revenue from tourism; reductions in financing including foreign direct investment and grants and rising debt and unemployment. As a result, these countries are experiencing deep fiscal stress and have had to turn to the IMF for financial assistance.
Mr. Speaker, in the face of this challenging economic climate, one may indeed ask: how has Trinidad and Tobago managed its affairs? How are we weathering this storm? Mr. Speaker, under prudent and responsible stewardship, which is the hallmark of this Government’s management approach, we have succeeded in minimizing the impact of the international crisis, while at the same time, maximizing the national welfare.
Faced with the impact of the contagion effects of this downturn, our economy has shown remarkable resilience. This, Mr. Speaker, is a direct result of the government’s deliberate policy to use the opportunity during the period of high oil and gas prices to strengthen our economic fundamentals; run fiscal surpluses, build our domestic savings and our external reserves, while containing public sector debt.
Economic Review
Mr. Speaker, I now turn to a review of our economic performance for fiscal 2009 which was a challenging year for the Trinidad and Tobago economy. For 2008 as a whole, economic growth measured 2.3 percent. The annual growth rate does however, mask the economic slowdown which began towards the end of 2008 and has continued in 2009. Real GDP is estimated to have declined by 1 percent in the last quarter of 2008, and this decline continued in the first quarter of 2009, when real GDP fell by 3 percent. Several other indicators including falling retail sales, declining construction activity, and contracting private sector credit, seem to suggest that the decline has continued beyond the first quarter. This is projected to be our first year of negative growth since 1993.
It is important to note, however Mr. Speaker, that by international standards, a 1 percent decline in economic growth in the current circumstances would be viewed as creditable performance. Let me provide some comparative statistics. The International Monetary Fund (IMF) projects that real GDP will decline by 2.8 percent in the United States in 2009; over 4 percent in the United Kingdom and Euro Area and over 6 percent in Japan. In the region, real GDP is projected to decline by 3.5 percent in Barbados and close to 3 percent in Jamaica. While official statistics are not available, all the OECS countries are expected to register negative growth.
In Trinidad and Tobago, the unemployment rate for the first quarter of 2009 stood at 5 percent, up from 3.9 percent in the last quarter of 2008, but still within the definition of full employment. This notwithstanding, the Government will continue to take steps to contain the rise in unemployment. Mr. Speaker, the decline in energy exports combined with the rise in foreign exchange demand for current and capital transactions has led to a significant increase in Central Bank foreign exchange sales. This notwithstanding, our official reserves remain robust at US$ 8.6 billion, the equivalent of 11 months import cover well above the international benchmark of 3 months.
The country’s total debt stock which stood at 60 percent of GDP at the end of 2001 declined to 37 percent of GDP at the end of 2008 and is estimated to rise to 39 percent at the end of 2009. This is well below that of many of our regional and extra regional economies and is in line with the accepted international benchmark.
Mr Speaker, even our inflation which has been one of our biggest challenges has shown a remarkable decline. Headline inflation has steadily retreated in recent months from a high of 15.4 percent in October 2008 to a low of 5.9 percent in July 2009: the lowest rate since 2005. Food price inflation has significantly declined over the same period moving from 33.4 percent in October last year to 10.1 percent in July this year. In fact the current rate of food price inflation is the lowest recorded since July 2004. This achievement was most notably buttressed by improvements in local agriculture production, and international food price reversals. This decline in the inflation rate leaves ample room for a significant fall in the prevailing domestic interest rates.
Mr. Speaker, this Honourable House may recall that consistent with the prices prevailing at the time, the 2009 Budget was based on an oil price of US$70 per barrel and a gas price of US$4.00 per million cubic feet. By December 2008, oil prices had plunged to US$35 per barrel and gas prices declined to US$3.25 per million cubic feet. With Government revenues projected to be some $4,252.5 million below the original Budget projection, we were proactive in making the necessary budgetary adjustments in November and again in January when it was communicated to the national community that there was a shift in the fiscal target from a positive overall balance to a deficit of 1.3 percent of GDP.
Mr. Speaker, the decline in economic activity in 2009, decreasing private sector expenditure and the threat of rising unemployment prompted the Government to re-introduce many of the capital programmes that were postponed in January. As a result, the preliminary fiscal outturn is for an overall deficit of approximately $8,455.5 million, the equivalent of 6.3 percent of GDP. This is comparable to major advanced economies which as a group average over 10 percent. In making the decision to continue our expenditure program, the records will show that we got it right, since to do otherwise, would have plunged the economy into a prolonged contraction, with disastrous consequences for unemployment and personal welfare.
Mr. Speaker, earlier this year, the Government was faced with the near collapse of the insurance giant CLICO which posed a systemic risk to the entire financial sector. Honourable Members would recall that in late January 2009, the Government and the Chairman of the CL Financial signed an agreement for the provision of a package of financial support for CLICO, British American (BA) and CLICO Investment Bank (CIB), after these institutions found themselves in acute financial difficulties.
This action was taken principally to protect the financial sector from the negative repercussions that could result from a disorderly collapse of the largest conglomerate in the region. The strategy involved the provision of resources to protect the third-party policy holders of CLICO and BA and to support the third party depositors of CIB. Underpinning the strategy is the assumption that as economic activity increases, CL Financial will return to profitability and as a consequence the statutory deficit will be eliminated.
The implementation of the strategy has generally proceeded as envisaged. As you know:
• A new Board of Directors and new management have been appointed to CLICO and BA.
The Government has approved funding to CLICO of up to $5 billion. As of now about $ 1.5 billion has been drawn down.
• About 40 percent of third party depositors of CIB have been paid, while the remaining depositors have made a seamless transition to First Citizens.
• Recently, CL Financial shareholders approved the reconstitution of the CL Financial Board, in which a majority of the members were appointed by Government. The Board’s mandate is to restructure the enterprises of the CL Financial Group to meet the re-imbursement requirements of the Government and Central Bank in the first instance and the other creditors.
Following the Central Bank’s intervention in the affairs of CLICO, confidence in the company has slowly returned and the level of roll-over activity has increased and now stands above 50 percent. At the same time the flow of income from premiums for traditional life insurance has almost returned to normal, traditional long term business has been conserved. The strategy of the Government to support the Central Bank to intervene in the CLICO restructuring was absolutely appropriate.
CLICO’s recovery has now entered its second phase, during which confidence and stability are expected to continue to grow as reflected in a further increase in rollovers and a surge in new business. This second phase is being characterized by a new business model, involving new products, interest rates more in keeping with current market trends, robust risk management, new markets and new delivery channels.
Regulators now acknowledge the inescapable fact that those large, significant institutions must be subject to even more stringent regulation so that they do not become a burden on the public purse. The regional contagion from the CLICO crisis has convinced regional regulators that they need to collaborate much more closely.
Mr. Speaker over the past year, the Government has undertaken a very comprehensive legislative agenda for the reform of the Financial System. Honourable Members will recall that the Parliament has approved a new Financial Institutions Act (FIA) and debate on a new Securities Bill is still to be completed. By year-end we expect that a new Insurance Act and new Credit Union legislation would have been presented to Parliament.
Even beyond new legislation, the lesson is clear that we must be more aggressive in regulatory enforcement and that we must find a more effective way of imposing sanctions on institutions that are not in compliance. While recourse to the courts should be a measure of last resort, the Regulator must be given greater authority to act in the event of non-compliance. Mr. Speaker, we also need to foster more robust regulation in the accounting and auditing professions which have a critical role to play in the regulatory process.
Notwithstanding the fiscal challenges of 2009 our prudent fiscal management continues to be a major factor behind our economic resilience. Indeed, because of our economic management over the past several years, we are now able to sustain moderate temporary fiscal deficits in the short to medium term. We have built up our foreign reserves, accumulated fiscal savings and contained our external and domestic indebtedness. The country’s successes are not by chance as those on the other side would have you believe but the result of sound well-crafted, deliberate policy- making. This Government is intent on preserving these hard-won gains.
Mr. Speaker, the Government’s creditable performance in these difficult times has not been limited to macroeconomic fundamentals but extend to the more tangible elements critical to achieving our
Vision 2020 objectives.
These include maintaining our programmes in Health, Education, Housing and social development programmes while at the same time pursuing, at a more measured pace, the infrastructure projects necessary to sustain our growth and development. These will be elaborated upon in our discussion on the various sectors.
Mr. Speaker, it is within the context of the current economic landscape of volatile energy and commodity prices, which call for new risk management tools to better protect against economic instability and which encourage the use of efficient methodologies to complement the efforts of Government, that the theme of this year’s Budget is framed: “Vision 2020: Strengthening Efficiency, Addressing the Challenges”.
This theme emphasizes the Government’s commitment to maximizing the use of our resources, strengthening capacity, harnessing potential, prioritizing projects and improving the quality of service delivery to all our citizens. This approach, Mr. Speaker, requires adjustments in concepts, mindsets and institutional frameworks. It means the Government committing itself to being even more transparent and accountable, more prompt in its effective response to problems. Efficiency also means we must build partnerships with stakeholders to produce better results and insist on compliance with performance indicators and higher standards in both the public and private sectors. Mr. Speaker, as a people and as a Government we must ensure that efficiency is our motto, we must put technology to use wherever it will maximize returns and improve the quality of service. The present international financial crisis tests our resolve to steer a course for long-term economic stability. We are reaping the benefits accrued since 2001 – a robust economy based on sound fiscal discipline and the enhanced credibility of our monetary policy framework.
Mr. Speaker, Vision 2020 identifies the achievement of self-sustaining growth as one of its principal objectives. Our economic strategy recognizes that our energy resource is a finite asset, the returns from which should be employed to diversify the productive base and transform the economy. Vision 2020 mandates the extension of the frontiers of the energy sector and the development of an export-based internally dynamic non-energy sector. The transformation of the economy along these lines will guarantee self-sustaining growth, deliver high quality jobs, lift per capita income to first world levels and improve income distribution and social welfare for the benefit of the society at large.
Mr. Speaker, consistent with this approach, our strategy is to continue to generate economic growth by adopting a medium term approach; utilize output budgeting to further enhance our economic management; foster efficiency in the various sectors and promote institutional reform in several areas of activity including local government administration, pension and property tax administration and our customs and tax administration through the formation of the Trinidad and Tobago Revenue Authority.
MEDIUM TERM FRAMEWORK
Mr. Speaker, since the turn of this decade we have made significant progress towards our long term objectives. In the period 2001 - 2006, real GDP increased at the average annual rate of 8.9 percent, driven by the expansion of the petro-chemical sector and the impact of buoyant domestic demand in the construction and services sector. In 2007, economic growth began to level off, reflecting the completion of some large energy sector projects. In the last quarter of 2008, the international recession began to take its toll on the domestic economy, directly through a reduction in both demand and prices of our energy exports, and indirectly, by dampening business confidence and consumer spending.
Economic activity started to decline in the last quarter of 2008 and this fall in economic activity has continued into 2009. The current projections are for a decline in real GDP of 0.9 percent in 2009. As we have clearly illustrated, our current economic performance is creditable by any standard. The experts emphasize that the recovery of the advanced economies from the sharp economic recession will be slow. In the United States for instance, the projection is for economic growth to be flat in 2010, rising to 3.5 percent in the following year. Growth is projected to contract in the United Kingdom and the Eurozone by 0.4 percent in 2010.
We also expect the recovery in economic growth in Trinidad and Tobago to be gradual. Our projections are for real GDP growth of around 2 percent in 2010, rising to 4 percent in 2011 and to 5-6 percent in 2012. We see these growth projections as easily achievable based on the global outlook and the economic policies that the Government intends to implement over the next few years.
Mr. Speaker, we envisage that the world recovery will increase demand for energy products which will positively impact both product prices and output of the petro-chemical sector. In addition, there are also several projects, in various stages of implementation, designed to extend the energy sector downstream. In the non-energy sector, the end of the global recession, lower domestic inflation and the consequent decline in interest rates are expected to boost consumer confidence and stimulate private demand which will further stimulate activity in construction and other services. In addition, we will continue to work with the private sector in establishing new industries to enhance our transformation effort.
Mr. Speaker, the Government has had considerable success in reducing inflation from the high rates recorded in 2008. Our policies will be directed to ensure that the gradual return to a more sustainable long term growth rate will be achieved in a low-inflation environment. We are committed to an inflation target in a range of 5 to 7 percent over the medium term.
We also envisage that the projected rate of growth over the next two to three years would generate sufficient jobs to keep the level of unemployment at a sustainable rate of around 5-6 percent of the labour force.
Our recent experience suggests that in the current fiscal year, the Government’s fiscal policy stance contributed significantly to limiting economic growth slowdown and to containing the loss of jobs. All the relevant indicators show a dramatic decline in private demand in this fiscal year. Given the sharp fall in fiscal revenues, maintaining government expenditure at the levels proposed in our budgetary review in January of this year served to support aggregate demand and limit the loss in output and employment.
As noted, the Government expects only a gradual resurgence in domestic demand in 2010 with the pace expected to pick-up in the subsequent two years. The medium term fiscal strategy is therefore designed to compensate for the continuing weak private demand in 2010 and for the easing of fiscal impulse thereafter, as exports and private demand become the main engines of growth.
Given the current state of the economy, the maintenance of some fiscal stimulus in the new fiscal year is essential to ensuring that the economy does not continue to contract, with all the adverse consequences for employment and the welfare of our population. The medium term fiscal strategy is therefore to gradually withdraw this stimulus in tandem with the recovery of the global economy. On this basis Mr. Speaker, we project a fiscal deficit of around 5 percent of GDP in 2010, with progressive improvement to fiscal balance in 2012.
Mr. Speaker, in 2010 we will once again be challenged by reduced energy revenues. According to the experts, while oil prices are expected to continue to strengthen, gas prices are projected to remain depressed in 2010 because of excess supply conditions in international markets. The muted economic growth expected in 2010 will also have its impact on non-energy revenues. While the establishment of the Trinidad and Tobago Revenue Authority in the new fiscal year is expected to boost domestic revenues, the full impact of this very important fiscal reform is not expected for another year or so. The fiscal outlook is therefore for a much stronger performance beginning in 2011 and continuing as our fiscal, monetary and structural reforms begin to take effect. In the context of the medium term fiscal strategy, Government expenditure is projected to remain at around 27 percent of GDP, which is below the average of the past few years. This Mr. Speaker puts the lie to the criticism that the root of our temporary fiscal deficit lies in lavish spending.
Over the past several years the Government has expended considerable effort in search of new modalities for the efficient delivery of government services and for ensuring timely and cost- effective project implementation, while adhering to the highest standards of transparency and accountability.
Our present fiscal constraints, however, require that we do even better in project selection, in the phasing of capital projects and in ensuring that we get value for money. Now more than ever, efficiency in government spending must be our watch word. To this end all Ministries have been asked to examine the phasing of their projects to match funding availability and to avoid bottlenecks in project implementation.
Mr. Speaker, after consultation with various stakeholders the Government has adopted a number of fiscal, monetary and sectoral policy prescriptions that will underpin the economic recovery and strengthen our existing platform for the creation of sustained growth and development. In outlining our sectoral policies, we recognise the role of the private sector as our partner in the growth process and in the context of the prevailing economic climate, the Government is acutely aware that this partnership needs to be expanded. The Government will continue to apply the appropriate enabling environment to consolidate this partnership.
In terms of our investment programme, we will intensify our focus on infrastructural development to ease existing production bottlenecks – in the transportation network, electricity, water, drainage and telecommunications. At the same time, we will continue ongoing initiatives in health, education, housing, social protection and national security.
OUTPUT BUDGETING
Mr. Speaker, it is becoming increasingly clear that if we as a country are to continue to thrive in a more global and market-oriented environment, we must adjust the way our institutions function, including their budget systems. The Government recognizes the tremendous benefits to be gained from the introduction of an Output-based Budgeting system as part of the Public Expenditure Management System of the Government. An output-based budget would incorporate non-financial performance information into the decision making and resource allocation process with the goal of ensuring value for money in the use of public expenditure.
Output-based budgeting will provide the information that would focus on the achievement of Government’s programme objectives and their alignment with Government’s vision and policies. This will be achieved through greater use of performance targets and performance information along with other qualitative information for the determination of priorities and measurement of performance. Output-based budgeting will also make performance information more publicly available in a more user friendly format thereby increasing the level of accountability and transparency in the conduct of Government business.
There is significant consensus that an Integrated Financial Management Information System (IFMIS) represents the backbone of financial and information management, and of the benefit and efficiencies that an IFMIS could potentially introduce. Given current capacity constraints, the Government proposes to introduce an IFMIS which will focus in the short run on the implementation of the financial functionality which is currently cash based and use this system as a platform for the introduction of the Output-based Budgeting.
In the interim, the Government is harmonizing the various efforts to strengthen the planning, monitoring and evaluation functions. The Ministry of Planning, Housing and the Environment will co-ordinate and lead this process; the Government will realize the benefits from synergies and consensus building on standard methodologies and reports to be generated that would satisfy all stakeholders’ needs and provide for the necessary linkages to Output-based Budgeting.
The Government also proposes to use the monitoring and evaluation framework, coupled with the case management system currently being implemented by the Ministry of Social Development, as a means to facilitate a pilot programme to introduce Output-based budgeting within the government service, to be followed by an incremental roll-out to other Ministries and Departments.
The provision of greater access to such information will enhance the transparency of the budget process by providing an easier linkage between the use of public resources and the intended results. This will result in the promotion of a broader participation by policy-makers, interested civil society groups and individuals.
ENERGY
Mr. Speaker, Pillar 3 of our Vision 2020 Strategic Plan is “Enabling Competitive Business” which includes the development of a business climate that attracts investors. In this context, providing the right enabling environment to stimulate investments in the energy sector continues to be the major challenge. The review of fiscal incentives, the identification of new acreage for exploration and the decision on new opportunities both upstream and downstream will set the platform for providing sustainable growth of the sector.
The Government is in the process of discussing a new fiscal incentive regime with stakeholders in the energy sector. This regime will encourage exploration and development activities, offer a more equitable sharing of economic returns to reflect the optimal use of our natural resources while maintaining the global competitiveness of our major sector.
Mr. Speaker, as part of the discussions, the proposal will introduce a single-regime Supplemental Petroleum Tax (SPT) to govern all licences and sub-licences. This Tax will be computed on a field- by-field basis. Under this regime, reduced oil prices and low production levels per field will attract little or no SPT thus creating the incentive for development of small fields and the extension of the life of mature fields.
Mr Speaker, the proposals for our Production Sharing Contract regime are also being reviewed to reflect the following objectives:
• encourage exploration and production activity in deep water;
• improve the competitiveness with respect to deep water exploration and production;
• make multi-well exploration programmes attractive and
• ensure the development of relatively small fields.
Mr. Speaker, in addition to our fiscal review, we propose to offer six bocks in the shallow-water competitive bid round. The plan is to recommence promotion of these blocks once the fiscal review is completed. The plan also includes a rollout of the Production Sharing Contracts intended for use in the bid round which is scheduled to commence in the first quarter of 2010. The blocks to be offered in the deep water will involve a nomination process by which companies will be able to identify open areas in which they have an interest. A deep water study was completed which supports the decision to go into deep acreage. It is intended that these blocks be offered for competitive bidding in the third quarter of 2010.
The Government’s policy is to deepen the industrialization process by diversification through gas- based downstream industries aimed at achieving increasing returns along the energy value chain. This builds on the current strategy of the monetization of gas reserves through primary products such as urea, ammonia and methanol. The Government is pursuing the further development of downstream industries in metals and plastics. In particular a steel plant, a polypropylene plant and an aluminium smelter are the centre of the Government’s strategy.
The National Oil Audit is nearing completion and will inform the type of fiscal regime that is needed to encourage the development of the heavy oil deposits. It is estimated that in excess of one billion barrels of heavy oil are in place in the defined acreage. Most of these deposits are to be found offshore and a new fiscal regime will be implemented to promote the development of these resources.
Mr. Speaker, the Governments of Trinidad and Tobago and Venezuela signed a Framework Agreement in July 2009, for the Unitization of the Cross Border Reserves that extend across the delimitation line between both countries.
On the basis of the Framework Agreement, representatives of both governments have finalized negotiations and have submitted for consideration, a Draft Unitization Agreement for the Loran-Manatee fields that extend across the delimitation line of both countries.
Mr. Speaker, notwithstanding this country’s robust hydrocarbon base, the inclusion of targeted conservation and renewable energy in the country’s energy mix is important to our economic sustainability. It is essential that Trinidad and Tobago begins to develop and utilize its renewable energy resources and increase research and development in related technologies. To this end the Government will formulate a Green Paper which is intended to foster renewable energy development, educate the national community and promote widespread recognition and acceptance of the opportunities for renewable energy development.
Another area of the Government’s focus, to improve the quality of service in the energy sector and to apply best practices, is in the area of retail sales. The modernization of retail gas service stations nationwide to ensure safe and reliable service began in 2005 with tank replacements and storage capacity enhancement, modern underground storage facilities and with the rebuilding of sites to include gas bar or full service facilities. It is our intention to increase the number of service stations retailing Compressed Natural Gas (CNG) throughout the country before the end of the new fiscal year, as we promote an environmentally friendly, cleaner and cheaper fuel which will also reduce transportation costs to the benefit of commuters and the national economy. As the number of service stations offering CNG increases, we will be able to reduce the subsidy on gas as a more economical source of fuel will be available to our people. We will also support the cost of CNG conversion kits as well as the importation of CNG ready vehicles.
AGRICULTURE
Mr. Speaker, in an increasingly globalised world, nations all aspire to achieve an appropriate level of food security for their citizens through the sustainable growth of their agricultural sectors. Mr. Speaker, the era of cheap food is behind us. However, this Government in keeping with Pillar 4 of its Vision 2020 Strategic Plan: “Investing in Sound Infrastructure and the Environment”, has been successful in providing an enabling environment for investment in the sector and the promotion of efficient and sustainable agricultural business, infrastructure and development. As a result, employment in the agricultural sector increased by 30.7 percent in the quarter ending March 2009 to reach 21,300. In addition, increased production, most notably from the Tucker Valley large farm initiative, improved distribution and supply of agri-produce through the National Agricultural Marketing and Development Corporation (NAMDEVCO) and the farmers’ markets, all contributed to a significant reduction in the cost of agricultural produce to our citizens during fiscal 2009. Mr. Speaker, this Government has significantly intensified its efforts to accelerate the transformation of the agriculture sector. The transformational plan highlights two developmental paths aimed at strengthening efficiency in the agriculture sector. The first is to promote greater food security based on increased local and regional production and the second, to develop a range of new value-added products which can meet domestic and international market requirements. This revolution is intended to infuse new life and sustained dynamism into the sector thereby enhancing its contribution to national development.
Mr. Speaker a coordinated and collaborative approach is required in addressing the key obstacles faced by farmers and stakeholders to ensure that limited resources are used effectively and efficiently. Priority will be given to development and maintenance of access roads; providing distribution and marketing support as well as improved storage and packaging facilities to farmers; reducing the cost of agricultural inputs; improving the administrative processes by which farmers access financing; the regularization of land for farmers which will give them the legitimacy they need to access agricultural incentives and credit facilities and the implementation of measures to reduce flooding on agricultural lands and reduce the incidence of praedial larceny.
Mr. Speaker, agricultural access roads will be built through a public-private sector initiative between the Agricultural Society of Trinidad and Tobago (ASTT) and the Estate Management and Business Development Company (EMBD) where the EMBD will provide technical and engineering support while the Agricultural Society will provide the labour, supervision and security. The Rio Claro area benefited from the work of the Agricultural Society which was able to deliver quickly, efficiently and at a remarkably economical cost, the rehabilitation of much needed access roads to agricultural lands. Approximately 1.2 kilometres of agricultural access roads were rehabilitated at a cost of $200,000 for the benefit of some 92 farmers.
We estimate that there are approximately 500 kilometres of agricultural roads requiring urgent rehabilitation. Improved access to farm lands will reduce production costs and increase the supply of agricultural produce on the local market. This initiative, with farmer groups supplying the labour and security for the material, may be replicated in other agricultural zones to speedily resolve the problem of the quality of access roads at a fraction of the originally estimated cost.
Mr. Speaker, sustainable development in agriculture requires the effective marketing of agricultural produce as well as the provision of adequate packing and processing facilities. Our farmers have sought Government’s assistance in those areas which are crucial to putting downward pressure on food prices, while improving farmers’ return on investment.
The establishment of farmers’ markets is also important, since in several cases in excess of 500 percent price mark up is placed on produce from the time it leaves the farm to the time it is offered for retail sale.
The number of farmers’ markets as well as packing houses will be increased. Small scale packing houses or processing facilities have the advantage of providing a secure location for farmers to operate on a cooperative basis to add value to their goods by packaging them for supply to various markets. Farmers using these facilities will benefit from technical support and marketing advice from the National Agricultural Marketing and Development Corporation (NAMDEVCO). A number of locations have been identified for packing and processing facilities: Rio Claro/Tabaquite; Sangre Grande; Chaguanas/Couva, Tableland/Barrackpore and a temporary facility at the Port in Port of Spain.
Mr. Speaker, our farmers are challenged by a lack of timely and affordable land preparation services. The Registered Farmers’ Associations will be encouraged to develop a data bank of affordable land-preparation service providers for its farmers. The Agricultural Development Bank (ADB) will assist these Associations by providing finance on favourable terms to purchase the necessary machinery and equipment and the Estate Management and Business Development Company (EMBD) will provide oversight.
Mr. Speaker the Government has been exploring with YARA Trinidad Limited, a major local ammonia producer and one of the world largest suppliers of mineral fertilizers, the possibility of using the company’s extensive global production network in sourcing a cheaper supply of compound fertilizer for sale to local farmers. Government has accepted the offer by YARA Trinidad Limited to import up to 2,000 tonnes of compound fertilizer on behalf of the Government for resale at cost, inclusive of distribution, to registered local farmers. The National Flour Mills will be designated as the agency to purchase the fertilizer from YARA Trinidad Limited on behalf of the Government and has been given the responsibility for storage, distribution and resale of the fertilizers to local registered farmers. The implementation of this measure will significantly reduce the input costs to farmers and thus reduce the final cost of agricultural produce to our consumers. Mr. Speaker, there are a large number of successful farmers occupying lands for which they do not have any tenure and are thus neither entitled to the incentives available to farmers nor to financing to improve their operations available through the ADB. The Government proposes to accelerate the land regularisation process at the EMBD especially for those farmers with expired leases awaiting renewal; farmers with lands already assigned to them and survey plans approved; and farmers who have occupied land for over 10 years and who have already applied for regularisation. A more efficient and time sensitive solution will be available in the short term through a system of farmer recognition supported by a document from the EMBD which will identify the bearer as a state lease recipient. This will permit the farmer to source short term funding from the ADB, not previously accessible to untenured farmers, up to the market value of the property leased. The document may also be used to register under the Ministry of Agriculture, Land and Marine Resources’ Farm Registration programme. The third group of farmers will be provided with a probationary tenancy agreement which may be used to access financing through the ADB. These initiatives will allow a greater number of farmers to gain recognition, access to funding and to NAMDEVCO’s farm certification programme. This will result in improved quality produce, heightened productivity and increased capability of our nation’s farmers, which will translate into lower prices for consumers as well as increased returns on investments and improved standards of living for our farmers and their families.
Mr. Speaker, the ADB has designed a micro credit facility through the Agri-Development Portal to assist persons who lack the collateral and technical support and land tenure: prerequisites to qualify for financing, but who have good business initiatives and who may become successful agri- entrepreneurs if provided with an opportunity.
This Portal will build the capacity of micro entrepreneurs through technical assistance; generate employment and be a tool for social development. This credit package will also involve the support of NAMDEVCO and Trinidad and Tobago Agri-Business Association (TTABA).
Farmers will also be able to access financing at the ADB through a Probationary Tenancy Agreement - an incentive to boost production and stimulate the sector. This arrangement will give farmers a greater degree of freedom in accessing capital at competitive rates. To support the ADB’s credit facility initiatives, we propose to allocate $75 million to the Bank and an additional sum of up to $75 million will be made available if needed.
Mr. Speaker, the Water Management and Flood Control Project was launched in 2009. The goal is to reduce flooding by dredging water channels, building embankments and by installing pumps, culverts and overpasses to minimize the incidence of flooding. This initiative will relieve the plight of our farmers who suffer grave losses to crops as a result of flooding.
Mr. Speaker, praedial larceny is a major disincentive to agriculture. This Government is committed to putting an end to this illegal activity and will soon implement the Agriculture Ranger Squad (ARS) to reduce the incidence of theft within agricultural communities. The Squad will provide a 24-hour police presence in designated agricultural areas.
The first phase of the project is earmarked for the county of Caroni with focus on the Carlsen Field community. Mr. Speaker, the Government is committed to the development of a vibrant and sustainable agricultural sector and will continue to partner with and support initiatives to empower our private sector to promote quality agricultural produce while reducing costs and increasing returns to the farming community.
INDUSTRY AND TRADE
Mr. Speaker, the Government recognizes that in the present international climate countries such as Trinidad and Tobago are challenged to do more with less and that we must strengthen our export potential.
In furtherance of “Enabling Competitive Business” and “Promoting Effective Government”, enshrined in the nation’s Vision 2020 Strategic Plan, we will continue to bolster the private manufacturing and service sectors as we work to increase export revenues offering attractively priced, higher quality exports. We will continue to provide incentives and support to manufacturers, negotiate increased market access, foster electronic trade and improve our business facilitation model.
Mr. Speaker manufacturers in Trinidad and Tobago benefit from a range of incentives vis-à-vis their competitors in the region. This Government has been aggressive in providing an enabling environment for the private sector by negotiating free trade agreements to enhance market access to the international market place. We encourage the private sector to take advantage of the myriad of free trade agreements which the Government has negotiated over the years. In the context of international trade relations, the Government will focus on securing new market opportunities for our exporters, especially those to be created by the CARIFORUM/EC Economic Partnership Agreement (EPA) which will allow an increased thrust in our trade promotion drive in the European Market. In addition, emphasis will be given to securing predictable market access to the United States which today accounts for approximately 60 percent of our exports.
Regionally, we will consolidate and expand trade relations to include Haiti -which has commenced its CARICOM programme of activities and the Dominican Republic, which has joint obligations with this country as a member of the CARIFORUM Grouping. In addition, it is anticipated that by the last quarter of 2009, negotiations for a CARICOM/Canada Trade and Development Agreement (TDA) would have commenced.
In keeping with our Vision of making Trinidad and Tobago a preferred destination for investment in the Americas, the Government will stimulate increased investment through the new Investment Policy which will modernize the legislative environment for investment, provide greater protection for investors and make the investment facilitation processes more transparent and efficient. A new Investment Bill as well as a Fair Trading Bill will be laid in this Honourable House, Mr. Speaker, in early 2010.
We will be partnering with the business community to develop new support mechanisms to assist manufacturing and services sectors to improve export performance. The Government is reviewing the support services offered to businesses by agencies such as the Venture Capital Incentive Programme (VCIP), Business Development Company Limited (BDC), the Exim Bank and the Evolving TecKnologies and Enterprise Development Company (Eteck) to better and more effectively support export-led growth. The Minister of Trade and Industry will elaborate further on the outcome of this review in his contribution to the Budget Debate.
Mr. Speaker in keeping with the Government’s thrust to enable a competitive business environment, we remain focused on providing the required infrastructure to facilitate industrial growth and diversification; expand local business; create employment opportunities; increase domestic production and expand our export base. Development work continues on new light industrial parks for business activities such as garment manufacturing, soya bean oil processing, distillery operations, steel fabrication and coating, welding and the manufacture of steel products. The existing 17 industrial parks have over 500 tenants. An additional 8 new Industrial Parks are carded for future development.
In addition Mr. Speaker, the Tamana InTech Industrial and Technology Park will further our diversification drive in the non-energy sector. The Park when completed will provide incubator facilities, research and training in Information Technology and will promote the expansion of downstream energy products and thereby expand our export base.
Mr. Speaker, one of the seven industries in which we have already identified our strategic traditional resource base, established linkages and competitive advantage, is the Merchant Marine Industry. Our geographical location, outside the hurricane belt and strategically located between key trade routes, connecting North and South America, promotes our potential competitiveness. The Government envisions a world class maritime cluster, focusing on the development of three sub sectors – ship maintenance, ship building and maritime construction. Emanating from this niche, we have identified investment opportunities such as small vessel ownership and management, rig and offshore platform construction, logistical support services and ship building and repair services. We have also identified onshore operations investment opportunities, such as ship inspection and certification, crewing agencies and services, shipping agents and ship chandlers and port management.
Mr. Speaker the Government in the new fiscal year will introduce a Single Electronic Window (SEW) for Business Facilitation which will improve our international competitiveness by facilitating electronic trading and the transfer of information simultaneously thereby ensuring efficiency in the local trade and business facilitation process.
The introduction of this Window will complement the already operational ASYCUDA system at the Customs and Excise Division and will also improve the quality of trade data, facilitate services such as electronic payments of duties which may be interfaced with the local commercial banks; and allow the Central Statistical Office (CSO) to generate trade data two weeks after the end of each month. This system will also support business-to-business transactions which are vital for any trade facilitation platform.
This project will be implemented in collaboration with a Singaporean company through a Memorandum of Understanding on Information and Communication Technology (ICT) Cooperation between this Government and the Government of Singapore. Implementation of this project will commence in October 2009 and is expected to be operational by October 2010.
Mr. Speaker, this project will give greater efficiency to our national business facilitation architecture as it will reengineer and simplify processes of Government agencies and departments involved in Trade and Business Facilitation. It will also complement the implementation of the Trinidad and Tobago Revenue Authority (TTRA) and will provide a seamless platform for the trade community.
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