Riding out the economic ‘depression’

By Lara Pickford-Gordon
Email: snrwriter.camsel@catholictt.org
Twitter: gordon_lp

Trinidad and Tobago as a small island developing state is in a precarious position with the shocks of revenue losses pre and post COVID-19 and rising expenditure. Finance Minister Colm Imbert has been revising the 2020 Budget deficit upwards since March with the estimates reaching $15.5 billion in April.

The Challenges

Senior Economist University of the West Indies (UWI) St Augustine, and Coordinator UWI’s Trade and Economic Development Unit, Dr Roger Hosein said this country has experienced negative growth 2016-2018, -0.2 per cent in 2019 according to Standard & Poors Global Ratings, an American credit rating agency. The International Monetary Fund (IMF) put the negative growth for 2020 at -4.5 per cent.

“That is five consecutive years of decline, a depression from which it will be difficult to climb out of as the world may topple into a depression the parameters of which are unknown,” he commented.

Things are grim he agreed.  He said the T&T economy is in a depression, not in a recession and the current negative shock will extend the length of the depression”.  The country has avoided intervention by the IMF which in the minds of many is associated with austerity measures but Hosein said, this may not be a “bad option at this time”.

For all the efforts made the country has not been able to get out of the depression even while the price of natural gas increased.  “I think 2017-2018 that natural gas production increased in Trinidad and Tobago and even in that context the economy continues to be in a depression,” Hosein said.

The parliament has approved the government’s request to draw down US$ 1.5 billion from the US$6.1 billion Heritage and stablilisation Fund. “That is a good move in the context of the pandemic to save lives we now need to intelligently deploy these HSF funds to trigger economic growth in Trinidad and Tobago”.  Hosein said the Economic Recovery Team appointed by Prime Minister Dr Keith Rowley to plan the way forward post COVID-19 has to pull the economy out of the depression.

A chance to recalibrate

“This is a golden opportunity to recalibrate the entire Trinidad and Tobago economy from one that became too focused on the production of non-essential, non-tradable goods and services, and hence very import-dependent” he says. To counter this, he adds emphasis should be “one that can generate long term economic growth based upon a different structure of production”. The manufacturing sector and agriculture sector will have to be more prominent and play important roles.

Adjusting consumption

Hosein said persons with limited income have to be very careful and try to save as much as they can. Consumption patterns will have to change. He said “for example, you may not be able to afford the best part of the chicken so some households will have to reshuffle the part of the meat they consume, the quality and type of fish they consume for example the preferred fish might be king fish or carite but those are so expensive, in the context of a pandemic”. Persons will have to choose other sources of protein. Those who can, must try to “invest wisely”.

Belt Tightening

Should there be belt tightening —reduction in spending by consumers, government? Hosein said, “I don’t rule out belt tightening; I think belt tightening is entirely necessary”.

T&T’s fiscal year ends September 30 so what are some measures he would consider if he were the Finance Minister? Hosein said, “I would try to encourage a greater amount of agriculture economic activity…more back yard farming; I would encourage people to work harder…not to leave the labour force…to save”.  A priority would be strengthening financial institutions which can generate foreign exchange or produce goods which save on the use of foreign exchange. He highlighted the Export Import Bank of Trinidad and Tobago Limited (an Export Credit Agency) to promote exports and Agriculture Development. Hosein said he would fix the ease of doing business because T&T performed “terribly in the last few years”.

Workers with the CEPEP (Community-based Environmental Protection and Enhancement Programme) and some from the URP (Unemployment Relief Programme) would be redirected to work in agriculture.   Venezuelan workers would be enlisted to work in areas where they can generate foreign exchange. 

Price hikes?

The impact on prices depend on the dynamic of supply and demand over the coming months.

“The economy remains in a trying state” Dr Hosein says. People who have used up the cash to run their households and put aside for contingencies, could find themselves facing hardship if they do not access social relief support from the state.

Economic terms to get used to:

Recession: widespread economic decline that lasts for at least six months or as long as 18 months.

Depression: a more severe decline that lasts for several years.

Negative growth: According to www.investopedia.com, is a contraction in business sales or earnings. It is also used to refer to a contraction in a country’s economy, which is reflected in a decrease in its gross domestic product (GDP) during any quarter of a given year. Negative growth is typically expressed as a negative percentage rate.