By financial consultant VED SEEREERAM
The IDB has approved a US$50 million loan for Urban Renewal to the Government of Trinidad and Tobago at a time when we are already strangled with debt and cannot repay. With a deficit of over TT$20 billion (must include capital repayment and sinking fund contributions to the $15 billion) staring the Government in it face banks are willing to shove more loans down our throat under the guise of helping the citizens to “renew our urban spaces and improve the lives of our citizens”.
Did the IDB conduct a thorough analysis regarding the financial state of affairs of the Government before approving the loan? Not. We cannot repay the loan and must rely on more loans to repay loans coming due. In other words, the IDB is placing us on the treadmill that is accelerating, taking us to the doorstep of the IMF much sooner than expected.
The IDB officials were oblivious of the impact of Covid-19 and the dire economic and rapid deterioration facing this country. They were ignorant of the fact that our oil and the gas-based economy is at risk of total failure. The last thing this country wants is a loan for Urban Renewal. The Government has to decide if this is good for the country or good for the party, given it is election time.
What Is Urban Development?
During normal times when there is meaningful economic growth, low unemployment, improving the standard of living, a balanced Government budget and healthy foreign exchange earnings then such a loan will be considered reasonable. At this time the economy is in a tailspin, unemployment is rising, crime and family brutality is increasing, family life is deteriorating, the percentage of citizens living below the poverty line is over 20% and increasing, businesses are closing and business performances are declining. Major industries may not survive in the next few months.
The global covid-19 pandemic is far from over. International trade is disrupted with a negative impact on the availability and prices of basic goods and services and certainly, hunger and homelessness are on the rise. Banks’ repossession on homes and autos are about to get very nasty with no solution in sight.
In such an environment how can the IDB and the Government justify such an expenditure on URBAN RENEWAL? Are we serious? What is the Committee of 23 views on this? Listen to the IDB official “The Urban Upgrading and Revitalization Programme is part of the Government’s strategy to foster more sustainable development and is directly aligned with the Vision 2030—”. Who said that Vision 2030 strategy is still relevant? Times have rapidly changed and that strategy is no longer relevant and must be significantly altered to serve the new realities.
We have a serious problem here.
According to the newspaper article, the loan will be used to “improve the living conditions of low-income household and invest in urban spaces with an emphasis on encouraging sustainable use and increasing aesthetic attractiveness and resilience.”
Tell that to the unemployed, the hungry and the homeless!
IDB can help:
We must develop very clear criteria when making investments or spending money on infrastructure. The following questions must be answered: 1 Will these expenditures generate revenues? 2 Will these expenditures call for more running expenditures? 3 Will these expenditures create long term employment? 4 Will these expenditures save costs in the future?
Urban Development is not a revenue-generating investment and will be a cost centre that will no doubt require substantial running and maintenance costs to upkeep. The Government will have to increase taxes on the already overburdened citizens to repay the loan and to maintain the high running costs. Is that what the IDB wants for Trinidad & Tobago?
Urban development as envisaged cannot help feed the nation. If the IDB wants to help then they must consider Rural Development with an emphasis on agriculture, food production and agro-processing. With their vast knowledge of the subject, they can provide funding and expertise regarding land use, the type of crops to grow, the appropriate processing plants to install, the potential export markets to target and other manufacturing industries that can be supported by agricultural products such as for biofuel etc.
All these investments are revenue-generating, will save on the use of foreign exchange and can in the medium to long term generate hard currency from exports.
We will need the hard currency to repay the IDB loans and with the drying up of foreign exchange earning if the funds are used for non-productive Urban Development then the Government will be forced to borrow from the international markets to repay IDB. At some point, given the huge debt on the Government’s books, the market for funding will dry up, driving us into default. Is that what the IDB wants for Trinidad & Tobago?
Government Debt Status:
According to the Central Bank report as of March 2020, the Government owed $100 billion in direct bank debt and guaranteed another $30 billion for State enterprises and Statutory Authorities. Add another $12 billion for outstanding payables to suppliers and other creditors. We now have a large sum of $142 billion.
Assuming a 5% interest on the debt, excluding the payables, then Government will have to find approximately $6.5 billion per annum to service the interest and another $10 billion to repay principal, assuming straight-line payments over thirteen years.
Annual debt service of $16.5 billion will cripple the country and it is sheer insanity to be taking on more debt at this time. With the shrinking economy and the diminishing tax base, Government revenues may fall below $32 billion which means we will have to spend over 50% of revenues to service the national debt.
Is the nation aware of the debt trap we are in or am I the only one making an issue? May I suggest the IDB withdraw its loan offer. We do not need another snake around our necks nor another burden on our shoulders.