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Howai optimistic despite facing difficulties
Delivering his budget speech on Monday, Finance Minister Larry Howai did not go into detail about the performance of the economy in the 2011-2012 fiscal year. However, he made a point of asserting that this country had emerged from the crisis arising from the global crash of 2008 “much more quickly than many other similarly circumstanced countries.”
But the minister’s claim of the economy “exiting the crisis”—that is, if he is talking about a turnaround in production and export of the economy’s most competitive products—is not supported by the Review of the Economy put out by his ministry.
According to that review, all the major producing sectors of the economy, financial services apart, experienced significant declines during the year, among them tourism (-4.8 per cent), agriculture (-4.9 per cent), construction (-2 per cent) and manufacturing (-0.4 per cent). In terms of the export of manufactured goods, there was a significant overall rise of 15.8 per cent, with exports to the Canadian market being responsible. However, in regard to exports to Caricom, the most assured market, the review notes a 23.4 per cent reduction from $9.8 billion for 2010/2011 to $7.5 billion for 2011-2012.
Overall, on the country’s balance of visible trade (October 2011-June 2012), the economy earned $19.8 billion, which marked a 22.9 per cent decline from the previous year. In the vital energy sector, crude oil production declined between October 2011-June 2012 by 3.8 per cent; over a similar period (October-May) natural gas production declined by 5.7 per cent. At the same time, T&T’s LNG exports fell by 9.7 per cent, with gas prices continuing to be soft.
On the Government’s capital programme of last year, out of a total of just over $3 billion spent, a mere $569 million went into the projects of the central Government; the rest went to Petrotrin, Tringen and NGC projects. Howai said the public sector debt ratio in relation to GDP continues to be within acceptable bounds.
The fact is, though, that the debt increased over the year from 36 per cent of GDP to 46 per cent, with the external debt, the most important element, increasing by 22.2 per cent. Those increases must surely be a worrying concern for the future if they keep going up at those rates.
On the positive side, the minister’s identification of the continuing solid reserves position, including the investments of the Heritage and Stabilisation Fund, doing well internationally, is reassuring. But that has been the case for a decade and a half now, because of the gas and oil boom of the past and the quality management of the H&S by the Central Bank.
Positively also, there was an increase in foreign direct investment which amounted to US$1.1 billion: it resulted from “reinvested earnings emanating primarily from the energy sector while commercial banks net foreign balances,” states the review.
With regard to the growth experienced in financial services upon which the growth for 2012 is projected, the major activity in the sector was the investment in government bonds amounting to $2.8 billion—that means a trade in paper, with the investors planning to collect 20 years down the line.
While the Finance Minister has indicated the positive (more positive than his predecessor) approach to involving the private sector to get the construction programme off the ground, it is going to be almost impossible for the economy to productively absorb $7.5 billion in the Public Sector Investment Programme, especially considering the great inefficiencies which exist in public administration.
The minister also listed an intention to invest $850 million in tourism in Tobago. How the funds are invested and whether the effort can turn around a 4.8 per cent decline is another challenge. In the energy sector, at best, drilling efforts about to be started will pay dividends six to seven years down the road. Studying the performance of the economy in 2012 is a means of pointing out the deep difficulties that still face the economy. It reveals that Mr Howai’s plans, while modest, are still highly optimistic.
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