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IDB prunes loans to promote progress

Published: 
Thursday, April 13, 2017
Country head Tomas Bermudez:

After years of increasing its loan portfolio with the Inter-American Development Bank (IDB), the current administration took a decision last year to reduce its exposure to the Washington DC-based institution by close to US$170 million, says the IDB country representative in T&T, Tomas Bermudez.

Feeling the brunt of the cutback was the flood alleviation programme, which was reduced from US$120 million to US$15 million, while the IDB’s loan for healthcare improvements was cut to US$48 million from US$110 million, Bermudez said in an interview earlier this month.

The health-sector loan retained a focus on non-communicable diseases, which he described as an “epidemic” in the Caribbean with “a significant cost for the economy.”

Part of the existing health-sector loan involves the IDB working with schools and with producers of soft drinks and other beverages with high sugar content in order to change consumption habits and improve the prevention of diabetes.

Questioned on whether the IDB played a role in the decision by the Ministry of Health to ban the sale of soft drinks with high sugar content in government schools, the IDB country representative said: “It is linked to an initiative that we have been working with the government on for the last two years. It is part of a whole programme with the Ministry of Health to address that.”

The reductions in its loans to T&T has left the IDB with a portfolio of over US$500 million in this country with US$147 million having been disbursed already.

Among the projects for which the IDB has lent T&T money are: the strengthening of the Registrar General’s office (US$20 million); the improvement of the financial management of the government, including the installation of a management information system (US$40 million) and a neighbourhood upgrade settlement loan for US$40 million, which seeks to improve the standard of living in some of T&T’s squatter settlements.

There is also a US$25 million project aimed at integrating the Single Electronic Window at the country’s airports and Customs and Excise division and an US$18 million global services project aimed at sharpening the country’s competitive advantage in ICT.

Bermudez, who has been the country representative in T&T since June 2015, said much of his time here has been spent pruning the IDB’s loan portfolio in T&T.

“My time here has been spent getting the house in order because the IDB had more loans than the country could chew on and we were not executing them properly.

“I think we now have the elements of a programme that is more aligned with what the government wants to do and we are able to implement the programme more effectively.”

The reduction in the IDB’s loan portfolio is part of what Bermudez sees as the fiscal adjustment that T&T has been required to undergo and for which he gives credit to Finance Minister Colm Imbert.

“I would like to give credit to the fiscal adjustment that the government has undertaken. And I give credit to Minister Imbert on that one as well because I was looking at the numbers for the adjustment last year and we are talking about an eight per cent reduction in public spending in real terms.

“That has obviously had an impact on the non-energy sector because of the spill-over impact of government spending.

“But the challenge going forward is: how do you keep this level of spending (about $53 billion a year), while rotating the budget away from transfers and subsidies to capital expenditure.”

Arguing that the government needs to avoid the temptation of increasing transfers and subsidies when the economy improves, the Venezuela-born economist said the need to increase capital expenditure is linked to the need to reform the country’s state-owned enterprises.

Bermudez says the IDB’s largest loan to T&T involves US$296 million to improve wastewater treatment plants in San Fernando and in Maraval (US$246 million) and in Tobago (US$50 million).

He said the Maraval plant should be completed this year, but the San Fernando facility experienced a one-year delay.

One of the projects he would like to see the IDB tackle in its new country strategy is to help improve WASA as a company.

“If you look at how much WASA costs the country, the numbers are staggering. I’m talking about more than one per cent of GDP in transfers to WASA. That’s not sustainable period.”

Underlining the point that WASA is costing T&T too much, he said the money spent on the utility is money that can be used on schools and hospitals.

“At some point, politically, T&T is going to have to do something with WASA because the numbers are big.”

Asked whether the IDB shares the assessment that WASA is overstaffed, he said: “Yes definitely. We had an assessment done on WASA and in terms of the number of workers per water connections, the utility’s numbers are way beyond international standards.”

He said the issue of the overstaffing at WASA can be worked on in parallel with other reforms at the utility but, at some point, the government is going to need to make the utility more efficient.

“And that’s probably the reason that WASA is so sensitive politically,” Bermudez said.

He said he would like the IDB to help in the process of making WASA a more sustainable company—similar to work that the institution has done elsewhere in the region including Jamaica, Barbados and Panama.

There needs to be more of a focus on reducing non-revenue water, metering and setting the stage to start thinking about what the country needs to do with water tariffs.

“Talking about increasing tariffs right now without improving the service will be difficult. WASA needs to make the service reliable before it can start talking about tariffs.”

 

Ease of doing business

 

Bermudez says there are three things the government can do to “move the needle in terms of the competitiveness” of the local economy: speedier registration of properties; faster approval of construction projects and the reform of the Customs and Excise Division.

“Those three things would give a competitive boost to this economy and will also set the base where it is needed, which is creating an enabling environment for the private sector to do what it needs to do.”

Bermudez said the local private sector is among the most competitive in the English-speaking Caribbean, but is being held back by regulatory restrictions, permits and bureaucratic red tape.

“They can be competitive outside of the region,” said Bermudez, adding, “T&T has the elements of private sector competitiveness, but it needs to create an enabling environment for the companies to be able to compete properly.”

Asked whether the IDB has a view on whether the exchange rate can contribute to the competitiveness of the private sector, Bermudez said for certain sectors the exchange rate is not very favourable, citing the agri-business sector, which would find it hard to compete with the currency at the current level.

“At the same time, you have to balance that against the impact that a depreciation would cause,” noting that the government at least has allowed a gradual adjustment of the exchange rate with the depreciation limited to six to seven per cent last year.

“Working on diversification and not having a very competitive currency is one thing that T&T will have to address.

“At the end, it is a balance between incentivising the productive sector and protecting the incomes of poor and middle-income households.”