Finance Minister Colm Imbert, and by extension the Government, are in a difficult position.
In the “Spotlight on the Economy” presentation, Minister Imbert portrayed Trinidad and Tobago’s current financial position positively. He noted that notwithstanding the unexpected shocks and financial pressures generated by the COVID-19 pandemic and the war in Ukraine, the economy had experienced a broad-based recovery, thereby confirming the country’s financial resilience. He noted that these developments were contrary to the erosion which had been projected by many commentators and sounded a note of confidence.
Minister Imbert committed the Government to converting the momentum of this recovery into structural measures to cement this growth. He cautioned, however, that the fiscal measures would reflect a balancing act. This “balancing act” reflects the dichotomy which faces Minister Imbert and his colleagues.
First, is the recovery broad-based? Second, how is the positive financial position to be managed to address the pent-up demands caused by six years of economic decline?
The positives noted by Minister Imbert flow from higher energy prices which have served as the rising tide to lift all boats. The remarkable rise in energy prices has increased Government revenues, improved foreign exchange earnings, reversed the declining terms of trade, reduced but not eliminated the deficit, and by increasing the size of national income, reduced the debt to GDP ratio without reducing the amount owed. The arithmetic ratios comprising the statistical measures identified have all improved.
The Central Statistical Office’s report on the first quarter numbers provided a much-needed reality check. The report stated that Trinidad and Tobago’s economy declined by 4 per cent in the 1st quarter of 2022 when compared with fourth quarter 2021. Natural gas production declined due to lower output from BPTT, and affecting output from other sectors, including petrochemicals.
It is noteworthy that not all the petrochemical plants are open, as there is not enough gas to allow them all to operate. Oil production has remained relatively steady at the low level of 60,000 barrels per day. The report noted that several industries in the energy sector recorded declines and lower output levels were also recorded within the non-energy sector. There were some positive sectoral movements, but they were not enough to change the negative trend. Remove the improved energy prices and the underlying picture shows declining production numbers.
The latest (July 2022) Central Bank Economic Bulletin gives a mixed review, noting a decline in the unemployment rate from 6.5 per cent to 5.1 per cent in the first quarter of 2022, although signalling that labour market conditions remained “soft.” It noted that the headline inflation rate had risen from 3.8 per cent in January to 4.9 per cent in June 2022 and expected further increases due to external factors. It also expected improvement in the level of domestic economic activity coming from developments in the energy sector.
Economic history has clearly demonstrated that energy prices rise but they also fall. The current position is therefore temporary, and the country must undertake the structural improvements now if they are to have a positive impact in improving the country’s longer-term economic fortunes.