Panday warns of budget deficit, urges government to review expenditure

When Trinidad and Tobago's minister of finance presented her $49.5 billion 2008-09 budget last month the price of oil was over US$100 a barrel, so the government used the conservative figure of US$77 a barrel to calculate its estimates. Now with oil suddenly plummeting to US$77.49 a barrel at the close of trading on Friday, opposition Leader Basdeo Panday is advising the administration to cut its spending or end up with a budget deficit.

Panday warned of trouble ahead and suggested the government should have used a more realistic estimate of US$50 a barrel.

“Because of the meltdown in the United States, the demand for oil is falling, and as the demand falls, the price of oil will fall,” the former prime minister noted.

Panday added, “You would recall that soon after the budget presentation, I was asked to comment, and I said the boom was over, and that is what is happening.”

Panday suggested that the government go back to Parliament to seek an adjustment to the spending, not to change the entire package.

“The budget need not come back to Parliament. If they don’t get the estimated revenue, all they have to do is cutback on the expenditure and still have a balanced budget...On the other hand, if they continue with the spending and the revenue falls, they will have a budget deficit, and this will lead to inflation.”

Junior Finance Minister Mariano Browne has explained that changes in international factors happen all the time so it is not realistic to make changes every time there is a price fluctuation.

But observers say what is happening today is not a momentarily fluctuation but a significant change in the global financial landscape where investors are starting to shift away from the volatile commodity market.

The other dark cloud on the economic horizon, international experts say, is the poor state of the U.S. economy that's heading into a deep recession.

The Manufacturers’ Association (TTMA) is also concerned about the implications. In a statement Friday it said the rapid decline in oil and gas prices coupled with the global financial crisis, “certainly brings into sharp focus the issue of the Government’s projected expenditure for the 2009 fiscal year.”

It suggests that the high levels of government expenditure “may not be sustainable in the context of a declining oil price.”

The TTMA fears that the high level of expenditure would keep pushing up inflation, which is way above the last reported figure of 13.5 per cent, a concern that Panday has also expressed.

The TTMA says it hopes "the Government would exercise greater fiscal prudence in its utilisation of the revenue that is being generated from the hydrocarbon sector.”

The South Trinidad Chamber of Industry and Commerce (STCIC) has also urged the government to revise the budget.

A release from the chamber's president, Charles Percy, said in view of the changing economic situation, particularly the drop in oil prices, "the Government would be well-advised to take a cautious approach and so be ready to revise budgeted expenditure, if this becomes necessary."

Percy also warned of a significant risk that prices could fall further causing a greater global and domestic fallout.

The government came under heavy criticism last week for its decision to buy 200 luxury vehicles for $100 million for next year's Summit of the Americas and Commonwealth summit, both of which are being held in Port of Spain. It's part of overall spending estimated at more than half a billion dollars for the international conferences.