I am optimistic that 2022, ceteris paribus, will be a better year for the T&T economy, even though I don’t expect it will mean individuals will be better off.
My optimism is based on the fact that I expect that for the rest of fiscal 2022 crude and natural gas prices will remain relatively strong, there is likely to be some improvement in the local production of both commodities and this will provide more natural gas for the production of methanol, ammonia and urea, all of which are fetching good prices in the international market.
The energy sector’s improved performance in 2022 will provide government with additional revenue and the country with more foreign exchange.
The manufacturing sector appears to be steadfast in its mission to double exports by the middle of the decade and the global economy has shown that once it can navigate the variants of the pandemic, global demand will improve and so to global growth.
Prime Minister Dr Keith Rowley has said the Government does not plan to again shut down the economy and we have to learn to live with the virus.
His government has pointed to vaccination and observance of the COVID-19 protocols as the solution.
The restaurant, bars and entertainment sectors have been among the most hard hit. I suspect that the Government will ease those sectors during the course of the year unless the new variants prove to be as deadly or more deadly than the Delta variant.
This is likely to help thousands of workers in the services sector and the tourism industry.
But my optimism is tempered by the risks to the economy caused by the unknown of the pandemic and the fact that while I expect the economy to perform better than it did last year, we are coming from a place where we are on average significantly poorer than we were a decade ago.
One only has to look at the deplorable state of the roads in the country to know things are not well and the Government has to act now to get its infrastructure projects going.
I have noticed that work on the Central Block of the Port-of-Spain General Hospital appears to have stalled. Further, the Point Fortin Highway which is to be completed in 2022, appears more likely to be delayed again.
T&T, as a small open economy, with a propensity to import relies on foreign exchange and remains vulnerable to imported inflation.
The recent announcement of increases in the price of flour, cement and even beer is just a continuation of the inflationary pressure the economy has faced for most of 2021.
It started in January with the massive jump in steel prices and other construction material that significantly increased the cost of construction. From the third quarter of 2021 people began to notice that their grocery bills were going up substantially as the price of a lot of the imported food increased.
It was not just based on higher costs in the food items but on the higher shipping and freight costs and delays at the port.
One of the reasons this administration has been able to keep the country quiet during what has been six years of economic decline has been the containment of inflation.
This control of inflation is unlikely to continue in 2022 as supply chain issues, rising global demand, shortages, and the continued inefficiency at the nation’s ports put pressure on importers and prices. Therefore while the country’s finances and even its balance of payments position will improve the lives of the average citizen on fixed incomes are unlikely to get better.
It is well known that inflation impairs the efficiency of the price mechanism and raises the costs of buying and selling because money becomes less reliable as a standard of value.
The greater the general rate of price inflation and the greater the shift in relative prices, the less is the reliance that can be placed on money as a standard of value.
Inflation also penalises people on fixed incomes and favours those whose money incomes adjust quickly to price changes.
The former group includes pensioners, public servants, and people working in the private sector.
Where household incomes are composed of transfer earnings determined by the state, like those on pensions or food cards or other help from the Ministry of Social Development, it is always possible to link incomes to price changes so as to protect real income; but this has not been our practice and even so the more successful this is accomplished, the greater the inflationary bias in the economy.
Inflation favours borrowers and penalises lenders so long as it is unanticipated.
Thus, if interest rates are fixed in money terms in the anticipation that the level of prices will remain constant, an increase in prices will reduce the real cost of borrowing.
In extreme cases, the real cost of borrowing may even become negative where the increase in prices is greater than the nominal interest rate.
It is why so many mortgages are not fixed in that way and one can expect that interest rates will go up in 2022, making it more expensive to borrow and may have a deleterious effect on the economy. Price inflation, therefore, has important consequences for the distribution of incomes, for the operation of markets, for savers and investors, for the distribution of resources between private and public sectors, and for foreign trade and the balance of payments.
If the inflation is unanticipated, then these effects are often capricious and unintended.
Continued inflation will lead to an adjustment in behaviour patterns which can mitigate some of the distributional consequences.
So what can the Government do?
One thing I hope it does not do is use the additional revenue from the energy sector to subsidise things like flour.
Yes it is hard and we are all personally impacted by these rising prices but it cannot be that the solution is subsidies.
It is why I was disappointed in my MP Rushton Paray’s call for the Government to use its majority ownership of NFM and step in and prevent it from raising its prices.
Paray must decide if he supports government operating a state enterprise in such a way that it does not care about the minority shareholders rights and if the position is that the company must sell its products at barely break-even prices, or with a view to maximising returns to its shareholders?
Paray was not part of the UNC government of 2010 to 2015 but he must have cringed at the then government’s propensity to support transfers and subsidies.
Remember the baby grant?
I have consistently said the country has to first examine its level and nature of spending to avoid waste and corruption. It must collect all the taxes due and we must prepare for a modern economy that is independent of oil and gas. It is why we must demand that the problems at the port and at customs are fixed.
This government has had six years to do it and has failed miserably.