‘Ah choo!’ The cost of catching a cold in a small open economy

By Dr Marlene Attzs, Economist, Email: marlene.attzs@gmail.com

As a small open economy, Trinidad and Tobago is experiencing the reality of being caught in the middle of a global pandemic. In January 2020, few locally were focused on the unfolding global drama of COVID-19, the virus that was making its way across the globe—beginning with China, Europe and the USA.

By Ash Wednesday, when ‘d party done’, we received an appropriate dose of sobriety that marked not only the start of Lent but also the start of ‘COVID-19 watch’ T&T style.

The full gamut of economic impacts from COVID-19 is still largely unknown, but the pandemic has reinforced how vulnerable we are as a small open economy. The pandemic has caused plummeting of energy prices which naturally has hurt our revenue stream.

While we are reeling from loss of revenues, global economic giants have flexed their well-developed financial muscles and released war chests to deal with COVID-19.

In early March, the US Federal Government unleashed a war chest of US$8.3bn to fight COVID-19 ; the UK Government showed their economic might by pledging an extra £46m in the fight against coronavirus; Germany announced funds worth US$613 billion; the European Union and Italy pledged US$25 billion each and Switzerland threw US$10.5 billion into the kitty “to help businesses and common people fight the impacts of the virus outbreak”.

T&T has a buffer at this time in the form of the Heritage and Stabilisation Fund (HSF) which is meant to help us rally through unforeseen economic shocks.  The HSF, now an estimated US$6.3 billion dollars, has itself been compromised by the pandemic and the volatility on global financial markets.

Our socio-economic challenges that will need to be addressed at this time include:

• Declining prices in the energy sector which could add a further TT$3.5 billion dollars to the deficit for 2020. Additional considerations include the closure of one of the Methanex plants in T&T which will result in job losses
• Illness and quarantine will reduce work hours and possibly productivity. Activity in the business sector will also slow and, in some instances, come to a halt. ‘Business Unusual’ will be the new norm
• The national health sector will have to make adjustments as containment of the illness becomes priority for the public health sector. This includes finding additional human and financial resources
• There may be some interruption in the availability of goods and services as trade routes and borders are compromised or temporarily closed. Recall much of what T&T consumes is imported—medicines, foodstuff, raw materials for production, to name a few
• Individuals who may have to stay at home because of the nature of their jobs may face lower disposable income; children at home from school also require supervision
• Vulnerable persons—the aged, the disabled, the sick— all need additional care and attention

The reality is that COVID-19 will wreak havoc on the world but more so on Caribbean economies many of which already are burdened by high levels of public debt.

That fiscal space—the budgetary wiggle room that allows a government to provide resources for public purposes without compromising fiscal sustainability— which many of the larger, developed countries enjoy and which allows them to immediately free up financial resources in response to this virus, is not the case for Caribbean economies.

Those islands heavily dependent on tourism will be hardest hit as the pandemic affects the countries from which the majority of Caribbean-bound tourists originate—US, UK, Canada, Europe.  Travel within the region also will be compromised as countries close their ports to contain the virus. Hotels and bed-and-breakfast establishments in Tobago will perhaps not enjoy the customary peak occupancy by locals (and revenue) over the Easter holidays.

While governments worldwide have a duty to confront and contain the virus in their respective jurisdictions, we as individuals also have a responsibility to make lifestyle changes for the greater good.

We are called to “be each other’s keeper” and there is no better time than the present to live this credo.  That’s just my point of view.