While the 2023 economy continued to recover from the COVID-19 pandemic, it is still under great strain and will undoubtedly challenge the Government going into 2024. This was the view of two economists as the Business Guardian took a closer look at the economy for the year.
In October, Finance Minister Colm Imbert laid a $59.209 billion budget in the House of Representatives for fiscal 2024.
Imbert announced that based on an assumption of oil at US$85 per barrel and a gas price of US$5 per MMBtu (metric million British thermal unit), the Government expects to realise revenue of $54.012 billion, a deficit of $5.197 billion, which is estimated at 2.7 per cent of GDP (gross domestic product).
In giving his perspective, economist Dr Ronald Ramkissoon said as it pertains to stimulating the economy for 2023, the budgetary measures announced could have helped but it is too early to tell apart from constraints.
Further, he said the risks are on the downside as several domestic and external factors militating against stronger economic growth are quite evident.
“In any case, stimulation of the economy through sectors which are not foreign exchange earning nor foreign exchange saving, such as construction, which creates employment, puts strong pressure on our holdings of foreign exchange.”
On the topic of diversifying the economy, Ramkissoon believes that there is some general understanding that the country must diversify but that understanding is not good enough.
He outlined that without deliberate strategy by dedicated personnel and sustained efforts and funding, broad diversification of the economy would not happen.
“Policymakers need to review and implement some of the work that has already been done on likely sectors for expansion. The work of the Road to Recovery Team needs to be re-visited as well as the National Development Strategy (NDS).”
With the much-talked-about foreign exchange crisis that has been plaguing the country since 2014, the economist highlighted that rationing of available supply, drawing down on the Heritage and Stabilisation Fund (HSF), and building up the stock of foreign exchange through foreign borrowing will only take us so far.
He said these approaches have serious limitations and sooner or later the country must seek to promote more effective and dynamic conditions that incentivise exporters, discourage discretionary imports and allow domestic producers to better compete with imports.
As the focus is being placed on the small- and medium-sized enterprises (SMEs) sector by the Government, Ramkissoon revealed that the sector must be disaggregated if the administration chooses to be strategic about it and some of these businesses should be temporarily supported to provide quality goods and services to the domestic economy.
“However, the sector must be corralled to efficiently replace imports, and be assisted in exploring export markets as some are already doing well.”
Also weighing in on the performance of the economy was economist Dr Marlene Attzs, who said fluctuating commodity prices, including prices in the energy sector, coupled with low production at the national level, means the flow of revenues from the energy sector poses a risk to macro-economic management.
She noted that if those prevailing global circumstances were not enough, there is now the potential geopolitical risk given the Guyana/Venezuela dispute with possible consequences for the Dragon gas project, which would be a much-needed fillip for economic growth in T&T.
All these considerations, Attzs said, are against the backdrop of the recently concluded climate change talks, COP28, at which the UN Secretary-General, António Guterres, among others, said restricting global warming in accordance with the 2015 Paris Agreement “…will be impossible without the phase-out of all fossil fuels…”.
“This signals an urgency for T&T to capitalise on the energy sector—the backbone of our economy—while accelerating efforts to diversify the economy into activities that reduce our carbon footprint.
“That to my mind is a mammoth undertaking given the levels of investment needed to ramp up operations in the energy sector and the equally daunting task of changing the historical, national dependence on ‘oil and gas’ money,” the economist disclosed.
On the question of whether enough is being done to stimulate the economy, Attzs said looking at the Central Bank data, between 2016 and 2018 there was negative growth with less than one per cent growth in 2019 and then negative growth in 2020 and 2021.
She said the decline in the latter years can be attributed to the impact of the COVID-19 pandemic and the associated economic measures and in 2022 there was some glimmer of light with a 1.5 per cent growth rate.
“The question is: what are the growth areas and are they sustainable? There has been some welcome and positive movement in the non-energy sectors but the question of sustainability of this growth remains,” she said.
As it pertains to the scarcity of foreign exchange, Attzs said that most of the foreign exchange earned in T&T comes from the energy sector, and those earnings have been in decline. That means there continue to be distortions in the foreign exchange market arising from the unabated demand for, and volatile supply of, foreign currency.
“Our reliance on injections of millions US dollars from the Central Bank to satisfy the demand for forex is unsustainable and may likely exacerbate the market distortions and fuel a black market for foreign exchange.
In its annual economic survey, the CBTT noted that “…foreign currency deposits contracted in 2022. On a year-on-year basis, foreign currency deposits declined by 1.9 per cent in December 2022, compared to an expansion of 8.9 per cent one year earlier. The sharp drop in foreign currency deposits was mainly attributed to a contraction in business sector deposits…” she detailed.
The forex shortages challenge all sectors, but the economist said undoubtedly the smaller companies are likely to be more economically vulnerable since they do not have the same opportunities for access as the medium and large companies.
In 2024, the year before the country expects a general election, Attzs mentioned that the focus on core issues such as economic growth—whether from the energy or non-energy sectors—ought not to be divorced from the ubiquitous issue of crime.
“Crime is likely to undermine the best-laid plans for growing the economy and the multifaceted nature of crime must be holistically analysed and addressed if the country is to reap any benefits in the short and medium term. This ‘unease’ of doing business now comes at an unmanageable and unsustainable social and economic cost,” she added.
