Address to the nation by the Honourable Patrick Manning, Prime Minister of Trinidad and Tobago
PORT OF SPAIN, Trinidad – The Honourable Patrick Manning, Prime Minister of Trinidad and Tobago gave his address to the nation on Sunday, November 30, 2008.
Address to the Nation
In my previous address to you, I promised to bring you up to date on the adjustments that the Government will make to deal with our shortfall in revenue arising from the present difficulties in the international economy.
Honourable Patrick Manning
Background
Before going further however, it is important to remind you that this entire situation emanated outside of Trinidad and Tobago. It started with the sub prime mortgage crisis in the United States of America, when hundreds of thousands of individuals and families in the world’s largest economy, were persuaded by banks, lending agencies and mortgage companies to borrow significant sums of money, without adequate security, to buy houses they could not really afford. When the adjustable interest rates began to move upwards, borrowers, no longer able to service their loans, either defaulted on their payments or abandoned their homes.
This started an epidemic of foreclosures that swept across the length and breadth of the United States, producing a devastating effect on the balance sheets of leading financial institutions; reduced the pool of money available for lending; placed the entire financial sector in crisis; and led to the collapse of long standing institutions like Lehman Brothers and Merryl Lynch. It is only the intervention of the Government of the United states with bailouts involving hundreds of billions of US dollars that saved other long standing institutions from going under.
Worse still, in the globalised financial sector, this situation had a ripple effect throughout the world as these sub prime mortgages, grouped together and sold as asset-backed securities, involved banks and financial institutions across the globe. They too suffered severe losses, were disastrously weakened and were threatened with insolvency in many outstanding cases. The world then experienced what has been called a financial Tsunami. It was only the intervention of the state in many countries that saved leading financial institutions all over the globe from complete collapse.
The result of all this, my Dear Friends, is that the pool of funds available for lending has been drastically reduced, causing a credit crunch in all industrialised nations and consequently a slowing down of the global economy. It simply means Ladies and Gentlemen that, without the ability to borrow money to make projections, buy equipment or even pay wages, hundreds of thousands of businesses have either scaled down or folded up all over the world.
Consequently unemployment continues to rise; purchasing power has been reduced; and demand and prices have dropped for products in all markets.
Trinidad and Tobago, like all other countries, is feeling the effects of this ongoing situation, particularly through the loss of revenue. We must adjust and, after careful and deliberate consideration, we have decided on the way forward for our nation.
Five considerations
But before announcing the measures agreed by the Cabinet, I think it is important to outline five major considerations that we took into account in making our decision.
1. The first is the unfolding world economic developments. In this globalised world of interconnected economies, all major countries have a very strong interest in seeing a return to global growth in the shortest possible time. Therefore there will be a follow up economic summit of leading industrialised and emerging countries early next year to decide on the specifics for leading the world economy out of this difficult situation. There is clearly determination to succeed and there is now an emerging view, already expressed by world leaders, that the financial crisis could be over by the end of 2010.
With the realities of interdependence and the sense of urgency in all major capitals, there is the increasingly credible forecast that it should not to be too long before we begin to see signs of economic resurgence which could develop rapid momentum, given the fact that it would be the result of concerted efforts by all the major driving forces of the world economy. In other words, Ladies and Gentlemen, the slowdown does not have to turn into a slump, and buoyancy could bounce back sooner than expected. We must bear in mind this strong possibility as we make our present adjustments.
2. The second matter we considered in making our decision is the growing strength of our own economy, achieved over the last seven years and reflected in the many ways that I outlined to you on the last occasion, including the lowest level of unemployment in the history of the country and our savings which today amounts to 18.2 billion dollars in the Heritage and Stabilisation Fund, about eighteen times its size in 2001. I must remind you of the decision in 1992 to enter into the LNG industry, a decision which has brought enormous revenue to Trinidad and Tobago. In fact gas revenues now account for 60% of the energy revenues of the country.
In addition in the Infrastructure Development Fund, at the end of September 2008, we had savings in the amount of 5.96 billion dollars. In other words, My Friends, in the management of our economy, we have been preparing for any eventuality, including a situation like this.
We have also been quite careful in our spending. In fact in the last financial year, out of a budget of 54 billion dollars, 10.4 billion dollars were not spent, but
• 6.58 billion went to the Heritage and Stabilisation Fund;
• 2.7 billion dollars were retained in the Infrastructure Development Fund;
• 305 million dollars were accumulated in the Green Fund; and
• 900 hundred million dollars in unspent balances went back to the consolidated fund;
It is therefore an undisputed fact that we saved a total of 10.4 billion dollars from last year’s budget. This is very clear evidence that there was no excessive spending as some commentators have been continually claiming, thereby misleading the public. I repeat that instead of the fifty four billion dollars we projected to spend in the last budget, we actually spent a little over 43 billion and realised a savings of 10.4 billion dollars.
In addition to savings and spending for development, we have also been able to reduce the debt of the country. Between 2002 and 2008, we paid over 32 billion dollars in debt servicing. Today as a result external debt stands at 6 percent of GDP and public debt, at 28 percent, down from 58.3% in 2000.
3. The third very important fact we took into account is that Trinidad and Tobago is not in a recession. There must be no mistake about this. In fact, notwithstanding the slowdown and loss of revenue, the International Monetary Fund itself has projected that our economy would have grown by 3.5% in fiscal year 2008 and should grow by 2% in 2009.
As expected, the projection is for reduced growth, but it speaks volumes for the strength that our economy has developed, particularly over the last seven years. Today, we can weather this storm better than many countries including developed nations.
4. The fourth and possibly the most important consideration is that, in this situation, we must do our best to avoid a recession in Trinidad and Tobago. A recession, My Friends, means very significant loss of jobs and a measure of human despair and suffering that could severely threaten the social fabric and reverse many of the important gains we have made in our development over the last few years. In our handling of the present situation, we must do our utmost to avoid sending our country into a recession. And this we shall do.
5. And therefore, Ladies and Gentlemen, the fifth consideration in making our decision is that, if we are to avoid a recession in these challenging times, we cannot take the contractionary approach to our economic development. We cannot completely shut down, for example, the development programme of Trinidad and Tobago. This is the engine of growth. The country must be kept going, even though at a slower pace, but it must keep moving. We cannot stand still. Not in this situation. Stagnation leads to decline.
The Government has a special responsibility under these circumstances, to ensure that our economy is kept in motion; that people are kept employed; and that the social fabric is strong.
The new measures
The five considerations that I have just outlined, among others, have informed the approach we have adopted to the reduction in expenditure that we need at this time of economic slowdown; and which we are sure will prevent a descent into recession. Additionally, after our meticulous review, we have now determined that, at current projected commodity prices, instead of 6 billion dollars, we would actually fall short by 5.3 billion dollars. Considering everything Ladies and Gentlemen, difficult decisions were required.
Therefore the Cabinet decided that the following are the adjustments to the present budget to deal with the expected shortfall of 5.3 billion dollars.
Serious cuts were required, and consequently we will reduce recurrent expenditure by 3.6 billion, a cut of 6.5 percent; and we will cut our capital expenditure by 1.4 billion a reduction of 16.1%.
Ladies and Gentlemen, the gravity of the situation is underscored by the fact that despite these huge reductions in expenditure, the loss of revenue is so serious that we are now still projecting a deficit of 741 million dollars. With fluctuating prices, we anticipate that this situation could be reversed with an increase of a mere twenty five US cents per MMBTU in the price of natural gas.
We have not taken this situation lightly. Hard decisions have been made. Significant adjustments have been made in every area of the budget. Though no major developmental works will be shut down, all Ministries and other heads of expenditure in the Budget have been cut. We examined all of the forty two heads of expenditure, line by line, including those for the municipal and regional corporations, statutory bodies and made the required adjustments. This resulted in the very significant reduction of 4.55 billion dollars. Had we not taken this approach, we would have had to go into deficit financing, which simply means that we would be spending more than we are earning. We are determined to avoid this route at this time, because of its consequences, not the least of which is the higher cost of borrowing which affects public and private enterprises and individual citizens.
The government will guard against high interest rates to prevent our citizens from losing their homes because they cannot pay their mortgages or service their debts.
Permit me now to point out some of the areas that will be affected as a result of our decisions.
• There will be a slowdown in construction of new schools but all programmes of the Ministry of Education will continue;
• We will continue the pursuit of the best health care system for the people of this country, but some major infrastructural projects, like the new hospitals planned for Couva and Port of Spain will have to be deferred;
• There continues to be an urgent need for affordable housing in Trinidad and Tobago. Regrettably, we will start no new housing units at this time. However all housing units under construction will be completed as well as preparatory works for projects already on the drawing board. We will also expedite the distribution of those houses already completed;
• The start of construction of the Carnival Center will be postponed;
• The illumination of public places by T and TEC will be slowed; and
• There will be a reduction in infrastructural improvements in communities by special purpose state enterprises.
At the same time I wish to assure the national community of the following:
• there will be no cuts in salaries and wages;
• there will be no cuts in old age pension;
• there will be no cuts in disability grants;
• there will be no cuts in any social assistance programme of any kind. We will maintain expenditure in these areas;
• there will be no cuts in the programmes dealing with the fight against crime. The budgetary allocations have remained untouched; and
• there will be no cuts in the training programmes such as OJT, MUST, YAPA, HYPE, and YTEPP.
In so far as the CEPEP and URP are concerned, I give the undertaking that there will be no cuts in these programmes. We will continue our present efforts to achieve greater efficiency effectiveness and productivity in these areas. The national community must be reminded that during the recent flooding, it was workers from URP and CEPEP, together with employees of the Local Government bodies who provided invaluable assistance to bring relief to those affected. They also helped tremendously in the restoration of normalcy to the affected areas.
My dear friends, we are convinced that we have achieved the reduction in our expenditure in the best possible way. There were other options available. You would notice that we did not dip into our savings; we did not approach international lending agencies for financing with concomitant conditionalities ; and we did not remove the subsidy on gasoline which amounts to in excess of two billion dollars every year. This is a tribute to prudent management and the strength of our economy. It also sends a very strong message to the international community about the fiscal discipline in Trinidad and Tobago. We have also, most importantly, kept the development of the country on track.
Fellows citizens, with this approach we will keep our economy growing, albeit at a slower pace; we will keep unemployment to a minimum; and we will save our people from the extremes of anxiety and dislocation that could otherwise result. Let me also state that we will keep the situation under constant review and by the middle of the present financial year, we will determine if any further adjustments need to be made.
Conclusion
My friends, the Government will do its part to ensure that Trinidad and Tobago will overcome the challenges that are before us. But the Government cannot do it alone. All citizens must play their part. We need all hands on deck as we make this rough crossing.
Productivity is required more than ever. It is a very competitive world and the fight for market share could become even more intense as all countries struggle to keep their economies afloat. Our products must become even more competitive and therefore efficiency and productivity are now more critical than ever.
We must all work harder, improve our skills and competencies, and be prepared to make sacrifices for the good of our country in these challenging times.
The Government is cutting back on expenditure and it would be wise for you to do the same. Save wherever possible and as prices fall you will have increased opportunity to save for a rainy day. There should be no excessive spending especially when you cannot afford it. Restraint is now required.
The Government is determined to ensure that, as a result of this slowdown all reductions in prices, particularly in the cost of food, will be passed on to the consumer. The Minister with responsibility for Consumer Affairs, The Hon. Peter Taylor has therefore been directed to ensure that profiteering at the expense of the people does not take place, and he will be reporting regularly on the matter to the national community in the coming weeks.
In these challenging times, those who are employed must cherish and protect their jobs. They can do so by giving a fair day’s work for a fair day’s pay and being very reasonable in any future wage demands. Employers must also remember their sacred duty to protect their employees. In this way businesses remain viable. At the same time, those who represent workers must play their part by recognising the present realities. We must all come together, labour, government and private enterprise, to start the dialogue for the good of all. I intend to ensure that this happens as soon as possible.
I know our citizens will rise to the occasion and demonstrate the strength of character that the situation requires. I give you the assurance that the Government will do all that is required in the present circumstances. Together we will ensure the continued progress, security and stability of Trinidad and Tobago.
