While T&T is prob­a­bly not falling apart, is it re­struc­tur­ing as need­ed?

This from econ­o­mist Dr Vanus James who was re­spond­ing to re­cent pro­nounce­ments made by Min­is­ter of Fi­nance Colm Im­bert dur­ing a PNM pub­lic meet­ing in Diego Mar­tin in which Im­bert was adamant that the coun­try’s gross do­mes­tic prod­uct (GDP) grew by $5 bil­lion in a three-month pe­ri­od.

“The quar­ter­ly GDP for that par­tic­u­lar pe­ri­od was $44.5 bil­lion. And if I go back to 2020, be­tween Ju­ly 2020 and Sep­tem­ber 2020, in the mid­dle of COVID, eco­nom­ic pro­duc­tion was $34.6 bil­lion. One year lat­er it is $44.6 bil­lion. It grew by $10 bil­lion. So, the know-it-all ex­perts, the naysay­ers are go­ing to be a lit­tle con­fused. Be­cause ac­cord­ing to them, T&T is falling apart,” Im­bert had de­tailed.

Ac­cord­ing to James, it can be agreed that if the CSO da­ta shows GDP of $170 bil­lion rather than $150 bil­lion for 2021, then it is like­ly cor­rect to claim that the coun­try is not falling apart eco­nom­i­cal­ly.

Al­so, he said it would al­so be cor­rect to say that the debt-to-GDP ra­tio in 2021 was low­er than the 85 per cent as iden­ti­fied by the min­is­ter in his bud­get state­ment, based on the es­ti­mate of $150 bil­lion.

How­ev­er, James said what can­not be claimed, “glibly or oth­er­wise,” is that re­cov­ery in al­most every sec­tor from a large, neg­a­tive shock in 2020 means that the econ­o­my is be­ing well-man­aged by the cur­rent ad­min­is­tra­tion.

“Ob­vi­ous­ly, the Gov­ern­ment has a right to claim cred­it for re­cov­ery from a ran­dom crash that oc­curred on its watch.

“How­ev­er, when it comes to sound eco­nom­ic man­age­ment, a stern­er test has to be ap­plied than re­cov­ery of all sec­tors,” James ex­plained.

And, he added, that test must be whether the PNM ad­min­is­tra­tion is pro­gress­ing with poli­cies that could de­liv­er the fun­da­men­tal eco­nom­ic and po­lit­i­cal re­struc­tur­ing the coun­try has been call­ing for, even be­fore in­de­pen­dence.

James al­so not­ed that the gen­er­al sci­ence of eco­nom­ics, as dis­tinct from the “old-talk of bush econ­o­mists,” in­di­cates that, to achieve fun­da­men­tal re­struc­tur­ing and grow the GDP per capi­ta of the coun­try by means oth­er than the luck of oil and gas, three sorts of in­te­gral­ly linked poli­cies are need­ed.

The main one, James ad­vised, is a bas­ket of poli­cies to in­crease the share of ex­portable cap­i­tal pro­duced by the econ­o­my, where cap­i­tal means fi­nal out­put used as in­vest­ment as­sets to pro­duce oth­er out­put.

“If progress was be­ing made on this front, the min­is­ter would sure­ly be the first to re­port it, even if he may be un­aware of its sci­en­tif­ic im­por­tance,” James fur­ther ex­plained.

Sec­ond in im­por­tance, he said, is a bas­ket of poli­cies to grow the na­tion­al ca­pac­i­ty to in­no­vate tech­no­log­i­cal­ly, es­pe­cial­ly in the sense of ca­pac­i­ty of work­ers and man­agers to pro­duce knowl­edge and tech­nol­o­gy out­puts and in­puts and their ca­pac­i­ty to pro­duce cre­ative out­puts re­flect­ing en­hance­ments of the pop­u­lar cul­ture.

Ac­cord­ing to James, the fact that Im­bert has lit­tle to re­port on the mat­ter of ed­u­ca­tion and train­ing re­form looks “sus­pi­cious­ly like ev­i­dence of in­ad­e­quate progress on this front.”

Fur­ther, James said, the third in line is a bas­ket of in­sti­tu­tion re­forms cov­er­ing the rule of law (in­clu­sive and par­tic­i­pa­to­ry democ­ra­cy), the ef­fec­tive­ness or ef­fi­cien­cy of Gov­ern­ment, and oth­er mat­ters such as the rel­e­vance and fair­ness of Gov­ern­ment reg­u­la­tions, the ease of start­ing and do­ing a busi­ness or re­solv­ing bank­rupt­cy, and the fair­ness of ap­proach­es to labour re­la­tions.

But James not­ed that “the very tone of the min­is­ter in con­sid­er­ing the com­ments of the ‘ex­perts’ sug­gests he is mak­ing lit­tle progress on this front too.”

The Fi­nance Min­is­ter had al­so said that the fis­cal mea­sures gov­ern­ment had im­ple­ment­ed to curb the im­pact of the pan­dem­ic had led to “tremen­dous growth.”

Im­bert had al­so not­ed that the con­struc­tion sec­tor grew by al­most 100 per cent be­tween Ju­ly and Sep­tem­ber 2021.

James how­ev­er, said that the fact that all sec­tors are grow­ing is in­ter­est­ing but not quite the same as when key sec­tors are grow­ing faster than oth­ers to re­struc­ture the econ­o­my to­wards more vi­able in­tra-in­dus­try trade and gen­uine fis­cal sus­tain­abil­i­ty.

And, James em­pha­sised it is not enough to ob­serve that con­struc­tion is out­per­form­ing the oth­er sec­tors, even though that fact is in­ter­est­ing.

In­stead, he said what must al­so be mon­i­tored is whether there are signs of rel­a­tive­ly faster growth of the out­put and ex­ports of ed­u­ca­tion, health­care, cre­ative in­dus­tries, and the as­so­ci­at­ed in­fra­struc­ture, in­clud­ing the tourism hous­ing stock.

“These are our crit­i­cal cap­i­tal-pro­duc­ing sec­tors, and they are more im­por­tant than all oth­ers, ac­cord­ing to the em­pir­i­cal ev­i­dence,” James main­tained.

As to the path of the debt-to-GDP ra­tio, he said it is worth ob­serv­ing that both the gov­ern­ment and the ex­perts “be­ing re­viled tend to have a some­what ar­bi­trary ap­proach” to its sus­tain­abil­i­ty.

Ad­di­tion­al­ly, James not­ed, it is true that growth of GDP tends to cause the debt-to-GDP ra­tio to fall.

How­ev­er, he said, notwith­stand­ing what might hap­pen in the next un­fore­seen neg­a­tive shock, the sci­ence of eco­nom­ics sug­gests two key facts about a sus­tain­able fall.

One, James cit­ed, is that it is not suf­fi­cient for the GDP to grow.

“Rather, it must al­so grow at a rate that is high­er than the av­er­age rate of in­ter­est on the debt in­volved,” James ex­plained.

The oth­er, he said, is that the growth of the GDP must be un­der­pinned by eco­nom­ic trans­for­ma­tion and pro­duc­tiv­i­ty growth that would si­mul­ta­ne­ous­ly en­hance the price-mak­ing ca­pac­i­ty of lo­cal ex­porters and en­hance their ca­pac­i­ty to par­tic­i­pate suc­cess­ful­ly in in­tra-in­dus­try ex­port­ing to make the bal­ance of trade in­creas­ing­ly favourable over time.

Ac­cord­ing to James, such trans­for­ma­tion and pro­duc­tiv­i­ty growth would have two ad­di­tion­al pos­i­tive ef­fects on debt sus­tain­abil­i­ty.

First­ly, to boost rev­enue flows to Gov­ern­ment and bring the bud­get in­creas­ing­ly in­to sur­plus in due course.

The oth­er, James said, is to grow Gov­ern­ment’s ac­cess to seignior­age as it grows the mon­ey sup­ply to fa­cil­i­tate a suf­fi­cient flow of valu­able cred­it to en­tre­pre­neurs who are in­volved in cap­i­tal pro­duc­tion for do­mes­tic use and ex­port.

“Fur­ther, be­yond mere growth, some sig­nif­i­cant gains in sus­tain­abil­i­ty could be de­rived from strength­en­ing the link­ages be­tween cap­i­tal pro­duc­tion and mod­ern dig­i­tal and da­ta sci­ence (and ICT gen­er­al­ly), es­pe­cial­ly in ex­portable ed­u­ca­tion and the cre­ative in­dus­tries,” James em­pha­sised.

More so, he said, the pub­lic might have ques­tions of its own for the Min­is­ter.

These, James sug­gest­ed, in­clude how can the cap­i­tal out­puts of the coun­try be ex­port­ed dig­i­tal­ly, since vir­tu­al and re­al mar­kets are ex­pect­ed to evolve side by side in the fore­see­able fu­ture; how will dig­i­tal ac­cess be broad­ened for cap­i­tal pro­duc­ers who are al­so grow­ing ca­pac­i­ty to in­no­vate through the de­vel­op­ment of knowl­edge, skills, and self-con­fi­dence; how can the bar­ri­ers to in­no­v­a­tive cap­i­tal pro­duc­tion with emerg­ing dig­i­tal tech­nol­o­gy be re­moved and what en­ablers should be in­tro­duced for small cap­i­tal pro­duc­ers, es­pe­cial­ly the cre­ative en­ter­pris­es that typ­i­fy the na­tion­al space and how should the forms of cap­i­tal pro­duced be most rapid­ly dis­trib­uted to do­mes­tic and in­ter­na­tion­al users who need them most?

James stressed that ad­e­quate an­swers to ques­tions like these would mo­ti­vate and guide an op­ti­mal push to re­search-dri­ven ex­pan­sion of cap­i­tal pro­duc­tion for long-need­ed eco­nom­ic re­struc­tur­ing.

Then, he ad­vised, as out­put and pro­duc­tiv­i­ty grow along with ca­pac­i­ty to par­tic­i­pate in in­tra-in­dus­try trade, to up­grade in­sti­tu­tions, and to un­der­take tech­no­log­i­cal in­no­va­tion, the rate of in­fla­tion would tend to fall, al­beit with lags, caus­ing ex­ports to grow rel­a­tive to im­ports on a long-term trend.

“One over­all ef­fect would be sus­tain­able re­duc­tion of the debt-to-GDP ra­tio, even if it was ini­tial­ly well above the ar­bi­trary fig­ure of 60 per cent tout­ed by the Eu­ro­pean Union and the IMF,” James fur­ther not­ed.

More an­swers need­ed

The Busi­ness Guardian al­so reached out to for­mer Fi­nance Min­ster Sel­by Wil­son who said that Im­bert’s analy­sis “seems to be very su­per­fi­cial.”

Wil­son ex­plained that the fi­nance min­is­ter had not shared with the pub­lic the com­po­nent el­e­ments of the fac­tors con­tribut­ing to the al­leged in­crease in GDP.

And ac­cord­ing to Wil­son it would be in­ter­est­ing to know the com­po­nents of growth re­gard­ing the con­tri­bu­tion from high­er in­ter­na­tion­al prices for gas, oil and oth­er petro­chem­i­cals’ con­tri­bu­tion from in­creased na­tion­al pro­duc­tion in all the sec­tors and what was the base year used to de­ter­mine the growth.

Wil­son al­so not­ed that Im­bert was al­so par­tic­u­lar­ly care­ful not to men­tion the grow­ing un­em­ploy­ment and un­der­em­ploy­ment trends.

Fur­ther, he said, the min­is­ter should be asked to jus­ti­fy his analy­sis by ad­dress­ing these ob­ser­va­tions.