Steve Seetahal Fulbright Alumnus in Economics San Fernando
A budget deficit occurs when government spending exceeds government revenues in a given period. Many economies run deficits, especially during downturns or transitions.
What matters is how the deficit is financed, what the expenditures are, and whether they contribute to future growth (ie, are “productive”) vs simply recurring consumption. This imbalance is common among global economies.
Between 1970 and 2022, the US government has had higher expenditures than revenues for all but four years. In the 2024 fiscal year, the US national deficit was US$1.83 trillion.
Over the last 15 years, successive governments in Trinidad and Tobago have used budget deficits and debt financing to facilitate their spending and to fund fiscal programmes. With the exception of 2022, when this country experienced an unexpected windfall due to increased commodity prices as a result of the outbreak of the Russia-Ukraine war, budget deficits have been the economic policy of choice. Given the current economic headwinds this country is facing, this trend looks set to continue in the near future.
What we have seen in the last few years is that the budget deficits have been largely unproductive, being used merely to cover salaries, subsidies, or recurring costs which worsened public debt without boosting capacity. There was limited investment in infrastructure, education, technology, etc, that could have improved productivity within our borders and generated higher future revenues.
Roads were left to fall apart; utilities were mismanaged, running up huge operational debts; and there were little diversification activities to transform the economy. As the new Government gets prepared to present its first budget, they have a tremendous opportunity to reverse this trend and use this powerful economic tool to reinvigorate the economic fortunes of this country.
There is the urgent need to diversify the economy; however, for this transition to be meaningful it will take some time. In the interim, the budget deficit must be strategically employed to invest in areas that will have multiplier effects later down the road, such as digital infrastructure, energy reliability and renewable energy, for example. Agriculture/agro-processing is touted as low-hanging fruit in the diversification debate; however, it will require an entire overhaul of the industry to make it efficient and competitive on a global scale. A concerted effort is required to identify and invest in future-looking industries, such as those driven by technology and those that will herald a structural shift in our economic landscape. This will secure our economy for generations.
To reiterate, Trinidad and Tobago’s budget deficit is not inherently the problem, how it is used is what matters. Running disciplined, well-targeted deficits in the present, while building strong institutions and tracking progress, could lay the groundwork for a resilient, diversified economy that is far less vulnerable to global energy cycles. We await the government’s policies and plans to achieve this critical objective.
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