The recent debate in the Parliament (No Confidence in the Minister of Finance) as to the handling of the economy over the past years focused on the economic variables, like GDP, debt, unemployment, that define the output of our current economic system. It did not pay attention to the fundamental concept of the dynamic model of the economy; its inability to adapt quickly to structural economic changes, nor the inputs to the system over which the local players had no control, disturbances, which could have constrained the ministers’ performance.
The basic economic model of T&T is a small and open petroleum plantation. In other words, we cannot produce locally much of the necessities of life and even economic growth, and must import—ie, we must export to earn the foreign exchange (FE) to purchase these imports. At present the energy sector, driven by foreign investment that exploits a diminishing resource, earns most of the FE for the country, an economic model that predated the tenure of the minister. Also, the onshore economy is not independent of these earnings. As a sector, it relies on the use of imports (via FE) to provide the goods and services for the local market. Hence, it is not possible now to grow the onshore for any length of time if the energy sector cannot provide in this short term the FE required. Foreign debt may provide this FE (in the short term) that the onshore requires, but this will suffice for a limited time only. Diversification, creativity, needs a much longer time period.
If we were to look very quickly at the time period 2015 to the present, there are two distinct time frames: pre- and in-Covid-19. At the start of the period the international prices of oil, gas and petrochemicals had collapsed, together with the reduction in local gas production and its higher upstream price. These reduced substantially the FE income to the country and the Government. Traditionally this should have called for a reduction in Government spending and the cautious use of local FE savings and reserves to contract the economy to a state where current FE earnings could support this economic activity. However, the Government’s chosen philosophy was to spend so as to stimulate the onshore economy, even grow it.
Hence, we saw the reduction in FE reserves (most onshore spending needs the support of FE) and even withdrawals from the HSF, together with increased debt, as the Government engaged in deficit budget spending—no new sources of FE income could possibly be created, except via the sale of assets. But both the Government and Opposition appeared to agree that in this recession, spending is the way out—President Roosevelt spending on infrastructure in the great recession of the 1930s was given as an example of such an approach. Also, that austerity in a recession was obsolete. However, the hard fact is that recovery from a recession in T&T needs a revival of the earnings of FE, which the use of savings, reserves and debt is but a very transitory replacement. Thus, we saw the foreign reserves drop from US$9.57 billion in March 2016 to US$6.8 billion in January 2020; the HSF was used for some US$1.6 billion from 2016 to 2020, which as an overseas investment did recover to US$6.812 billion.
Then came Covid-19! The pandemic disrupted both the supply and demand value chains, locally and internationally. Hence FE income to the country was further reduced, and locally with the various lockdowns economic activity was again significantly reduced, causing the closure of many companies and such threats to others with the accompanying unemployment. Hence Government had to increase its spending, even as grants, to allow people to continue to support themselves and save many companies from collapse as it provided resources to the public health system to combat the pandemic. Hence, Government debt spiralled and is now at the level of some 90 per cent of GDP and the reserves are at US$6.517 billion in February 2021.
The impact of Covid-19 created the same demands across the world as, for example, the US has allocated some US$1.9 trillion for spending to support the public health pandemic requirements and to alleviate closure of companies, unemployment and to give grants to the deserving so as to provide the necessities of life, food and shelter. The difference between the US and T&T is that the resources to support the T&T population, etc, had to come also from borrowings and grants from multi-lateral agencies together with reduction in reserves and savings.
It is indeed incomplete to analyse this Government’s performance over the time period defined without taking into account the current dynamic model of the economy, the local and external input disturbances in the energy sector and finally the impact of Covid-19. There are still uncertainties before us with respect to the task of getting enough vaccines to inoculate most of the population, which implies that the current restrictions with respect to the wearing of masks, social distancing, etc, will stay in effect for some time to come, together with the spectre of another spike in pandemic cases. This will be worse than before since Government is warning that it does not have access to the funding, as it had before, to support the population in future lockdowns.