On September 8th 2010, the Honorable Winston Dookeran, the Minister of Finance for Trinidad and Tobago presented the Budget Statement for 2010/2011 financial twelvemonth. The budget gave a comprehensive sum-up of the fiscal program of the authorities, giving inside informations of its expected degrees of grosss every bit good as outgo for the 2010/2011 financial twelvemonth. Of the many countries of concern raised in the Budget by the Minister of Finance, rising prices and authorities outgo take precedency in this analysis.
Due to the high degrees of rising prices in Trinidad and Tobago, the paper seeks to turn to the impact that assorted pecuniary and financial policies proposed by the authorities in the 2010/2011 Budget Statement have on rising prices. The positive and negative effects of pecuniary and financial policies on rising prices will be examined. Further, the paper will besides analyze the countries of authorities disbursement for the financial twelvemonth 2010/2011 with the purpose of placing alterations in outgos forms of the authorities and warranting ground for outgo in certain sectors in this tough planetary economic clime. Time series informations was utilized in order to find tendencies and find major alterations in authorities outgo.
Suggestions were besides made in an attempt to place certain programs that the authorities should see and policies that it should supervise based on its current policies which it intends to set about.
The job of rising prices is one which plagues most underdeveloped states every bit good as developed states in recent times. Inflation is characterized by additions in the overall monetary values degrees in a state over a period of clip. In recent clip headline rising prices in Trinidad and Tobago has been influenced chiefly by billowing nutrient monetary values while nucleus rising prices has remained comparatively stable. Headline rising prices measures the extent of alterations in the monetary values degree of all goods and services within an economic system whereas nucleus rising prices can be defined as headline rising prices minus other volatile constituents such as nutrient monetary values. Based on the Central Bank of Trinidad & A ; Tobago Annual Economic Survey for 2009, alterations in headline rising prices from 2005 to 2009 was chiefly due to alterations in nutrient monetary values, during which nucleus rising prices was comparatively stable. This postulates that alterations in the overall rising prices rate which is referred to as headline rising prices was due chiefly to alterations in nutrient monetary values during which nucleus rising prices remained comparatively changeless. Further, the Summary of Economic Indicators June 2010 by the Central Bank of Trinidad & A ; Tobago has summarized that headline rising prices rose to 13.7 per centum from June 2009 to June 2010 chiefly due to nutrient rising prices which increased to 31.1 per centum during this same period, while nucleus rising prices remained changeless during the twelvemonth at 4.3 per centum.
The Trinidad and Tobago 2010/2001 Budget Statement estimations were made based on an mean rising prices rate of seven per centum. This figure can be identified as the Government prognosis for rising prices for the financial twelvemonth. The budget statement identified rising prices as a concern with peculiar accent being placed on nutrient monetary value rising prices. Inflation reduces clients ‘ buying power and therefore it becomes more hard for people to get basic goods and services. Therefore, it becomes imperative for Government of Trinidad and Tobago to set step in topographic point to cut down rising prices and besides to guarantee that policies implemented to advance assorted sectors within the economic system have small or no inflationary effects.
In the budget statement, the authorities proposed programs to regenerate the agricultural sector in an attempt to increase nutrient production and spread out the agricultural sector. The authorities farther identified factors such as H2O resource direction, drainage and irrigation as paramount to its public sector investing programme tailored towards doing agribusiness more profitable. In add-on it proposed certain enterprises such as the sweetening of the Agricultural Development Bank which will supply a Loan Default Fund installation to help husbandmans with natural catastrophes and involvement payment, the decrease of involvement rates to between three and five per centum and the handiness of 20 million dollars for nursery undertakings.
All these enterprises as reference before are geared towards doing agribusiness more attractive, more profitable and more productive in an attempt to cut down the nutrient import measure of Trinidad and Tobago. Due to the deficiency of a productive agricultural sector in Trinidad and Tobago, fluctuating oil monetary values and the planetary fiscal crises, the cost of importing good such as nutrient points has become more expensive. As a consequence, this higher cost is being passed on to consumers in the signifier of higher monetary values. This type of rising prices is referred to as cost push rising prices. Cost push rising prices causes a contraction in aggregative supply and with aggregative demand staying unchanged, the concluding consequence is an increased in overall monetary values. Therefore, if the enterprises undertaken by the authorities are successful and consequence in an addition in the production of nutrient locally in Trinidad and Tobago, this could cut down the figure of nutrient points which are imported, therefore diminishing the nutrient import measure. Food monetary values will fall and later headline rising prices as alterations in nutrient monetary values is the major subscriber to alterations in headline rising prices.
Monetary policy can besides be used to beef up the local agribusiness sector. The Budget besides supports the Trinidad and Tobago Central Bank ‘s decrease of the Repo rate to 4.5 per centum with farther decreases to be expected. The repo rate is one of the pecuniary instruments used by the Central Bank of Trinidad and Tobago. The Repo rate was introduced by the Central Bank of Trinidad and Tobago in May 2002 and it is the rate at which the Central Bank is prepared to supply financess nightlong to commercial Bankss that are unable to run into their liquidness demands. This decrease in the repo rate to 4.5 per centum is expected to cut down the involvement rate in an attempt to pull investing. Lower involvement rates are expected to pull investing from the private sector and besides foreign companies in an attempt to increase aggregative supply chiefly through increased nutrient production and therefore cut down overall monetary values degrees. A lower involvement rate can take to an addition in investing which raises aggregative outgo as purported by the Keynesian Cross. This increases existent gross domestic merchandise which farther consequences in an enlargement of the aggregative supply curve and a decrease in monetary value degrees.
The Central Bank utilizing accommodating pecuniary policy demands to guarantee that the money supply does non turn excessively quickly doing rising prices. Accommodating pecuniary policy most times consequences in additions in the monetary value degree. Milton Friedman, a celebrated economic expert stated that “ rising prices is ever and everyplace a pecuniary phenomenon in the sense that it is and can be produced merely by a more rapid addition in the measure of money than in end product. ” The Classical school of though is based on the measure theory of money which is given by the equation MV=PY where M refers to the money supply, V refers to the speed of money, P refers to the monetary value degree, Y refers to the existent current gross domestic merchandise and PY refers to nominal gross domestic merchandise. The Classical school of idea believes that V and Y are changeless and hence, any alterations in the money supply by the cardinal bank will hold a direct impact on the monetary value degrees. Therefore, it is imperative that the Central Bank guarantee that the money supply does non increase excessively quickly and besides that if the money supply does increase it is as a consequence of alterations in end product.
The authorities in its attempt to better the production of oil and gas has reduced the crude oil net income revenue enhancement from 50 per centum to thirty five per centum. In add-on, due to the decrease in oil production over the past decennary by about 20 five per centum, the authorities decided to revise the Supplemental Petroleum Tax Regime with a new system which will utilize base rates and a skiding graduated table mechanism for both Marine and land operations. The authorities besides provided inducements which includes a 20 per centum decrease in the Supplemental Petroleum Tax rates for mature or little oil Fieldss, an Investment Tax Credit of 20 per centum on measure uping capital outgo in regard of the Supplemental Petroleum Tax for mature oil Fieldss both land and Marine. High energy cost in some industries will ensue in higher cost to consumer and a decrease in aggregative supply. Since oil and gas is used in about all industries in some manner or signifier, the decrease in these revenue enhancements could ensue in a autumn in cost to companies both within and outside the energy sector. The lower cost of inputs would take to an addition in aggregative supply. Additionally, lower operating cost can be passed on to consumers in the signifier of lower monetary values. However, it is of import to observe that if existent end product does non increase, this would ensue in a contraction in aggregative supply. This would take to and increase in the overall monetary value degrees and later periods of falling existent GDP. This phenomenon is referred to as stagflation. Stagflation is characterized by periods of falling end product and additions in the monetary value degree.
Situations like the CLICO Fiasco, the fiscal state of affairs confronting the Hindu Credit Union and other economic and societal policies pursued by the authorities, has prompted an addition in budgeted outgo from about $ 44 billion last financial twelvemonth to $ 49 billion this new financial twelvemonth. Government outgo is a cardinal constituent of sum outgo which helps find the degree of gross domestic merchandise. The gross domestic merchandise of Trinidad and Tobago is made up chiefly of grosss from the oil and energy sector. However, there has been worsening production of oil over the past 10 old ages of about 20 five per centum from 130,000 barrels a twenty-four hours to 103,000 barrels a twenty-four hours and based on the Annual Economic Survey 2009 from the Central Bank of Trinidad and Tobago, there has besides been a uninterrupted autumn in existent GDP growing from 2006 to 2009 fell where in 2009 negative three per centum of existent GDP growing was registered. The Keynesians argued that increases in aggregative outgo caused by additions in ingestion, investing, authorities disbursement or net exports can take to an inflationary spread when existent GDP exceeds possible GDP. Thus and increase in authorities disbursement as purported by the Government of Trinidad and Tobago for this financial twelvemonth can ensue in an inflationary spread.
Furthermore, the budget besides highlighted that the authorities owed contractors monies amounting to about $ 4 billion while there were outstanding VAT refunds still had to be paid in the sum of $ 2.8 billion. This deficiency of financess by the authorities has resulted in concerns sing hard currency flow job. This makes it really hard for concerns to run into their fiscal duties. Besides, based on the stock list system that the concern uses whether it be “ First In First Out ” or “ Last In First Out ” it can be highly hard for the concern to refill stock in periods of rising prices and can farther impact the gross that the concern generates. As a consequence concerns may non hold the necessary hard currency to refill stock list which can ensue in limited supply which can attest itself into even higher monetary values for clients in order for concerns to run into with the addition cost of stock list. Thus it becomes of import that the authorities find ways to help those concerns and pay off monies owed to these concerns in an attempt to increase the hard currency flow within these concerns and prevent monetary values from lifting farther due to hard currency flow job being experienced by concerns.
Although the impact of authorities policies on rising prices is really of import, it is besides of import to analyse the degree of authorities outgo for this financial twelvemonth 2010/2011 for Trinidad and Tobago. The Minister of Finance in his budget reference stated that the computations in the 2011 Budget were made based on a existent GDP growing rate of 2 per centum, mean rising prices of 7 per centum, oil monetary value of US $ 65 per barrel and gas monetary value of US $ 2.75 per mmbtu. The entire authorities outgo for this financial twelvemonth for Trinidad and Tobago was estimated at TT $ 49 billion. Government disbursement comprises transportation payments, current outgo and capital outgo and is financed by grosss raised through revenue enhancements or authorities adoption or a combination of both. Government disbursement is a critical constituent of entire outgo and some of its maps include supplying public and merit goods, advancing economic activity, act uponing resource allotment, stabilising the economic system and the redistribution of income and wealth. When authorities uses authorities outgo and revenue enhancements to act upon the economic system, this is referred to as financial policy.
Based on the Central Bank of Trinidad and Tobago, Annual Economic Survey 2009, there has been an overall addition in authorities outgo from the financial twelvemonth 2005/2006 to 2010/2011. In 2005/2006 authorities outgo was TT $ 31 197.9 million, in 2006/2007 it was TT $ 37 765.9 million, in 2007/2008 it was TT $ 44 715.1 million. In 2008/2009 where the state experienced its first shortage in seven old ages authorities outgo was TT $ 45 584.2 million, in 2009/2010 it was TT $ 44 347.3 million and 2010/2011it is estimated to be TT $ 49 billion. It is besides of import to observe that most constituents of authorities disbursement during this same clip were besides increasing such was current outgo, outgo on goods and services, rewards and wages and involvement payments. During most of this period authorities disbursement as a per centum of GDP increased from 27.8 per centum in 2006/2006 to 32.5 per centum in 2008/2009. However in 2009/2010 authorities outgo as a per centum of GDP fell to 31.3 per centum. Therefore over the past five old ages authorities disbursement has increased by about TT $ 18 billion.
In the 2010/2011 Budget statement, there was a dislocation on some of the countries of outgo. Education and preparation received TT $ 8 325 million, Infrastructure received TT $ 5 918 million, Health received TT $ 4 341 million, National Security received TT $ 4 762 million, Agriculture received TT $ 1 836 million and Housing received TT $ 1 837 million. The authorities proposed outgo form is an effort to cut down rising prices, surrogate economic growing and development and supplying a better criterion and quality of life for the people of Trinidad and Tobago.
The authorities of Trinidad and Tobago has identified national security as one of its major countries on concerns. As of October twenty-seventh 2010, Trinidad and Tobago had recorded a sum of four hundred and one slayings. Crime has escalated in Trinidad and Tobago and the safety of occupant and visitants are of import. As a consequence the authorities has a projected outgo figure of TT $ 4 762 million for national security. Perennial outgo for national security from 2004/2005 to 2008/2009 has increased from TT $ 1 874.5 million to TT $ 3 870.2 severally. This shows the continued disbursement by the authorities towards advancing jurisprudence and order and cut downing offense. The authorities besides has provided a particular responsibility allowance of TT $ 1000 for more than 7000 constabulary officers with revenue enhancements on this allowance waived. This addition in allowance can be used as a tool to actuate constabularies officer in executing their responsibilities. The authorities will besides set about enterprises such as the renovation and upgrading of constabulary Stationss, debut of motorcycle patrols, the constitution of a National Security Operations Centre and a Particular Criminal Court to hasten the tribunal procedure.
From 2004/2005 to 2008/2009, recurrent outgo for Agriculture has increased continually from TT $ 362.9 million to TT $ 586.1 million severally. However, perennial outgo in agribusiness is non a important portion of perennial outgo as other countries such as wellness, instruction and energy. Therefore, Trinidad and Tobago ‘s authorities outgo in Agriculture is brooding of the authorities enterprise to do agribusiness more profitable and increase the local production of nutrient. As mentioned before this venture is undertaken in an attempt to cut down the nutrient import measure of the state and farther cut down the degree of rising prices caused by nutrient monetary values. Besides, this could ensue in additions in Agriculture part to gross domestic merchandises therefore doing the state less dependable on energy and its associated merchandises as its primary class of gross.
Further, outgo in wellness has increased from 2004/2005 to 2010/2011. The Minister of Finance in the budget highlighted that wellness was another major issue confronting Trinidad and Tobago. As a consequence outgo in this sector will be geared towards the proviso of equal and timely wellness services to the citizens of Trinidad and Tobago. Government outgo in the wellness sector will include outgo to construct new wellness installations such as infirmary, upgrade and expand current wellness installations and services, better entree to wellness services, cut downing catching diseases and bettering wellness attention direction. These enterprises in the wellness sector reflect the importance of wellness services and how of import it is for individual to hold entree to adequate and proper wellness services.
This financial twelvemonth, instruction and preparation accounted to about 17 per centum of entire authorities outgo. The authorities has realized that cognition is a critical constituent of an economic system and as a consequence the authorities will go on enterprises such as the GATE programme and besides restructure the On the Job Training programme. Some economic experts believe that cognition does non see decreasing returns. Therefore, this reflects positively on the economic system of the state as the state may even make up one’s mind to sells reding services which is an enterprise that Trinidad and Tobago are prosecuting.
Furthermore, the authorities has besides decided to apportion about 12 per centum of its entire outgo to substructure. Enterprises include supplying individual with a steady H2O supply and other basic comfortss, implementing inundation extenuation programs and the cleansing and de-silting of rivers. Besides, sights and several attractive forces will be upgraded. This is in an attempt to market Trinidad and Tobago as a major touristry finish which will further creates occupations and increase the part of touristry to gross domestic merchandise. Therefore, this will besides do the state less dependent on energy and its merchandises as the state ‘s chief beginning of gross.
It is besides of import to observe from the Central Bank of Trinidad and Tobago Statistics that from 2004 to 2009 authorities outgo on countries such as goods and services, rewards and wages and transportation and subsidies increased continuously. For illustration, authorities outgo on goods and services increased from TT $ 2, 440, 407 000 in 2004 to TT $ 5, 860, 175 000 in 2009 which marks an addition of about 58.35 per centum over the five twelvemonth period. This once more reflects the high import measure particularly on nutrient points for Trinidad and Tobago over the past 5 old ages. The uninterrupted additions in outgo on rewards and wages paid by the authorities during this same period reflect the fact that the authorities is the chief employer within the economic system.
This paper has sort to place the consequence of authorities policies and outgo forms on rising prices and an analysis on authorities outgo. The paper highlighted that certain enterprises undertaken by the authorities could assist in cut downing the overall monetary value degree in the state. These enterprises include the revival of the agricultural sector, increased authorities outgo, decreases in the Petroleum net income revenue enhancement and a decrease in the repo rate. The revival of the agricultural sector is geared towards cut downing the nutrient imports measure and later nutrient rising prices. The decrease in the repo rate is in an attempt to take down commercial Bankss involvement rate to excite investing in certain countries such as fabrication with the end of cut downing imports and later nutrient monetary values and rising prices. The decrease in the crude oil net income revenue enhancement to 35 per centum is in an attempt to excite oil production which has been worsening over the past few old ages. However, as highlighted earlier in the paper, these enterprises need to be monitored careful as they can take to farther inflationary force per unit areas. For illustration, a decrease in the repo rate can trip lowers involvement rates, Bankss sing extra liquidness and increased degree of investing increases the money supply and leads to rising prices as argued by classical economic experts.
The paper besides commented on authorities outgo and identified an addition in authorities outgo from the old financial twelvemonth to this financial twelvemonth. Government outgo in cardinal countries such as instruction, wellness, substructure and national security increased over the past few old ages. National security and wellness were two major countries of concern for the authorities which received important budgetary allotment by the authorities. The addition in offense and anarchy has caused authorities to set step in topographic point to seek to control the offense job in the state and besides actuate the constabulary to transport out their responsibilities. Besides, the authorities program to better the wellness sector was reflected by the authorities ‘s budgetary allotment for the sector. The authorities besides increased its support in the agricultural sector in an attempt to do agribusiness more profitable and increase the production of nutrient. The authorities besides allocated grosss in other countries apart from energy in order to happen alternate sustainable beginnings of gross such as agribusiness, touristry and fabrication.
It would be recommended that the authorities continue to prosecute it agricultural enterprises and derive ways to do agribusiness more attractive to persons in its attempt to do the sector more productive and profitable. In this manner agribusiness can lend more to GDP both in the primary and secondary sectors as agricultural merchandises are diversified and used into other sector such as fabrication. This would besides take to other sector such as fabricating lending more to GDP and cut down the state ‘s trust on chiefly grosss from the energy sector. Besides, the authorities would hold to happen ways to command the money supply which could take the signifier of selling authorities exchequer measures and bonds. This would be in an attempt to get by with the extra liquidness faced by commercial Bankss. In add-on, due to the depletion of the natural resources available to the state which is reflected in the decreasing sum of oil produced for the past old ages, the authorities would be advised to develop other sector such as agribusiness, fabrication and touristry to increase the part of other sectors towards gross domestic merchandise. It is know that an Open Petroleum Economy such as Trinidad and Tobago is one where rapid additions in GDP exist aboard high degree of unemployment. Harmonizing to the Open Petroleum Economy Model if anything negative happens to the oil sector the full economic system can endure due to high dependance on that one time sector. Seers argued that such a theoretical account represent a clip bomb based on the balance of payment jobs it can present and how the wealth generated from it can vanish nightlong. Therefore, it becomes progressively of import for Trinidad and Tobago to diversify into other sector of the economic system. The state can prosecute the fabrication of some of the nutrient which it imports and besides prosecute sustainable touristry development which can take to increased employment. This would do the state less dependent on chiefly oil as its chief beginning of gross as it presently the instance. Further, the authorities should be highly careful in its disbursement forms and will be encouraged to pass in countries which will be productive to the state and profit the citizens of the state. Spending should concentrate chiefly on supplying citizens with basic necessity points such as public and merit goods and proper societal substructure. In this tough economic clime, the authorities should be really critical of the countries in which it spends money as inordinate disbursement can hold negative effects on the economic system such as rising prices.