The T&T econ­o­my is in deep trou­ble and the Fi­nance Min­is­ter can­not avoid cut­ting the size of the pub­lic ser­vice and in­crease util­i­ty rates.

In a dev­as­tat­ing cri­tique of the gov­ern­ment’s eco­nom­ic per­for­mance, econ­o­mist Dr Ter­rence Far­rell said the coun­try is run­ning out of time to take strong ac­tion to live with­in our means.

“So ab­sent a mir­a­cle, there is no way that the lev­el and com­po­si­tion of gov­ern­ment ex­pen­di­ture can­not not now be ad­dressed; and that will in­volve re­duc­ing head-count in the pub­lic ser­vice, clos­ing state en­ter­pris­es, and in­creas­ing rates for wa­ter, elec­tric­i­ty, and trans­porta­tion. As an econ­o­mist and a cit­i­zen, I get no joy from stat­ing this. But the re­al­i­ty is that we will have to come to learn to live with­in our means,” Dr Far­rell told the Busi­ness Guardian via email on Tues­day.

The for­mer Deputy Gov­er­nor of the Cen­tral Bank said he was not sur­prised by the min­is­ter’s rev­e­la­tion that the coun­try was now bor­row­ing mon­ey to pay pub­lic ser­vants salaries.

He said those who un­der­stand what is hap­pen­ing in the econ­o­my and paid at­ten­tion to the bud­get pre­sen­ta­tion recog­nised im­me­di­ate­ly that the rev­enue pro­jec­tions were ex­treme­ly op­ti­mistic and there­fore all the risk in re­spect of the bud­get deficit was to the down­side.

He said: “There seemed to be a cu­ri­ous no­tion that the non-en­er­gy econ­o­my and hence non-en­er­gy rev­enues are com­plete­ly in­de­pen­dent of en­er­gy sec­tor rev­enues, which is not cor­rect.”

The se­nior econ­o­mist ad­mit­ted that the coun­try was now run­ning out of fis­cal space to make the changes to the struc­ture of the econ­o­my that is re­quired.

“As I have main­tained from the out­set in 2015 in my oc­ca­sion­al com­men­taries, the crit­i­cal con­straint is and has been the ex­ter­nal ac­count, the bal­ance of pay­ments. That is where the shocks em­anate, and that im­bal­ance is what needs to be ad­dressed, first and fore­most. The fis­cal deficit de­rives from the col­lapse of en­er­gy sec­tor rev­enues, due to falling prices as in 2015, and due to falling pro­duc­tion, as ob­tains to­day.

“We have failed to ad­dress what I be­lieve is a struc­tur­al im­bal­ance in the ex­ter­nal ac­counts be­cause it has been rep­re­sent­ed as a cycli­cal down­turn, and as a re­sult we have al­lowed the for­eign ex­change re­serves to de­cline far too far and re­sort­ed to ex­ter­nal bor­row­ing and HSF draw­downs.”

The econ­o­mist rub­bished the pos­si­bil­i­ty of a “soft land­ing” as a “delu­sion and sim­ply bad pol­i­cy.”

He point­ed out that for­mer Prime Min­is­ter George Cham­bers elect­ed to do that in 1982-1986 with dis­as­trous re­sults.

He said, “Length­en­ing the ‘glide path’ to ad­just­ment of the ex­ter­nal and fis­cal im­bal­ances just us­es up scarce for­eign ex­change and fis­cal re­sources (eg trans­fers and sub­si­dies paid out) which will nev­er come back. Im­port cov­er is a short­hand, but po­ten­tial­ly mis­lead­ing, in­di­ca­tor of re­serve ad­e­qua­cy, made more so by the in­for­mal ex­change con­trols we have in­tro­duced since 2016.

“The gov­ern­ment was ad­vised back in 2015 and in 2016 to ad­just quick­ly, let the Cen­tral Bank use ex­change rate ad­just­ment proac­tive­ly to elim­i­nate ex­change rate over-val­u­a­tion, elim­i­nate im­me­di­ate­ly all the fu­el sub­si­dies, and re­struc­ture and re­form the port­fo­lio of state en­ter­pris­es.”

Dr Far­rell not­ed that the World Bank ad­vised fur­ther on pub­lic ex­pen­di­ture re­forms. The EDAB al­so coun­selled sep­a­ra­tion of the HSF so that the Her­itage com­po­nent could be pro­tect­ed and used for long-term de­vel­op­ment and trans­for­ma­tion not, as now, to pay pub­lic ser­vice salaries and the IMF’s re­ports sup­port­ed these views and rec­om­men­da­tions as well.

“So we are see­ing now a re­play of Cham­bers’ pol­i­cy mis­takes, cou­pled with a puz­zling in­dif­fer­ence or even hos­til­i­ty to ad­vice, what­ev­er the prove­nance of that ad­vice, and a delu­sion­al view that the en­er­gy sec­tor will turn­around and de­liv­er us from col­lapse. But when crit­i­cal de­ci­sions are post­poned and the can re­peat­ed­ly kicked down the road, the even­tu­al reck­on­ing be­comes all the more dif­fi­cult and painful as we saw in the 1987-1992 pe­ri­od.” Far­rell warned.

Dr Far­rell said the re­al ques­tions are: how do we de­vel­op and trans­form this econ­o­my, and how do we max­imise growth which is ul­ti­mate­ly the way to re­duce pover­ty and sus­tain­ably in­crease wealth? How we choose to an­swer those ques­tions should then de­fine the role of the gov­ern­ment.

He not­ed that for the last 50 years, the Gov­ern­ment, gift­ed with oil and gas rev­enues, has seen it­self as the “prime mover” in the econ­o­my. He said what it has done in­stead is, through trans­fers and sub­si­dies, in­clud­ing a sub­sidised ex­change rate, fos­tered de­pen­den­cy through­out the econ­o­my, and side­lined or ig­nored the pri­vate sec­tor.

“That is why the pro­duc­tive sec­tors—agri­cul­ture, man­u­fac­tur­ing, tourism—have not per­formed, and why lam­en­ta­bly, there are now ap­par­ent­ly 90,000 pub­lic ser­vants, not count­ing those en­sconced in the many state en­ter­pris­es and statu­to­ry bod­ies. There is re­al­ly no as­pect of fis­cal pol­i­cy that is dri­ving eco­nom­ic growth and de­vel­op­ment.

He said what we have as “bud­getary pol­i­cy” is an an­nu­al ex­er­cise in book­keep­ing or “arith­metic” as Lloyd Best used to say.

“And even the num­bers are mis­lead­ing be­cause gov­ern­ment con­tin­ues to use cash ac­count­ing which al­lows it to sim­ply not pay VAT re­funds and oth­er payables, de­lay wage ne­go­ti­a­tions, and then claim a mis­lead­ing bud­getary out­turn, which of course would be con­tra­dict­ed by prop­er ac­cru­al ac­count­ing.” Far­rell lament­ed.

He said if there are strate­gies for growth he does not know what they are. The econ­o­mist asked what has be­come of the Roadmap to Re­cov­ery?

He point­ed to the con­tin­ued prob­lem of the qual­i­ty of eco­nom­ic da­ta avail­able for de­ci­sion mak­ing as be­ing ter­ri­bly de­fi­cient.

Dr Far­rell told the Busi­ness Guardian “Our un­em­ploy­ment da­ta (and un­em­ploy­ment is a lag­ging in­di­ca­tor) are al­most two years out of date, not to men­tion oth­er key labour mar­ket in­di­ca­tors (wage rates, pro­duc­tiv­i­ty, etc.) which are im­por­tant in any mod­ern econ­o­my.

“We have no na­tion­al in­come ac­counts; we don’t know what the in­vest­ment rate is, and where in the econ­o­my in­vest­ment is tak­ing place; we don’t know the do­mes­tic sav­ings rate; we can say noth­ing about con­sump­tion.

“Key da­ta on fis­cal op­er­a­tions and on trade are re­port­ed with un­ac­cept­ably long lags. The de­tailed bal­ance of pay­ments re­ports are al­so dat­ed.

“Ask your­self: how would you feel to be in a plane high up in the air with a pi­lot who doesn’t know where he is or how high, how fast the plane is go­ing, or how much fu­el he has left. That’s where we are in terms of the da­ta sup­port­ing eco­nom­ic man­age­ment here to­day.”

He said judg­ing by the qual­i­ty of the pre­sen­ta­tions in the last and pre­vi­ous me­dia con­fer­ences, he is deeply wor­ried about the qual­i­ty of tech­ni­cal ex­per­tise avail­able to the Fi­nance Min­is­ter and the ad­vice and sup­port he is get­ting in­ter­nal­ly.