There are few countries in the world in which the central bank is able to accurately predict how the nation's economy is going to perform on a consistent basis often described as more art than science, economic forecasting is difficult at the best of times and even more so in T&T in 2015, given the dramatic and reversal of fortune that the country has suffered.
From predicting between one and two per cent growth over the past few years, the Central Bank's latest figures have shown a two per cent decline in the T&T economy for the first half of 2015. This is no surprise, save perhaps to those who were believing every promise made by politicians during the election campaign of the past three months. "This decline was mainly due to a slowdown in construction, distribution and manufacturing. Early indicators point to continued sluggish economic performance in the third quarter of 2015," says the September monetary policy report from the Bank.
However, in the Bank's Annual Economic Survey 2014, the tone was totally optimistic. "In 2015, the outlook for the Trinidad and Tobago economy is relatively positive," declared the Bank, noting that "The non-energy sector expanded for the 15th consecutive quarter to December 2014, providing support to overall economic growth" and expressed "cautious optimism" for stability in the energy sector.
In Friday's monetary policy announcement, however, the Central Bank notes that "continued shortfalls in natural gas production saw the energy sector decline by an estimated 3.5 per cent in the first six months of 2015. The non-energy sector, which has provided support to the overall economy for the past few years, lost momentum, declining by around one per cent in the first half of 2015."
Moving past the completely worthless exercise of who is to blame for the fact that the economy is now contracting, the key questions are why has the non-energy sector lost momentum and what can the Government do in Monday's budget to facilitate the sector in getting its groove back. On the issue of why the non-energy sector got offtrack, the short answer is that it would have been nothing short of a miracle if the non-energy sector had continued its positive trends of the last four years.
Consider the fact that both the price and the production of T&T's main revenue sources have collapsed; the foreign exchange market has been plagued with periodic shortages for 18 months and the Central Bank is dead set on making it more costly to borrow in order to mitigate capital flight. Add to that toxic brew the complaints that the productive sector have made for years about the dysfunctionality of the existence of taxpayer-funded, make-work programmes when manufacturers were begging for labour.
Stir in the fact that the previous administration–in a carnal, desperate but inevitably futile attempt to buy the general elections–agreed to give all the state employees in the country a 14 per cent wage increase and $4 billion in backpay that the country cannot afford. In the current economic scenario of lower energy revenues, it is not difficult to work out that such lavish wage increases and backpay for state employees today mean higher taxes and spending cuts tomorrow. In the context of what may be a pre-existing contraction in the economy, the Government needs to be very careful that its budget on Monday does not contain measures that will further penalise an already battered and bruised non-energy sector.
Instead, the sector would welcome a budget in which some consideration could be given to their labour, foreign exchange and rising cost of money concerns, as this may lead to a quick reversal of the contraction that has affected the country's economy for the first half of the year.