Former Finance Minister Winston Dookeran does not agree with the Government’s decision to withdraw money from the Heritage and Stabilisation Fund (HSF). He said it was not prudent to do so when other sources of income have not been exhausted.
Dookeran described the withdrawal as a “fiscally regressive move” as the HSF is a key pillar to the credit credentials of the sovereign ratings of the country and he warned of repercussions since the fund was created for a specific purpose.
“It was established in 2000 on an interim basis with the expectation that it will grow and it will ensure the sustainability of our public finances over time,” he said.
“Risking this sustainability will create downside risks, and increase borrowing costs, and weaken the foundation for sound finance, and it has not yet achieved a threshold level as a percentage of GDP.”
A different view was given by Dr Roger Hosein, senior University of the West Indies economist, who said the withdrawal was “not unreasonable” given the “dismal state” of the economy.
However, he warned: “What policymakers need to bear in mind is the potential impact on inflation that this demand side intervention may sprout, especially given that there has been some degree of contraction on the supply side of the economy with the closure of several firms, including ArcelorMittal and Centrin. Great caution must be exercised to ensure that future withdrawals do not stimulate demand at the expense of supply.”
Hosein said the $2.5 billion withdrawal represents 6.07 per cent of the HSF. He said T&T’s HSF follows the basic principles established for foreign wealth funds as set out in the Santiago Principles.
“The Santiago Principles are a set of guidelines that assign best practices to run sovereign wealth funds (SWF). These principles were developed by the IMF in collaboration with the International Working Group of Sovereign Wealth Funds (IWG-SWF). The backbone of these principles is to offer transparency and global financial risk management.
“T&T’s HSF does well in terms of public disclosure, even when compared to other funds such as the Norway Government Pension Fund and the Alaska Permanent Fund,” Hosein said.
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