Though the budget is in general the proposed account of how the Government’s yearly revenue is to be accrued and spent, it also indicates the Government’s thinking on how it envisages economic development. Thus, it is necessary to take a look at our economic model, where it is at the moment and the options that may we have for its future development.
Our GDP figures were at a high in 2015 and thereafter, there was a precipitous drop of 10 per cent by 2017, after which they began to slowly increase. Our economic activities have declined. This fall was the culmination of a drop in international prices of oil and gas, which are expected to stay low, bar international political mishaps.
The slight upturn in GDP figures is due to the marginal increase in local gas and oil production as we hope that the petroleum from Barbados, Grenada and even Venezuela will be commercialised in T&T.
However, T&T is short of foreign exchange and the reduction in foreign reserves, the draw-down from the Heritage and Stabilisation Fund and the borrowing of foreign exchange testify to the reduction in rents from the energy sector. We have received some back taxes from the oil majors and promises of their investment in the sector.
But the economists tell us that the cost of living has increased, many people are jobless and others have received pay cuts while the $200 billion spent by the Government over the past four years have not been used to build productive capacity. Coupled with this, it is said that the Government has damaged the business environment via higher taxes, shattered confidence further, failed to improve the quality of life and many businesses are investing in the US, Guyana and the region since they see T&T’s economy as being too risky.
T&T is a petroleum-based plantation where the on-shore business activity depends on the rents from the energy sector for imports, mark-up and sale to the population. Hence with the drop in income from the energy sector giving the decline in GDP, it is expected that on-shore economic activity would decrease, resulting in job losses, pay cuts and increases in the cost of living. This is the boom-bust cycle of the plantation. The concern this time is that to date we have been unable to return gas production to what is required to support full activity at the petrochemical plant and LNG. Maybe we are nearing the end of the viable resource. Further, US shale oil and gas are making our production uncompetitive in the international market and we also run the risk of losing petrochemical plants to the US where gas is cheaper. Do we put our heads in the sand and plan on a resurgence of the energy sector or should we seriously look at diversifying, transforming the economy?
Recently I read an article by economist DeLisle Worrell entitled, “You need US$s, not Barbados $s savings in order to invest”, that explained simply the workings of the model of a small open economy. Let me paraphrase the essence of his submission in the context of T&T.
A basic feature of these small open economies is that all business investment, from hairdressers, supermarkets, to power plants, highways and ports, has to be financed in part by foreign currency; domestic currency cannot be used to acquire inputs from abroad—equipment, vehicles, materials computers, etc. This is so whether the project is large or small, private or public, for domestic production or export. The only way the banks/brokers can supply this foreign exchange is if they receive it from tourism, the energy sector, and export manufacturers. Hence, domestic savings in TT dollars cannot solely fund investment; i.e. the private sector cannot create new investment if it is short of foreign exchange, a situation in which we now find ourselves. Hence the key to reviving investment and growth in this virtuous circle is to invest from the foreign exchange that exists into projects that earn foreign exchange; so continuing the interlocking processes that fund imports and create competitive exports. If then we are to transform this economy we need foreign exchange investment and the development of international competitiveness in exports within an efficient and effective business environment.
By examining what both the Government and the private sector are doing with their foreign exchange we may get a hint as to whether transformation is taking place. Alas, the private sector on-shore claims that it cannot get enough foreign exchange to satisfy import demands. In the year 2019-2020 the Government expects to receive some TT$11 billion in foreign exchange and will be borrowing TT$1.476 billion in foreign exchange. It should be interesting to see what its investments are.
The major Government projects include highways, a port in Toco, also to open up the north-east of the country, the Curepe interchange, La Brea dry dock facilities (in competition with many such docks across the region), construction of 5,000 HDC houses, hospitals.
In general, the Government’s investments will require foreign exchange but are not part of the virtuous circle that produces entities that earn foreign exchange. Hence it is fair to say that the spending of this Government does not point to the transformation of the economy even in the face of the risk inherent in the energy sector and tendered by the digital platforms even to our on-shore activities. Indeed, the Minister of Finance in his budget speech reconfirmed that T&T is an energy-based economy where its Government’s investments provide the non-productive infrastructure and social goods.
However, the Phoenix Park investment as part of the Chinese Silk Road that will also house some Chinese firms is confusing in the light of the destruction of off-shoring by the digital economy, given that our Tamana Park is a failure. Will this Chinese investment in the park be part of their global value chain, i.e. producing foreign exchange for local use?