10% Wage Hike Could Trigger Job Losses, Fiscal Strain

• Prof. Roger Hosein warned that Trinidad & Tobago (T&T) cannot afford a 10.0% salary increase for public servants, stressing that wage-setting cannot be treated as routine when GDP has fallen almost 20.0% since 2015, non-energy growth remains weak, energy output is declining, reserves are falling, and the country’s macroeconomic space is the tightest it has been in 25 years. He said the long-term health of the economy, not short-term politics, is what protects public servants.
• He cautioned that raising wages without productivity gains or new revenue would sharply strain the fiscal framework, as the wage bill would absorb an increasing share of non-energy revenue, compress the Government’s budget constraint, crowd out capital expenditure, weaken long-run productivity, and potentially force job losses as the State substitutes away from labour through hiring freezes, headcount cuts, or technological replacement.
• Hosein highlighted the enormous arrears burden tied to a 10% settlement, noting that backpay for the entire public service could reach roughly $16Bn once cost of living allowance (COLA) consolidation is included. Even if limited to the Public Services Association (PSA) and National Union of government and Federated Workers (NUGFW), arrears fall between $4Bn and $7Bn, while unresolved arrears across wider State entities, such as T&TEC, could push the total to about $27.0Bn. These numbers represent obligations that would have to be financed through higher debt and reduced State capital injections.
• As such, T&T’s fiscal balance consistently collapses into deficit once wages exceed $7–8Bn, demonstrating a structural expenditure problem in which recurrent spending grows faster than revenue in a stagnant, mature energy-based economy. Rising debt service, from about US$169.0Mn in 2015 to over US$800.0Mn in 2024, further reduces fiscal space and makes a 10% wage increase risky for solvency and employment levels.
• Hosein warned that capital expenditure has already been heavily compressed relative to the wage bill, with wages now over 230.0% of capital expenditure compared with 144% in 2015. Cutting capital spending further to fund a wage increase would undermine the key budget item that supports long-term growth, reduce competitiveness, weaken diversification efforts, lower future revenue elasticity, and worsen pressures on foreign exchange at a time when reserves have fallen from US$9.9Bn in 2015 to about US$4.6Bn in 2025.
• He also noted that higher public-sector wages raise domestic costs, making exports less competitive and imports cheaper, thereby worsening Dutch-disease effects and reducing the country’s ability to earn foreign exchange. In an economy with structurally weaker gas output, a shrinking labour force, rising pension obligations and tightening FX availability, a 10.0% wage increase could destabilise fiscal anchors that protect jobs, public services, and long-run growth.
• Hosein concluded that if the Government insists on the 10.0% increase, it should phase arrears over at least three fiscal years, avoid COLA consolidation, minimise allowance adjustments to prevent permanent cost escalation, and consider partial settlement through non-cash instruments such as leave swaps or HDC-type certificates. These tools could soften the fiscal shock, though they still require careful limits, and he emphasised that solvency, investment, competitiveness, not unaffordable wage obligations, are what safeguard public-sector workers in the long term.

(Source: Trinidad Express)