|Economist: All hands needed on deck for return to growth in 2017 |
Natalie Briggs Thursday, December 29 2016
Cautious optimism are the words for 2017 as the country moves toward the end of one of its more economically trying years.
An indication of how trying, economist and UWI lecturer Dr. Roger Hosein told Business Day, is that the ECLAC projection of the economy’s contraction by 4.5 percent may actually be under reporting.
“The actual growth performance may be worse,” said the economist. He said the first quarter of 2016 saw an economic growth rate of -5.6 percent, while the second quarter registered eight percent. But even if the economic growth rate of 4.5 percent is used, Hosein said this would make it the worst contraction “Assuming that the UNECLAC forecast is correct, the level of GDP in TT would have shrunk to that midway between what occurred in 2016 and 2007 and would be seven percent lower than that of 2013,” Hosein said. (see GDP graph) However, according to economist, several oil and gas projects already on stream or coming into play, may make 2017 potentially brighter.
“I do not think economic growth in 2017 would be negative,” said Hosein, “I think that the TROC and Juniper projects would help by the middle of 2017 to increase the production of crude oil and natural gas in TT. The limited degree of buoyancy offered to hydro carbon prices by the OPEC production cut decision, would, other things being constant, help to buoy the Trinidad and Tobago economic a bit.” (for list of projects see table) He offered this opinion with several important caveats.
The first said Hosein, was OPEC members sticking to their decision to cut production.
“OPEC members have a tendency to cheat and any increase in supply of crude oil can adversely affect prices.
Libya and Nigeria were also exempt from the production cuts, so, as they increase production, market prices would dampen,” he said.
A Trump administration decision to increase production may also act as a strong headwind against prices remaining buoyant. If this is coupled with a strengthening dollar which Hosein thought likely as the American economy improved, this could dampen international demand for crude oil.
The possibility that TT’s oil and gas production may not improve as much as expected may also dampen prospects next year.
“If the slide in the production of crude oil and natural gas continues with only marginal increases in the price of oil and natural gas, then this can potentially undermine economic growth in 2017 as well,” said Hosein.
As government fights to raise revenues, the economist said the State had made “significant headway”, in curbing expenditure.
“The level of government expenditure down from approximately $63 billion to around $54 billion,” Hosein told Business Day.
He said though, he remained concerned by the level of capital expenditure, which is only ten percent of total government expenditure and which has the effect of crowding in private sector investment in the economy.
“At the same ti me there seems to be some degree of hesitancy by the State to reduce transfers and subsidies to programmes such as CEPEP,” observed Hosein, “In the current economic climate and the expected medium term situation for the energy sector, the State needs to engage in deeper forms of structural adjustment. Even if it does it on its own, without the formal guidance of the multi laterals.” He also saw conflict between government and the country’s major trade unions over subsidies in the coming year, which would not be helpful to the economy.
“These are trying times, and only amicable, reasoned solutions, will move the economy forward.”
He said government also had to continue to explore ways to raise revenues through taxation.
Hosein said even though adjustments to the VAT regime were not as successful as they could have been, there still was much potential in an amended property tax regime.
The purpose of State borrowing was also a source of concern for the economist. Hosein said while much of the debt incurred by the government was necessary, too much of it was still centered on recurrent expenditure and consumption, rather than sustainable long term investment.
“Diversification has gone nowhere in this country and economic hopes and aspirations seems to be hinged around a recovery in some miraculous way in the energy sector. In the next three years, barring some major external shock, this will not happen,” predicted Hosein.
The UWI lecturer also told Business Day that a downgrade of the value of this country’s currency relative to the US dollar may be in order. Adjustments already made, he believed, have not worked because they are not yet at a level to stimulate a response from exporters and import substituters within the economy.
“My view is that the State, following the footsteps of other oil producing countries, will want to consider bringing the currency closer to its market value of around TT$9 to US$1. While we may not wish this, the structural realities point in this direction,” he said.
“The experience of the depreciation of the TT dollar associated with its floatation in 1993 was not entirely terrible and indeed by 1994 and 1995 growth returned to the economy.”
Overall, Hosein noted that the responsibility for a return to economic growth in 2017 resided with multiple stakeholders and not just government.
“As we recalibrate the economy, it is expected that everyone should contribute to get Trinidad and Tobago back to optimal production capacity. All hands on deck are urgently required at this stage and these hands must pull in the same direction,” he said.