Imbert taps HSF for US$1.2b in 2020

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Imbert taps HSF for US$1.2b in 2020

DURING 2020, the Government withdrew approximately US$1.2 billion from T&T’s sovereign wealth fund, the Heritage and Stabilisation Fund (HSF).

That sum covers the period January 1, 2020 to December 31, 2020 and the money was drawn down in two fiscal years — 2020 and 2021.

In fiscal 2020, US$900 million (over $6 million) was withdrawn from the Fund and so far for fiscal 2021, US$300 million (about $2 billion) has been withdrawn for budget support. In T&T, the fiscal year starts on October 1 and goes to September 31.

Last week Finance Minister Colm Imbert said that the first four months of the fiscal year T&T had an almost $2 billion deficit and the Government has had to dip into the country’s Heritage and Stabilisation Fund (HSF) to meet the shortfall.

The HSF has been a cushion for T&T’s economy as the Government has used it when it has struggled with revenue to meet salaries and other budgeted expenditure.

For the period 2016-2020, the Government withdrew US$1.6 billion.

At September 2020, the fund stood at US$5.73 billion.

To mitigate the effects of Covid-19 on the economy, the Government initiated a comprehensive stimulus package which needed funding, some of which came from the HSF.

On March 26, 2020, an amendment to the HSF Act was passed in Parliament to allow for withdrawals of up to US$1.5 billion during the financial year, in the event of a health crisis, a natural disaster or a precipitous drop in budgeted revenue.

During his budget contribution last October, Finance Minister Colm Imbert said that “it is worth noting that there is nothing unusual about this, as governments all over the world have been turning to their sovereign wealth funds to finance the impact of the structural change in global energy markets and to deal with the economic fallout resulting from the Covid-19 pandemic.”

Last week, Imbert said the Government has so far borrowed for direct budget support and withdrawn an additional $2 billion from the HSF to pay salaries, wages and pensions and both primary and parallel health care functions.

To meet budgeted expenditure, Imbert said the Government will embark on a mix of savings, borrowings and restructuring of heavily subsidised state enterprises such as the Water and Sewerage Authority (WASA) and the Trinidad and Tobago Electricity Commission (T&TEC).

Depleting rainy day fund

Established in March 2007, the Heritage and Stabilisation Fund (HSF) is often referred to as rainy day savings.

Its value then was US$1.402 billion.

During that fiscal year the government contributed a further US$321.6 million.

In 2008, contributions amounted to US$1.054 billion.

In 2009 there were no contributions.

In 2010 there was no report (at least not available).

In 2011, contributions were US$451.4 million.

In 2012, contributions amounted to US$207.5 million.

2013 was the last year contributions were made, amounting to US$42.5 million.

In total, the Government has contributed just about US$3.48 billion to the fund.

“During the period 2007 through 2013, with daily West Texas Intermediate (WTI) spot oil prices averaging US$85.77 per barrel (and Henry Hub spot gas prices US$5.06 per mmbtu) fiscal revenues from petroleum were around TT$20 billion per year. In this period, notwithstanding significant increases in government expenditure, some US$2.6 billion was transferred to the HSF. Together with the returns from the Fund’s investments, these transfers boosted the net asset value of the Fund from a modest US$1.4 billion in 2007 (the amount brought forward from the Interim Revenue Stabilisation Fund) to US$5.2 billion at the end of 2013,” the Fund’s chairman Ewart Williams wrote in its 2019 annual report.

“The collapse of oil prices beginning in 2014 was the start of a new era of sharply lower oil and gas prices reflecting the impact of an explosion of investment in shale. As this occurred in parallel with a steady decline in domestic oil and gas production, government fiscal revenues from petroleum declined by more than one-half to an annual average of TT$14.8 billion in the period 2014-2019, thus precluding any budgetary transfers to the HSF. The challenges facing the domestic energy sector triggered a decline in economic activity, an expansion in fiscal imbalances and a significant increase in public sector indebtedness,” Williams said.


“In fiscal years 2016 and 2017 with public sector indebtedness edging towards unsustainable levels, the Government reduced its fiscal financing requirement by making two withdrawals from the HSF amounting to US$ 627.6 million. However, because of the strong portfolio returns, the net asset value of the Fund continued to increase — from US$ 5.2 billion as at the end of 2013 to US$ 6.3 billion as at September 2019. Despite the challenging financial market environment during the period, the Fund generated a return of 5.10 per cent for the financial year ended September 30, 2019,” the report said.

T&T has been spending more than it is earning.

T&T spends $3.5 billion a month.

That’s $42 billion a year.

And now, it has to depend on its savings and borrowings.

Last September 28, Permanent Secretary in the Ministry of Finance, Vishnu Dhanpaul, at a Government-hosted forum, Spotlight on the Budget and Economy, said that T&T is likely to earn less than $40 billion in the current financial year.

Dhanpaul, who retired at the end of last year, said that for the financial year 2020, the Government’s income did not match its expenditure.

Income, he explained, was affected by earnings in the energy sector which experienced low global demand because of the Covid-19 pandemic.

Last week, Imbert said that royalties from the energy sector were significantly down for the first quarter (October-December).

He illustrated the decline by focusing on the royalties from the upstream sector:

• BPTT — royalties were down from $480 million to $164 million, a decline of $316 million

• Shell — royalties were down from $181 million to $10 million, a decline of $171 million.

• BHP — royalties were down from $108 million to $50 million, a decline of $58 million

• EOG — royalties were down from $84 million to $35 million, a decline of $49 million.

Collectively, that is $594 million that the Government has lost in the first three months of the 2021 financial year.

Imbert said the losses are the result of lower production, equipment, infrastructure and reduced energy prices.

Meanwhile, the Government had expenditure which are mandatory and discretionary. Mandatory would include salaries for public servants and pensions while discretionary is income support for vulnerable groups.

In his contribution to last September’s Spotlight on the Budget, Imbert said the Government spent a significant amount of money on salaries and subsidies, more than half of Government’s total expenditure, at least $20 billion a year, or about $1.5 to $1.7 billion a month.

“The direct public service is $9 billion, but the rest of people we look after and make sure they get salaries every month is another $11 billion. So, you are talking $20 billion a year in salaries and wages in the public sector,” Imbert told the Spotlight forum.

Transfers and subsidies, Imbert had said, regularly exceeded 50 per cent of total government expenditure –for fiscal 2020, transfers and subsidies amounted to $27.4 billion total from an estimated expenditure was $50.6 billion.

In 2019, he said, transfers and subsidies were $27.3 billion while expenditure was $50.5 billion.

Last week, at a virtual news conference, Imbert said that the Government’s primary objective is to preserve jobs and maintain essential services.

“In this context, demands from trade unions for wage increases, with associated billions of dollars in backpay, are difficult to understand. With a persistent budget deficit and uncertainty as to when the global and local economy will fully recover from the destructive effects of Covid-19, we simply can’t afford significant wage increases at this time.

“By way of example, the Industrial Court has determined a wage increase for National Petroleum with consolidation of Cost of Living Allowance going back nine years to 2011.

“The effective wage increases were in excess of 20 per cent and having implemented the increases, NP has moved from barely breaking even to a loss position of over $50 million in 2020, which is just not sustainable.

“Simply put, if excessive wage increases are granted in the state sector, then employment levels may have to be reduced, because the additional money simply isn’t there,” he said, in explaining the effect of Covid on the economy.

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