COVID-19 has shak­en the foun­da­tions of the T&T econ­o­my by cre­at­ing a mas­sive neg­a­tive shock of oil and gas prices and by cre­at­ing a ma­jor cash flow cri­sis that threat­ens wide­spread bank­rupt­cy of busi­ness­es and a wrecked eco­nom­ic land­scape, says se­nior econ­o­mist Dr Vanus James.

In an in­ter­view with the Sun­day Busi­ness Guardian on how Gov­ern­ment can at­tempt to achieve sta­bil­i­sa­tion and stim­u­late of the econ­o­my James out­lined sev­er­al mea­sures.

He not­ed that since ear­ly Jan­u­ary, signs be­gan to ap­pear that the virus is go­ing to pro­duce a spe­cial eco­nom­ic ef­fect that pol­i­cy-mak­ers need to recog­nise when they take ac­tion.

James said even if the fun­da­men­tals of the econ­o­my re­main in­tact, what­ev­er the un­re­solved prob­lems of de­vel­op­ment, COVID de­mands so­cial dis­tanc­ing that is first cre­at­ing a wide­spread cash flow prob­lem which threat­ens wide­spread bank­rupt­cy of busi­ness­es, to be fol­lowed soon af­ter by a va­ri­ety of sup­ply chain chal­lenges.

Re­lat­ed so­cial prob­lems are im­por­tant, James said but added that the threat of busi­ness bank­rupt­cy is the main pol­i­cy chal­lenge.

“The prop­er fo­cus of the eco­nom­ic re­sponse of Gov­ern­ment should be to put a cash­flow-based pro­gramme to­geth­er to freeze the econ­o­my in place, keep­ing work­ers and busi­ness­es to­geth­er, so that af­ter COVID, re­cov­ery can take off from where the virus in­ter­vened and speed up there­after,” James ad­vised.

He warned if busi­ness­es fold, then who­ev­er sur­vives the pan­dem­ic will have to start from scratch un­der new re­cov­ery (post-bank­rupt­cy) laws.

That, he ex­plained, would be far more dif­fi­cult and ex­pen­sive than if a busi­ness-fo­cused hold­ing pat­tern is prop­er­ly con­ceived and fund­ed.

James said over the past months, while the Gov­ern­ment seemed well-ad­vised by its health sci­en­tists, no lead­ing econ­o­mist ap­peared to be guid­ing its pro­gramme of eco­nom­ic re­spons­es.

He said the main el­e­ments of a sound eco­nom­ic re­sponse pack­age need­ed to sta­bilise the econ­o­my at this time should re­flect the struc­ture of busi­ness cash out­flows as fol­lows.

1 Loans and debt oblig­a­tions are a ma­jor com­po­nent of reg­u­lar busi­ness cash out­flows. Con­tin­u­ous­ly ad­just­ing pol­i­cy is need­ed to in­crease liq­uid­i­ty in the bank­ing sys­tem to suit­able lev­els and low­er in­ter­est rates.

This must be ac­com­pa­nied by sup­port­ing steps to in­crease the ca­pac­i­ty of bank and non-bank lenders to pro­vide quick-ac­cess cheap cred­it in­flows and de­ferred debt oblig­a­tions (in­ter­est and prin­ci­pal) to busi­ness­es.

2 Tax­es and oth­er re­lat­ed oblig­a­tions are an­oth­er ma­jor cash out­flow of busi­ness­es. This should be ad­dressed by a wise com­bi­na­tion of tax cuts and tax de­fer­rals for the first six months of COVID-19.

3 Wages are the biggest out­flow oblig­a­tions of most of busi­ness­es.

To ad­dress these out­flows, a pro­gramme of con­di­tion­al cash trans­fers to busi­ness­es is need­ed, tied to the num­ber of em­ploy­ees kept on the pay­roll. These trans­fers can be dis­bursed by the Fi­nance Min­istry or even through the Cen­tral Bank.

“Con­sid­er the trou­bles of re­cov­ery if busi­ness­es have to hire and train new work­ers in a COVID-sen­si­tive re­cov­ery en­vi­ron­ment, when all sorts of test­ing and con­fi­dence is­sues will abound.

“This pro­gramme is com­plete­ly ab­sent from the poli­cies of the Gov­ern­ment. It seems more in­tent on as­sur­ing work­ers that as­sis­tance is avail­able if they be­come un­em­ployed,” James said.

4 Not un­re­lat­ed to the wage oblig­a­tions are oth­er large in­ter­me­di­ate cash out­flows, for rents and such mat­ters.

The con­di­tion­al cash trans­fers, James said, should be scaled to ad­dress them too.

He said it is not enough to ask land­lords to ex­er­cise for­bear­ance, not­ing that this type of pro­gramme must be de­signed to tar­get the MSMEs, un­der 100 em­ploy­ees, in ad­di­tion to the up­grad­ing of the stan­dard so­cial pro­grammes.

“What­ev­er the busi­ness se­lect­ed, if scaled and tar­get­ed prop­er­ly, such pro­grams would al­so al­le­vi­ate sup­ply-side prob­lems” James added.

Re­gard­ing how the pro­gramme will be fi­nanced, he said tax­es are not es­pe­cial­ly rel­e­vant.

“Gov­ern­ment has to bor­row lo­cal­ly and in­ter­na­tion­al­ly, join­ing the in­ter­na­tion­al sol­i­dar­i­ty move­ment be­ing pro­mot­ed by UNC­TAD for in­stance, in­clu­sive of in­ter­na­tion­al debt for­give­ness and de­fer­ral,” he added.

He ex­plained the gen­er­al ex­pen­di­ture stan­dard is to tar­get at least 10 per cent of GDP ($15 bil­lion in the case of T&T) for the first three months of COVID, and then re­cal­i­brate af­ter.

On this ba­sis, T&T is at least $5 bil­lion short, James said.

He not­ed Ja­maica has com­mit­ted un­der two per cent of its GDP.

Japan has com­mit­ted 20 per cent of its GDP for six months, Aus­tralia 10 per cent for three months, the US 15 per cent for six months.

Fi­nanc­ing con­sid­er­a­tions

Eco­nom­ic re­cov­ery and re­struc­tur­ing will be gov­erned by the re­sponse to the crash of oil/gas prices since Jan­u­ary, and the method of re­open­ing what­ev­er the coun­try is able to pre­serve with suit­able pol­i­cy dur­ing the cur­rent phase of the COVID-19 at­tack, James said.

He said since Jan­u­ary, 2020 the virus has been de­stroy­ing glob­al de­mand for new oil.

James ar­gued that the glob­al COVID crash of oil prices are the lat­est dra­mat­ic re­minders that T&T has to do much more to di­ver­si­fy its econ­o­my, es­pe­cial­ly its ex­ports.

“More im­me­di­ate­ly, as the Min­is­ter of Fi­nance has al­ready re­mind­ed us, they will lead to more deficits in the bud­get and in the bal­ance of trade, and thus to wors­en­ing deficits on the bal­ance of pay­ments on the cur­rent ac­count as the coun­try re­sponds to the cri­sis,” James said.

In turn, he added this would re­quire in­creased for­eign bor­row­ing to pay for nec­es­sary im­ports, even as­sum­ing sup­plies are avail­able from a crum­bling glob­al sup­ply chain.

It would al­so re­quire in­creased of­fi­cial lo­cal bor­row­ing, in­clud­ing growth of the mon­ey sup­ply, to cov­er the grow­ing bud­get deficits.

Ad­just­ed trade

To re­turn to pre-COVID lev­els of ef­fec­tive de­mand that could dri­ve nec­es­sary growth, lo­cal ef­fec­tive de­mand will have to be sup­ple­ment­ed by ex­port de­mand, es­pe­cial­ly through in­dus­tri­alised tourism, James rec­om­mend­ed.

This, he said, will re­quire a sharp shift of Gov­ern­ment pol­i­cy from its pre-oc­cu­pa­tion with the en­er­gy-based in­dus­tries to­wards an in­dus­tri­alised tourism.

Mon­i­tor­ing and eval­u­a­tion

To mon­i­tor and ad­just to progress on re­cov­ery ini­tia­tives, ef­forts will al­so be need­ed to col­lect and dis­sem­i­nate da­ta on all as­pects of in­dus­try and com­merce, as well as pover­ty and in­equal­i­ty, James rec­om­mend.

James said the con­di­tions of busi­ness­es will have to be rou­tine­ly mon­i­tored and re­port­ed, along with in­di­ca­tors such as the lev­el and rate of growth of out­put, de­mo­graph­ics and ed­u­ca­tion sta­tis­tics, trav­el and trade sta­tis­tics, crime sta­tis­tics, and the lev­el of self-em­ploy­ment and the liv­ing stan­dards of house­holds.

This ini­tia­tive is cru­cial for mon­i­tor­ing progress in the tourism in­dus­try, but al­so im­por­tant for all oth­er sec­tors of the econ­o­my, in­clud­ing agri­cul­ture, James added.

Fi­nanc­ing re­cov­ery

At the na­tion­al lev­el, James not­ed fi­nanc­ing of the re­cov­ery process would de­pend on the out­put ca­pac­i­ty that can be gen­er­at­ed dur­ing the re­cov­ery process.

Bank and non-bank fi­nanc­ing pred­i­cat­ed on pri­vate sav­ing ca­pac­i­ty would have to run to about 10 to 15 per cent of GDP.

“Ex­pan­sion of the mon­ey sup­ply to cre­ate cred­it in sup­port of in­vest­ment in the cap­i­tal-pro­duc­ing in­dus­tries will al­so be need­ed, backed by ap­pro­pri­ate de­vel­op­ment bank­ing, “ James added.

Not on­ly about spend­ing

For­mer Di­rec­tor of Eco­nom­ics at the Caribbean De­vel­op­ment. Bank (CDB) Justin Ram not­ed that al­though the coun­try has fair­ly large for­eign ex­change re­serves it is cur­rent­ly not earn­ing much for­eign ex­change cou­pled with the fact that T&T has such a high propen­si­ty to im­port.

Added to which the Gov­ern­ment now has to pro­vide stim­u­lus to the econ­o­my by spend­ing more, Ram who re­cent­ly left the CDB to purse ex­ten­sive con­sul­tan­cy work said.

“But every time the Gov­ern­ment spends more in the econ­o­my and that goes in­to peo­ple’s pock­ets when they go to the su­per­mar­kets to shop the ma­jor­i­ty of things they are buy­ing are im­port­ed so the mon­ey goes out,” Ram said.

He ad­vised the coun­try needs to fo­cus on net pos­i­tive ex­ports as it tries to stim­u­late the econ­o­my.

“Look at ar­eas that are good for dri­ving ex­ports out­side of the oil and gas sec­tor

“Stim­u­la­tion is not on­ly about spend­ing mon­ey it is about the busi­ness en­vi­ron­ment the cli­mate, look­ing at the reg­u­la­to­ry set up in the coun­try,” Ram added.

The ease of do­ing busi­ness is al­so crit­i­cal, Ram em­pha­sised, not­ing the port for in­stance must be im­proved to achieve ef­fi­cien­cy.

“These are things the Gov­ern­ment can do with­out hav­ing to spend a lot of mon­ey be­cause then in­vestors have start­ed to do things,” Ram rec­om­mend­ed.

Not­ing that the Gov­ern­ment doesn’t have much mon­ey in the first in­stance to cre­ate stim­u­la­tion Ram ad­vised Gov­ern­ment must make it eas­i­er for the pri­vate sec­tor to want to stim­u­late the econ­o­my them­selves.

“Stim­u­la­tion al­so means pro­vid­ing a lot of tax breaks for ex­am­ple for in­vest­ment be­cause you want the pri­vate sec­tor to start dri­ving the econ­o­my.

“In­fra­struc­ture like broad­band should be pri­ori­tised over road build­ing,” Ram said.

He not­ed on the flip­side Gov­ern­ment ought to look at ar­eas that will pro­duce ser­vices to as­sist re­place im­ports like agri­cul­ture and food pro­cess­ing.

Safe­ty net crit­i­cal

Sta­bil­i­sa­tion of the econ­o­my first­ly en­tails that the nec­es­sary re­sources for the health sec­tor must be pro­vid­ed, as sav­ing lives is crit­i­cal, said Dr Re­gan De­o­nanan.

Fi­nanc­ing this ex­pen­di­ture, he added, may come from sev­er­al sources such as bud­getary re­al­lo­ca­tion, do­mes­tic or ex­ter­nal bor­row­ing, emer­gency fi­nanc­ing from de­vel­op­ment banks, util­is­ing fis­cal buffers, among oth­ers.

Giv­en that some de­vel­op­ing coun­tries have lim­it­ed fis­cal space, they may need to utilise a com­bi­na­tion of these sources, De­o­nanan, lec­tur­er of eco­nom­ics at UWI ad­vised.

Sec­ond­ly, he said a safe­ty net should be pro­vid­ed for those like­ly to face sig­nif­i­cant im­pacts.

For in­stance, giv­en the quar­an­tine mea­sures im­ple­ment­ed by many coun­tries, re­tail work­ers, trans­port work­ers, those em­ployed in non-es­sen­tial ser­vices, and those in the in­for­mal work­force, are among those at risk of los­ing in­come, or fac­ing job loss.

“The ob­jec­tive for pol­i­cy-mak­ers then should be to pro­tect work­ers’ in­comes, es­pe­cial­ly low-in­come work­ers, and avoid job de­struc­tion,” De­o­nanan said

He added fis­cal poli­cies that may help to achieve these ob­jec­tives in­clude tem­po­rary grants and trans­fers, tem­po­rary sub­si­dies for wages, and re­lax­ing cer­tain tax dead­lines, while mon­e­tary pol­i­cy can com­ple­ment by us­ing in­stru­ments which lead to a re­duc­tion in the lend­ing rate, thus pro­vid­ing greater liq­uid­i­ty.