This is an uncertain time for the world. War is an expensive business. NATO and its allies have declared financial war on Russia through trade and financial sanctions over its invasion of Ukraine. The objective is to cripple the Russian economy by blocking its reserves thereby reducing its capacity to engage in a long campaign. However, the sanctions imposed on Russia have also affected world commodity markets. In effect, the rest of the world is paying for the dominance of the world’s financial markets by NATO and the OECD countries.
Globalisation has created a world of interconnected markets; events elsewhere have far-reaching effects. Whilst the world may not need Russian consumers, it needs Russian commodities. Russia not only accounts for ten per cent of the world’s oil markets but Belarus (18 per cent) and Russia (20 per cent) together account for 38 per cent of the global output of potash which is critical to the manufacture of fertilizer. Sanctions and increased transportation costs have already led to the tripling of fertilizer costs. With less potash, agricultural yields will be affected worldwide.
Russia and Ukraine also account for 29 per cent of all international wheat sales and are amongst the top five exporters of corn, barley and other grains which are important for both human and animal consumption. If hostilities continue, Ukraine can neither plant nor export these commodities as ports are closed and shipments uninsurable. Further, Russia’s exports are blockaded and traders fearful of running afoul of sanctions are imposing restrictions on themselves.
Global food stocks were below the world’s five-year average before this conflict, further aggravating the situation. Because of the pandemic, wheat and other grain prices were already trending upward before the hostilities began. Worse, supplies will be impacted well beyond the current hostilities. Nickel, neon, titanium, aluminium, and other rare metals will also impact a wide range of industries. Increasing supplies from other sources will take time.
It is not clear that there will be a substantial energy dividend for T&T. Therefore, the IMF’s projection of a plus five per cent growth is now almost impossible. T&T is in for a rough ride.
The short- to medium-term outlook is for inflated food and fuel prices, the areas that matter most to middle- and lower-income groups. For example, T&T may be self-sufficient in chicken production, but feed (corn) is imported as is wheat which is used to make flour. The recently announced price rises for bread and flour are just the beginning.
Sharp increases in global commodity prices will cause severe economic impacts and lead to uncertainty and political instability in many countries. Aware of these possible outcomes the prime minister has sought to seize the initiative. First, a full-page article on the energy sector, then, his “Conversation” at Bon Air, followed by a long interview (“Bullets coming at us”) published in three instalments in one newspaper, then a Cabinet reshuffle. Between these PR efforts came the IMF Article IV consultation report which led to a renewed focus on the foreign exchange position.
The prime minister expressed his dissatisfaction with the pace of the delivery of justice. He highlighted his administration’s commitment to making the tough decisions required to secure the country citing the closure of Petrotrin as evidence. He noted that it cannot be business as usual and that his Cabinet is paying attention to fuel, water and electricity subsidies, and the restructuring of WASA. He accepted responsibility for intervening in the process to elect a police commissioner.
The problems highlighted are not new and pre-date the war in Ukraine, COVID-19 and the 2015 election. The 2016 budget speech articulated these issues clearly. In the speech, the finance minister noted the fuel subsidy (“a waste of taxpayers’ money”), WASA (“the financial situation is chaotic”), NIS (“If this is not fixed immediately the NIS will be unable to pay future pensions) and said “…The majority of the population is exhausted with the politics of “mamaguy”. He also said that T&T must understand the importance of extricating itself from the dangerous trap of spending more than it earns.
Keeping citizens informed is important, but action is critical. The Economic Advisory Board, the Recovery Committee, the Watkins Committee, submissions from business, and, of course, the IMF consultations have come and gone. Many question what is being done, by whom, by when and what are the expected results?
What the country needs is firmness of thought, speech, and action in that order.
