“Thanks to State intervention in almost every sector of the economy over the years, we have developed and enjoyed a comfortable standard of living subsidised by the State… That has provided real opportunities for many as well as lifted large segments of the population out of poverty.
“However, it has also resulted in the mis-allocation of both private and public sector resources. We simply cannot afford for that to continue.
“[…] If Minister Imbert resists the temptation to loosen the purse strings once again, and says a consistent no to returning to the old level of subsidies, to increased State intervention/participation in the economy and to devaluation, decisions by individuals and businesses on how to allocate their resources will be determined more and more by strictly economic criteria…”
Economist Warren Thompson takes a different view from the five experts who criticised the Finance Minister’s handling of the economy and so incurred his wrath:
In presenting his Mid-year Budget Review last week, Finance Minister Colm Imbert had this to say:
“We are not out of the woods yet but, after the sacrifices and prudent fiscal management of the last 2½ years, our economy is turning around.”
This statement has set the cat among the metaphorical pigeons, the experts and commentators latching on to it like leeches. I cannot for the life of me understand why. It seems to me that no previous finance minister has come under more intense scrutiny than the current one. Despite the close supervision—or perhaps because of it?—he has adopted an approach full of common sense and managed the economy prudently.
Let us take a closer look at just what he has been able to do. We can properly begin with government expenditure.
Expenditure has been reduced from TT$59.9bn in fiscal 2015 to $TT50.5bn in the current financial year. That represents a reduction of approximately TT$10bn, achieved largely through reducing transfers and subsidies and eliminating wasteful expenditure.
Secondly, Minister Imbert has been able to work with the monetary authorities to hold the exchange rate at around $TT6.78 to $US1. This is critical. The tightness of the foreign exchange (essentially $US) supply is forcing some businesses to shift their focus to export. Hadco is one example—but there are a few others—of a company that has invested heavily in re-organising its businesses to make exports the priority rather than sticking with the old import, mark up and sell paradigm.
The supermarket shelves have begun to offer evidence of an increase in the volume of locally produced foods. Further, it is clear for all to see that, with each passing day, more and more of the Caroni two-acre agricultural plots in central Trinidad are being brought under cultivation. Firms and individuals who have made fortunes in other spheres, including transport, after buying out the remaining term of the 30-year leases granted to the ex-Caroni workers, are forming companies specifically to do agriculture.
It won’t be long before the added supply of vegetables and provisions hits the local market, taking the place of goods that are currently imported. And one hopes that it is sustainable, long-term production rather than some kind of one-off activity.
Although the hysteria of some commentators would suggest otherwise, unemployment is also a positive. Of course, there has been loss of jobs but the minister has put the unemployment rate at 5%, which is, in economic terms, full employment! As a point of comparison, during the post-oil-boom economic downturn in the late 1980s, the unemployment figure was 22%.
Is inflation a problem? At the end of 2017, the year-on-year rate was 1.3% while the average inflation rate for the period January to December 2017 was 1.9%. Hardly room for complaint there either.
Finally, oil, the real sticking point. On the international oil market, WTI benchmark prices have trended upward from about US$50 per barrel last October 2017 to around US$70 two Fridays ago (11 May).
It is important to note that some of the major players within OPEC (Saudi Arabia) and without (Russia) cannot survive for very long periods on oil prices as they were in the region of US$30-$40 per barrel.
In addition, international geopolitics involving Iran, the USA, the EU, Russia and the Syrian conflict all point to tightening supply, thus putting upward pressure on oil prices. Oilprice.com suggests prices may rise to US$100 per barrel by the second quarter of 2019.
A second important point is that the Trinidad and Tobago of the present is more a gas economy than strictly an oil economy. However, for the purpose of analysis, gas production is measured in ‘barrels of oil equivalent,’ and gas prices usually follow oil prices, so increased oil prices usually bode well for gas-based economies. Any increase in gas production will result in an improvement in the energy sector’s financial results.
Finally, the Minister points out that with oil prices increasing, additional unbudgeted funds will have to be set aside for subsidising gasoline and fuel prices in order to keep the current gasoline prices as they are. That is because we currently import crude to refine and produce gasoline and other products.
So if oil prices remain firm and the turnaround becomes full-blown, what do we do?
We must be wise. We must continue to stabilise the economy. We must continue to be prudent and pragmatic. We must hold the exchange rate constant; we must continue to reduce the budget deficit not merely by reducing expenditure but also by raising revenue.
This means we must all be prepared to pay the damn property tax as well! We must continue to build economic capacity and improve economic infrastructure through the use of capital expenditure.
I am confident that the Minister is already well aware of all of that. And I am confident that it is already clear to him that the State can no longer postpone a decision about its role and function in the economy. But the Minister is a politician and so he will carefully choose the best moment to break this underwhelming news to the population.
Thanks to State intervention in almost every sector of the economy over the years, we have developed and enjoyed a comfortable standard of living subsidised by the State which has intervened and or participated directly in education, housing, finance, transport, agriculture and industry, to mention only those.
That has provided real opportunities for many as well as lifted large segments of the population out of poverty. However, it has also resulted in the mis-allocation of both private and public sector resources. We simply cannot afford for that to continue.
Does a family of four really need to have four vehicles? Does a single mother really need to buy a pair of brand name sneakers for her three-year-old? Can the import/mark up/sell sector continue along that road in the face of a consistently tightening foreign exchange supply and a more discriminatory consumer?
If Minister Imbert resists the temptation to loosen the purse strings once again, and says a consistent no to returning to the old level of subsidies, to increased State intervention/participation in the economy and to devaluation, decisions by individuals and businesses on how to allocate their resources will be determined more and more by strictly economic criteria.
Individuals and businesses will have no choice but to weigh the economic costs and benefits of their choices to spend, save or invest. Resources will then become relatively scarce indeed!
So far, thanks to the Minister’s steadfastness and single-mindedness of purpose, we have begun to see an albeit small change in attitudes and consumer and business behaviour. Like him, we need to stand firm, we need to allow the change to take root. Confidence in the economy will gradually be restored as the truth begins to slap the naysayers in the face.
And when, in a few months’ time, Minister Imbert presents his 2018-19 budget, perhaps he will more lustily sing Johnny Nash’s “The rain has gone” instead of having to switch, as his critics would have us believe, to the Platters’ “The Great Pretender.”