I write as Minister of Planning because I was awarded the honour by the PM of opening the first debate of this session in the Senate on the State of the Economy. Though the Minister of Finance holds the purse strings of this Government it is incumbent on me to enter the debate on whether our economic situation can afford the demands being placed on it by the labour movement.
First I wish to address a comment by one labour leader that if people were given more money to spend (their salaries were increased) this would stimulate the economy. In fact, this is an out of context repeat of a comment made by the ILO.This policy may have some currency in countries whose economies are to a large extent internally driven, countries with large internal markets; India, China, Brazil.This is one of the reasons, since they were not substantially hit by the sub-prime mortgage fiasco, why they were able to emerge quickly from the recession, particularly by attracting foreign investment. China with its very large sovereign wealth fund is also using this to invest in resources and resource based projects worldwide.
The economy of T&T is not internally driven. Instead it depends directly on how well the markets for our energy products are doing. The local on-shore market is parasitic in that when our external trade in energy flops the local economy flops-the boom-bust plantation economy.Further, a large part of the on-shore economy is related to imports (without providing the related foreign exchange), which if stimulated puts increased demands on the foreign exchange, which is now in short supply due to the reduced earnings by the energy sector and both speculation and some say investments abroad where returns are still low.
Still, there are some who say that since the price of oil is above what was used in the Budget for planning purposes then Government's revenue must have increased. Hence, Government can afford to pay workers more, to increase its recurrent expenditure.However it should be common knowledge that our oil production is on the decline from its peak of 229,000bbls/day to just over 100,000bbls/day. We are past peak oil and we are indeed a gas economy. But there is a glut of gas on the market which is expected to last, some say, for decades. Our normal market price at present for gas is bordering on US$4/mmBtu.
The budget price was US$2.50/mmBtu; net back price which translates to some US$5/mmBtu. Hence our major exports, LNG, are not returning to Government the revenues as expected. Note LNG uses some 60 per cent of our gas production and during the boom the energy sector earned 95 per cent of our foreign exchange. Some remind us also that the Budget stated that GOTT would need to borrow TT$7billion this fiscal year, part of which will be on the local market.
Much of this borrowing has not materialised since the spending on certain projects have been deferred and as a result the borrowings have also been deferred. Therefore, it is unwise to look simply at what has been done the year to date and not look to the years ahead. Some say also that the Minister of Finance should borrow in the local market to give our investors investment opportunities. Surely this is a problem we have to solve in our plantation economy. Our people will have to be encouraged to invest in productive and innovative export oriented enterprises that are more risky rather than low (less risky) returns from government bonds. This will also create a more vibrant local stock market. It is interesting to note Wendell Mottley's comment that our local stock market may have a terminal illness. Its offerings make T&T stocks worthless given the lack of liquidity (activity) in the market. But economic restructuring that should create new IPOs is a task for this Government via its recently started National Innovation process.
There is something emerging in the global economy which the Minister of Finance has to take into account with respect to additional current expenditure and borrowings even as he does so to pay debts to contractors. The global economic collapse two to three years ago was due to the inability of the world economies that are driven by cheap energy to cope with oil price of US147/bbl. The sub-prime fiasco simply hastened this collapse.
Today the western world is still struggling to emerge from the recession, demand for oil is increasing and with the turmoil in the Middle East oil price is already US$122.36 for Brent Crude. Though natural gas is cheap it cannot take the place of oil in many applications. Renewables are still expensive and are of little help in the immediate future. The nuclear accident in Japan is putting a brake on existing and planned nuclear capacity. Hence some economists are fearing a double dip recession with the concomitant impact on global trade and hence forcing another economic collapse of our externally driven plantation economy.
Our labour unions are an important part of our economic future and they cannot continue to look at our economic situation as with blinkers. We are still flotsam on the global economic seas and the best we can do is to now try to maintain economic stability.The future is uncertain and the Minister of Finance after a risk analysis using the above indicators has to do his job and make dynamic decisions-dynamic in that as the indicators change so can decisions. This he has done.
Mary K King
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