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Government’s balancing act paying off
Every budget and budget review seems to send commentators into convulsions. A few seem to get so distressed picking away the flesh from Government strategies and achievements that they probably end up with acute acid reflux, if not pneumonia from the sudden downpour of rain. Certainly, the valid comments of our economists shouldn’t be ignored.
The Government, like others everywhere, sometimes leave us feeling disappointed. But, in the context of the 2018 Mid-year Budget Review, evidently, its painstaking research and evaluation of the country’s state of affairs, its strategies for negotiating contracts in the energy sector while simultaneously restraining spending and increasing production output were significant contributors to the positive trends.
Petroleum revenues fell by 90 per cent from “over $20 billion in 2014 to less than $1 billion in 2016.” That posed a major challenge for the new Government, and its decision to curtail spending, keep wages stable, “raid” the Heritage and Stabilisation Fund and improve efficiency were all sound strategies to keep the ship afloat.
It brought expenditure down from $62 billion in 2014 to $50 billion in 2018. We had heard sad songs about the country’s debt to GDP ratio, which was 62 per cent in 2017; now, reportedly it’s 55 per cent below the planned 65 per cent. Ambulance sirens blared when it raided the HSF. The net asset value of that fund is now approximately US$5.87 billion as against US$5.65 billion in September 2015.
Economic growth for 2018 is estimated at 2.0 per cent, 2.2 per cent in 2019 and 2.5 per cent in 2020. While caution is sounded as the economy is still weak, there is reason for the Government to be pleased about its performance, as an expansion of activities occurred both in the energy and non-energy sectors. Notably, the collection of corporate tax from the non-energy sector increased from $1.8 billion to $2.3 billion over the period 2016 to 2017 as a result of increased taxes and growth. At the end of 2017, inflation was at a record low of 1.3 per cent below the global average of 3.5 per cent.
The critical issue of foreign exchange shortages must be dealt with, but all too often, the advocates of a devaluation don’t mention the inflationary downside. A devaluation would lead to price increases of essential items. It is easy for citizens to adjust their menus to local products. However, the cost of transportation, medicines, education supplies, maintenance of equipment and supplies and a variety of other items critical to the functioning of businesses across all sectors would increase including agriculture and agro-based products. Local food prices would rise. As profit margins tighten, there would be job losses.
No doubt the Government has weighed the pros and cons of a devaluation and the importance of timing.
Overall, the Government has managed the economy well with a minimum loss of jobs as compared with the eighties depression, when there were widespread retrenchment, wage cuts, mortgage defaults, business failures and increased bad debt ratios of banks.
Presently, the job market is tight and that needs a close examination as there are technology and other developments rendering many jobs obsolete. The most vulnerable live in dire circumstances, there are thousands of unemployed and unemployable youth some of whom are making mischief everywhere, many qualified persons can’t find work, and we are not getting a sense of improvements in the quality of life.
Regrettably, things that could make a difference to how we see our country are neglected. Maintenance is poor. Surely, there are able-bodied people, perhaps CEPEP, who can clean up the environment.
According to the Budget Review report, there are initiatives in health, agriculture, housing, road infrastructure and education to name a few.
The concerns of Standard & Poor’s are worthy of note: exchange rate pressures, restrictions on assessing foreign currency, negative yield differentials on short-term-treasury securities relative to those of the US, historical gas supply shortages, the Government’s fiscal consolidation measures in shrinking the deficit, and the need for institutional reforms. Moody’s made similar comments.
The Government must address these valid concerns while justifiably feeling enthusiastic about the positive trends and its performance.
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