While Stan­dard and Poor’s may have im­proved T&T’s rat­ing to sta­ble from neg­a­tive, lead­ing econ­o­mists are warn­ing this does not mean all is well with the econ­o­my. For­mer Fi­nance Min­is­ter Sel­by Wil­son says the re­port speaks vol­umes about the coun­try’s in­abil­i­ty to di­ver­si­fy the econ­o­my from oil and gas.

“We must not pat our­selves for this im­proved per­for­mance which is dri­ven by changes in in­ter­na­tion­al en­vi­ron­ment and not by ac­tions tak­en by the Gov­ern­ment in man­ag­ing the econ­o­my. The re­port makes it quite clear that oil prices com­pen­sates more than ad­e­quate­ly de­spite the pro­duc­tions de­clines in oil and gas. This, in my view, is a red flag that pol­i­cy­mak­ers must take se­ri­ous note of and dou­ble the ef­forts to have both sides of the rev­enue equa­tion work­ing in a pos­i­tive di­rec­tion,” Wil­son told the Busi­ness Guardian.

On Ju­ly 21, S&P re­vised the out­look on T&T to sta­ble from neg­a­tive and af­firmed its rat­ings, in­clud­ing the ‘BBB-’ long-term sov­er­eign cred­it rat­ing. Fi­nance Min­is­ter Colm Im­bert had crowed that the rat­ing “is a tes­ti­mo­ny to our coun­try’s abil­i­ty to face the COVID-19 cri­sis in a way that pro­tect­ed the pop­u­la­tion and the econ­o­my, and to ex­ceed ex­pec­ta­tions in terms of growth and bud­get re­straint, lead­ing to a de­cline in the pub­lic debt tra­jec­to­ry.”

He al­so boast­ed that the new dy­nam­ics of T&T’s cred­it rat­ing will trans­late in­to up­grades as the coun­try stay the course of “bud­get dis­ci­pline and growth rein­vig­o­ra­tion.”

But Wil­son ad­vised the pos­i­tive out­look must not re­sult in in­ef­fi­cient spend­ing as this does not pro­vide for sus­tain­able de­vel­op­ment, both so­cial­ly and eco­nom­i­cal­ly.

“The good news must stir pol­i­cy­mak­ers to utilise this sav­ing po­si­tion to build sus­tain­able and di­ver­si­fied eco­nom­ic growth. In this way, we would be bet­ter po­si­tioned to con­trol the coun­try’s growth and pros­per­i­ty tra­jec­to­ry for the ben­e­fit of all,” Wil­son em­pha­sised.

Econ­o­mist Dr Vanus James echoed sim­i­lar sen­ti­ments, say­ing S&P has sound­ed a some­what “omi­nous warn­ing” to the Gov­ern­ment and the coun­try about “per­sis­tent de­lays in mak­ing re­forms,” cit­ing as ex­am­ples The Na­tion­al Sta­tis­ti­cal In­sti­tute and the Rev­enue Au­thor­i­ty, both of which have been un­der dis­cus­sion for many years.

Ac­cord­ing to the re­port, S&P al­so pre­dicts GDP per capi­ta of US$19,337 in 2022 and GDP per capi­ta in ex­cess of US$20,000 with­in a year.

Ac­cord­ing to James, giv­en that the coun­try was at about US$19,129 in 2019, and since “no fun­da­men­tal struc­tur­al re­forms are in sight,” then if achieved this would on­ly be rea­son­able an­nu­al GDP per capi­ta growth of about 4.8 per cent stim­u­lat­ed by buoy­ant en­er­gy prices. He em­pha­sised more could be achieved with tar­get­ed and si­mul­ta­ne­ous ef­forts to di­ver­si­fy the econ­o­my, up­grade its in­sti­tu­tions, and in­vest ad­e­quate­ly in the na­tion­al ca­pac­i­ty to in­no­vate.

“In that con­text, S&P warns that its rat­ings could be low­ered in the medi­um-term if ac­tu­al per­for­mance falls short of its pre­dic­tions and the as­so­ci­at­ed “pace of fis­cal con­sol­i­da­tion is ma­te­ri­al­ly slow­er than ex­pect­ed.”

Im­por­tant, James posits the rat­ings could be low­ered if the Gov­ern­ment’s eco­nom­ic poli­cies con­tribute to a weak­en­ing of the long-term sus­tain­abil­i­ty of pub­lic fi­nances, lim­it the prospects for bal­anced GDP growth, or ma­te­ri­al­ly wors­en the coun­try’s ex­ter­nal po­si­tion. Ac­cord­ing to the econ­o­mist, it would not be lost on the “dis­cern­ing read­er” that the ba­sis of the im­proved rat­ing was al­most en­tire­ly pro­ject­ed high­er prices for oil, gas, and petro­chem­i­cals caused main­ly by Putin’s war in Ukraine.

He said these high­er prices are ex­pect­ed to last at least the next year or so, and are ex­pect­ed to cause an eco­nom­ic re­cov­ery in T&T this year and in the medi­um term.

In par­tic­u­lar, James not­ed S&P’s ex­pec­ta­tion is that high­er prices would cause growth in the val­ue of en­er­gy-based ex­ports and the GDP, and re­lat­ed im­prove­ments in the cur­rent ac­count of the bal­ance of pay­ments. These re­al­i­sa­tions, he said, would en­able the Gov­ern­ment to col­lect high­er rev­enues and achieve a strong­ly pos­i­tive pri­ma­ry bud­get bal­ance, clear some of its li­a­bil­i­ties, add some sav­ings to the Her­itage and Sta­bil­i­sa­tion Fund, and con­sol­i­date the coun­try’s fis­cal po­si­tion.

“The debt-to-GDP ra­tio would fall pre­dictably, just as the Min­is­ter of Fi­nance has al­ready boast­ed in some of his re­cent pub­lic state­ments claim­ing both good for­tune and pru­dent eco­nom­ic man­age­ment,” James said.

He ex­plained the im­prove­ment in out­look and cred­it rat­ing are set against a back­ground of a long pe­ri­od of low en­er­gy prices and per­sis­tent eco­nom­ic con­trac­tion, ex­ac­er­bat­ed by COVID-19. These had ob­served con­se­quences of falling Gov­ern­ment rev­enues, ris­ing bud­get deficits and grow­ing in­debt­ed­ness.

“One thing should be said here for the Min­is­ter of Fi­nance. He stout­ly re­sist­ed calls (by ‘un­in­formed com­men­ta­tors’) to go to the IMF and re­lied in­stead on his own home-grown so­lu­tions to these prob­lems.

“Now, the ris­ing en­er­gy prices and the eas­i­er bor­row­ing rat­ings would on­ly strength­en his re­solve on that mat­ter, jus­ti­fi­ably so,” James said.

Re­gard­ing oth­er as­pects of S&P’s rat­ing, he said it failed to add con­cerns about the longer-stand­ing de­lays in meet­ing com­mit­ments to en­sure di­ver­si­fi­ca­tion of the na­tion­al econ­o­my or even au­ton­o­my and the end of per­pet­u­al eco­nom­ic un­der­per­for­mance in To­ba­go.

James said the rat­ing agency al­so mis­in­ter­pret­ed “a sta­ble trans­fer of pow­er through elec­tions as a sta­ble democ­ra­cy.”

Not­ing that S&P how­ev­er, could be “for­giv­en” for these short­com­ings James ex­plained such mat­ters are for the na­tion­al com­mu­ni­ty to care about.

“In par­tic­u­lar, it is for the na­tion­al com­mu­ni­ty to care that fail­ure to ad­dress com­mit­ments to struc­tur­al eco­nom­ic re­forms is a fun­da­men­tal un­der­pin­ning of the pe­ri­od­ic weak­en­ing of the long-term sus­tain­abil­i­ty of pub­lic fi­nances. It is al­so for the na­tion­al com­mu­ni­ty to care that every round of en­er­gy price in­creas­es pro­vides pow­er­ful in­cen­tives to ig­nore the need to un­der­take the key eco­nom­ic re­forms need­ed,” James said.

He added it is for the na­tion­al com­mu­ni­ty to al­so care that a nec­es­sary el­e­ment of a sta­ble democ­ra­cy that sup­ports suc­cess­ful eco­nom­ic re­forms is po­lit­i­cal and in­sti­tu­tion­al re­form that em­pow­ers the will­ing cit­i­zen to pe­ti­tion the leg­is­la­ture and par­tic­i­pate rou­tine­ly in the pol­i­cy­mak­ing process.

Se­ri­ous is­sues fac­ing T&T

Dr Ronald Ramkissoon, for­mer se­nior econ­o­mist at Re­pub­lic Bank is al­so ad­vis­ing that the re­port be should not be mis­used to make it ap­pear T&T is “so much bet­ter” than it ac­tu­al­ly is, and, at the same time, it should not be used to make it ap­pear the coun­try has the worst econ­o­my, he said.

“We need some bal­ance first to recog­nise many coun­tries are do­ing far worse. To get a re­port which turns neg­a­tive in­to sta­ble is some­thing pos­i­tive. It is pos­i­tive we are ben­e­fit­ing from high en­er­gy prices and we as a coun­try should be grate­ful we are in a place where we still have with us cer­tain strengths,” Ramkissoon ex­plained.

He said T&T has very se­ri­ous eco­nom­ic and so­cial is­sues which must be ad­dressed and these dis­cus­sions must en­tail the peo­ple.

“We need to have the pop­u­la­tion get to the truth of the mat­ter; the un­der­ly­ing cas­es of why we are where we are if we are go­ing to ask the pop­u­la­tion to make the sac­ri­fices that are go­ing to be nec­es­sary,” Ramkissoon said. Ad­di­tion­al­ly, he said much more can be achieved in the non-en­er­gy sec­tor which has been ne­glect­ed for far too long.

“We now know the im­por­tance of agri­cul­ture and the agro­pro­cess­ing sec­tor; that is sad. We have not done very much with our cre­ative sec­tors. We have not done enough with pan and ca­lyp­so and with the en­ter­tain­ment sec­tor that we could ex­port. We have not done enough with fes­ti­val tourism. We have not done enough with our ma­rine en­vi­ron­ment and those are things we should have been ad­dress­ing all the time. It is now be­com­ing even more ur­gent and it is a dan­ger to en­cour­age the pop­u­la­tion to be­lieve the price of oil and gas will re­main where they are at present,” Ramkissoon added.

Fur­ther, econ­o­mist Dr Vaalmik­ki Ar­joon added the rat­ing is not an in­di­ca­tion of T&T’s over­all eco­nom­ic re­al­i­ties rather he notes, it is an in­di­ca­tion of its debt re­pay­ment ca­pa­bil­i­ties.

“It is in no way re­flects that the cost of liv­ing and do­ing busi­ness are the high­est ever; with many house­holds be­com­ing more vul­ner­a­ble each day giv­en that food prices in­creased by 14 per cent over the last two years.

“There is still high un­cer­tain­ty and re­duced con­fi­dence in the econ­o­my. We will con­tin­ue to ex­pe­ri­ence cap­i­tal flight, where sev­er­al busi­ness­es and in­di­vid­u­als in­vest their funds in economies deemed less risky,” Ar­joon ex­plained.

Ad­di­tion­al­ly, he said many are in­vest­ing in prop­er­ties and set­ting up busi­ness­es in the wider Caribbean and in the US.

Nat­u­ral­ly, this will fur­ther ex­ac­er­bate T&T’s for­eign ex­change woes. And un­less busi­ness con­di­tions be­come more favourable, for­eign in­vestors will be fur­ther de­ject­ed from set­ting up op­er­a­tions in T&T which fur­ther lim­its much need­ed for­eign di­rect in­vest­ment, Ar­joon warned.