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Little on T&T’s diversification

Sunday, November 26, 2017

The IMF Article 4 which came out on November 22 indicates that the T&T economy is still in a very precarious position.

The report provided a rich diagnostic assessment of the T&T economy, but little was said about ways to improve the current account balance in the short or the medium-term period and, indeed, the IMF figures shows that the current account balance will remain in persistent deficit for the next five years.

Policy makers should jump on this bandwagon and consider a devaluation of the currency to help reshape economic outcomes for the T&T economy. Of note is that the marginal devaluation of the T&T dollar so far has not been able to prompt an improvement of the current account balance. In fact, this marginal devaluation may have helped to prompt a worsening of the current account balance by increasing import prices without providing ample price disincentive to reduce consumption.

Nothing is really being said about the ETeCK parks. Are the ETeCK parks still on the radar? The ETeCK parks represent a sound basis through which the State can revamp the economy’s manufacturing sector or parts of the manufacturing sector. Manufacturing employment as it stands is currently down from the 58,000 where it stood about ten years ago to approximately 49,000 workers today.

To improve this will require a strong degree of political will and it will definitely require a reallocation of labour from some sectors into the manufacturing sector. As it is stands with the appreciated real effective exchange rate (88 per cent more overvalued in 2017 as compared to 1999), the incentive to import is strong and so the malls and shopping complexes will always have a flow of customers, and online shopping will not fall. 

Economic agents also need to be careful about the loud noises it is making about the economic growth rate which is set to return next year, according to both IMF and revised CSO estimates. This is not genuine hardcore economic growth, it is simply an increase in the above-the-ground value of GDP because of monetizing more gas in 2018 and 2019 than in 2017.

Policy makers need to be careful about taking this increase in wealth that would accumulate above the ground and merely redistributing it as we did for the last 17 years. This time we would need to take this wealth and follow good practice economic theory and use it to help strengthen the human capital fabric of the economy and the infrastructural capital base. It could also be placed in the Heritage and Stabilisation Fund. It definitely must not be used to paint stones or refine the art of grass cutting only.

Although the IMF report was limited on the labour force participation rate, this is something that local policy makers must take fully and aggressively on board to help strengthen the number of workers from the non-institutionalised population above 16 years that actually progress into the labour force. In a nano state with a nano labour market we need a higher labour force participation rate. In this regard, policy makers must look closely at increasing the retirement age in the public sector from 60 years to 65 years at the earliest possible opportunity.

Dr Roger Hosein



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