Getting a forecast right in any field is notoriously difficult as there are so many things that can go wrong. The further forward into the future one projects the greater the risk of error as the number of possibilities expands exponentially. Therefore, making any kind of forecast requires caution. But businesses and governments must plan and be prepared to adjust plans as circumstances change. Managers are at risk in the private sector if they don’t meet their objectives. The same is true in politics, though politicians are often reelected even if they fail to honour their manifesto pledges. Who remembers the pledges anyway? As a result, election manifestos couch objectives in very broad terms. The same is true of annual budgets.
The IMF economic team produces the World Economic Outlook every November and updates its forecast in April of the following year. Whilst the team is generally good at getting the trend right for the world’s growth rate, forecasts for individual countries can vary greatly. In November 2020 the IMF predicted growth for the world economy in 2021 (which was achieved) and a growth rate of 5.1 per cent for T&T. Conventional wisdom (the MOF) suggests that T&T’s declined in 2021 by -1.0 per cent. The IMF has projected 5.7 per cent growth for T&T in 2022.
T&T has been in a depression since 2016 as the economy declined every year up to and including 2021. In the intervening period, one would have expected a range of measures designed to improve the country’s competitiveness as aggregate demand declined. Typically, such measures would have been directed to the country’s productive sectors, the energy sector, domestic manufacturing, or other areas which would enhance the country’s ability to compete for and generate foreign exchange. Alternatively, to improve the import substitution effects thereby reducing expenditure on imports.
In this scenario, many commentators (the IMF included) have called for a realignment in government expenditure, a reduction in subsidies and a more realistic alignment of the exchange rate which is overvalued. Have labour rates fallen and productivity improved? Instead, wage negotiations are on hold waiting for the right time to make wage demands retroactively.
The biggest incentives went to the construction sector with few incentives to the productive sectors. The incentives for increased energy exploration activity were limited to one-time incentives by the UNC and ended in 2017. They produced the Angelin and Jupiter projects which improved gas production for two years. There have been some other finds which are expected to come onstream somewhere between 2024-26, but nothing substantial. The results of the deepwater bid rounds are yet to see daylight. Perhaps there will be some success to announce during the 2025 election.
In the meantime, there has been no comprehensive or targeted approach to other sectors with export potential. Several incentives targeted to improve the countries approach to digitalisation came into effect in January 2022. These incentives are too little and very late as they will take five years at least before we can determine the significance of the incentives.
Worse, the State, despite its long and often-stated desire to improve its capacity to deliver services electronically, remains a woeful laggard. The “ease of doing business” remains an improvement area. The T&T Biz link, a key tool in this effort, received IDB loan funding in 2016 to expand its capacity. This is 2022 and the country is yet to discover its improvements.
After six years of depression can we say that the country is in a better place and that labour costs have been realigned and productivity improved? Has the economy bottomed out and growth returned? What are the sources generating the IMF’s forecast growth rate of 5.7 per cent?
Energy prices rebounded somewhat in 2021, particularly ammonia and methanol which allowed some of the Pt Lisas energy plants to resume their contracts with NGC. However, this improvement is illusory, based only on market price increases. Despite the price uplift, natural gas output averaged 2.6 billion cubic feet (bcf) in 2021, at least 40 per cent below the 2011 high point and 29 per cent below average daily production for 2018. Production in 2022 is expected to improve marginally.
The projected growth of 5.7 per cent is dependent on the resumption of full economic activity and no further lockdowns. This assumes that the pandemic will retreat, and the energy price effect will hold for 2022. These are only two assumptions, but they are big ones. The Omicron is the most recent of many variants. There will be others and we do not know what impact they will have on the T&T environment. A vaccination rate of less than 50 per cent and a significant union pushback against vaccinations does not inspire confidence.
Further, the energy outlook is not optimistic. Natural gas prices are expected to decline in 2022 and fall again in 2023 according to the US Energy Information administration (EIA January 14). What if domestic natural gas production remains stagnant? Then there is imported inflation to be considered as shipping rates remain high and supply inelasticities drive up prices worldwide. To complicate matters the local inflationary spiral looks set to reduce real incomes and decrease the standard of living.
In short, 2022 will be a difficult year and growth of 5.7 per cent looks optimistic.