Cash will be ‘scarce’ in 2018 – Ken Thompson

Outspoken financial analyst Kenneth Thompson is predicting scarcity of cash in the economy next year, despite the optimistic tone of government in the 2018 budget.

Alluding to the budget’s allocation of more than 80 percent of revenue to the payment of salaries and interest on loans, Mr. Thompson noted that unless government comes up with incentives to tax the informal sector there will be little left for investment in infrastructure and development.

“The budget makes a concerted effort at addressing some of our issues, but unfortunately it does not tackle the big-ticket risk items. The clearest examples of the budget ignoring the proverbial ‘elephant in the room’ are the issues of interest we pay on our debts and compensation to employees,” he said.

“Unless these are dealt with and government revenue is increased, cash for investment in the economy remains low. And without investment there is very little economic activity. Cash is ‘tight’ and it does not appear 2018 will be any better,” he said in his analysis of the 2018 budget.

On the side of revenue, which helps shore-up government’s spending plans, Mr. Thompson noted that targets in the 2018 budget “seem overly ambitious”.

He believes that with the budget seeking to increase revenues by 25 percent to spend on its political programmes and projects, including the National Development Bank and Nation Builders Corp, without any commensurate effort to increase the tax base of the economy could be its Achilles’ heel.

“Our inability to raise these revenues could threaten the pet politician programmes, and credibility issues for government could begin to creep in. What we need to do is to increase the tax base. Let us find ways to tax the informal sector in a meaningful way through appropriate incentives which will encourage them to pay.

“As an example, government could at the very least prevent the registration of any asset of significant value without showing evidence of tax payments – e.g. vehicles, real estate, companies etc.

“If the tax base is not expanded, expect the GRA to find new ‘creative’ ways of extracting more tax from the same sources. Expect to pay relatively more tax whatever your business, even if it is because of ‘inflexible’ GRA officials who are less understanding of your ‘inventive’ tax avoidance excuses,” he noted.

Though government has projected an ambitious overall Gross Domestic Product (GDP) growth of 7.9 percent from a low of 3.7 percent in 2016, the heart of this growth is being driven by the oil sector on the back of the FPSO that was launched in February 2017 – while non-oil growth, the main engine of the economy, rather declined from 5 percent to 4.8 percent.

“This was because the private sector saw very little growth as capital expenditure was reduced significantly. Real private sector activity is still challenged, and industrial activity is under heavy strain,” Mr. Thompson added.

Juxtaposing operations at Dalex Finance, where he is the Managing Director, he noted that the company witnessed a significant reduction in demand for loans from SMEs.

“Although this may be anecdotal evidence, I strongly believe that it could signal a broader trend in the industry and may be symptomatic of the challenges confronting the SME sector: the sector that is supposed to be the main driver of economic activity and the engine of growth.

“I do not believe that there are enough reliefs for the real sector. I also believe that 2018 could be a year of low demand and challenged turnover for local businesses. I would urge local businesses to err on the side of caution with their business projections for 2018,” he advised.