8
UWI TODAY
– SUNDAY 13TH MARCH, 2016
Trinidad andTobago finds itself
once again in an economic
downturn, the last being in 2008 when the global financial
market crashed and the oil price plummeted from US$150
to US$30 a barrel. By the end of 2010 the price was back
up to $100. Some analysts believe that the current global
downturn resulting from the continued fall in the price of
oil and gas could result in a more prolonged economic crisis
than that experienced in the 1980s, what some referred to as
the “lost decade of the ’80s” when within months, Trinidad
and Tobago’s foreign exchange reserves were depleted,
leading us into an IMF structural adjustment programme
with concomitant currency devaluation, cuts in public
servants’ salary, COLA suspension, privatization and job
losses. The NAR Government paid the political price for
imposing severe austerity measures on the population.
I present this context as we take a macro view of where
we are today primarily because one of the uppermost
questions for many is, “Have we reconfigured the economy
following the 1970s, 1980s, 1990s and 2008 crises so that we
are not likely to be led down a similar path?”
The answer is simple: no. Not even the collective
contributions of all other productive sectors can make up
for the financial losses the country is currently suffering
due to the global collapse of oil and gas prices. And so, once
again, if oil and gas prices continue to fall, we must either
make significant adjustments of our own volition or bring
in the FUND to do it for us.
Reality check: we have done insufficient since
independence to bring corrective measures to address the
source of our conundrum: the country’s over-reliance on
oil and gas revenues to maintain a dependency model of
development. In this model the State uses the largesse during
buoyant energy prices to ramp up national expenditure
without sufficient spending on productive diversification.
Over the last 10 years alone, successive governments have
more than doubled the national expenditure, so that in 2016
over $63 billion is needed to maintain living standards,
mostly via transfer payments.
In essence, neither for expediency nor necessity have
we put the economy on a path to sustainable development
Pathways toDiversification
The Economic Recession
Economy
At the Crossroads of
Adversity andOpportunity
B Y I N D E R A S A G E W A N - A L L I
We have done insufficient since independence to bring correctivemeasures
to address the source of our conundrum: the country’s over-reliance on oil
and gas revenues tomaintain a dependencymodel of development.
The economy is in decline
Government, the largest consumer and employer is
faced with a serious revenue shortfall which increases daily.
At the start of this fiscal year, on the assumption of an oil
price of US$45 per barrel, there was already a projected
revenue shortfall of $21 billion. Since then, oil has reached
US$28 per barrel with global analysts projecting that it could
reach as low as US$20 per barrel. Obviously, this has negative
implications for the Government’s revenue projections.
Not surprisingly, the Government has mandated a 7%
cut in all public expenditure and we await further cuts in its
mid-term review this month. Moreover, it has signalled its
intent to sell off State assets; draw down $1.5 billion from
the Heritage and Stabilization Fund and turned to taxpayers
through increased taxation (VAT, land and building taxes,
business levy) to make up the shortfall.
Is this enough?
The signs of economic malady are already upon us;
unemployment has started to increase with the growing
fatalities in the energy and State sectors. In the latter, we
have seen the non-renewal of short-term contracts of many
young professionals operating this way for more than three
years. The foreign exchange shortage continues to worsen
as the energy sector, the largest foreign exchange earner,
shrinks. Recent statements by the Minister of Finance
indicate contractions in oil by 70% and gas by 45%. The
fact that demand for foreign exchange continues to grow
– whether a reflection of legitimate need or capital flight
driven by fear – has led to creeping devaluations of the
official band, themost recent movement taking the exchange
rate from $6.43 to $6.53 with the black market rate as high
as $8. This has resulted in rising prices, made worse by the
Government’s initiative to widen the value added tax net in
order to shore up its revenue stream. Prices are increasing at
an accelerated rate, negatively affecting the cost of living.The
Prime Minister and Minister of Labour have made public
pleas to the private sector to protect employment. This is
not realistic. In the global energy market, when the bottom
line is threatened, businesses send people home.
where a number of major productive sectors rather than
just one generates national income. Instead, as government’s
national expenditure – fuelled by energy revenues – has
grown, other sectors such as manufacturing, agriculture,
tourism and the creative industries have declined.
Are we now in a recession?
Mere semantics.
