IMF report: TT must diversify

The IMF’s latest growth projections for TT demonstrate this country’s failure to diversify the economy.

Economist Indera Sagewan-Alli, in a telephone interview Wednesday, said TT’s growth projections, which are based solely on the energy sector, are “minuscule” and may level off at between 1-2 per cent over the next five years.

She said the IMF report should provide further impetus to the Minister of Finance to focus solely on the diversification of the economy away from the energy sector in the 2019 budget presentation.

Meanwhile, former energy minister Kevin Ramnarine said the economy’s continued tethering to the natural gas sector continue to be a “risk” as a lot remains to be done to drive efficiency and transformation of the sector.

Former trade minister Vasant Bharath said the ruling government should not regard the report as celebratory, as the national debt continued to inch toward government’s soft target of 65 per cent of GDP.

He said TT’s international rating would also suffer and cited a recent Moody’s report which stated that Petrotrin’s B1 rating was “on review for downgrade” and this would have a ripple effect on the country’s overall rating.

The IMF report says the TT economy is “slowly recovering from a prolonged recession” which was driven by “energy supply shocks and low energy prices.”

The report said as the recovery gathers pace, policies need to “focus on completing the fiscal adjustment while insulating the economy from while insulating the economy from future commodity price swings, and creating an enabling environment for the non-energy sector.”

Sagewan-Alli was in full agreement with that assessment, saying the 2019 budget should focus entirely on the “whole issue of non-energy diversification” as well as addressing the ease of doing business.

“The projection for growth in the energy sector is very, very small, so that tells you what is going to continue to happen in our main sector, and then when you look at the non-energy sector, it is already in a bad way.

“So it comes down that these projections have become a reality and you have to ask, where are the jobs going to come from, where are the increased government revenue going to come from, where is the forex going to come from?”

On the shortage of foreign exchange, she said the minister had to accept that the currency is overvalued at present.

“I would accept that businesses are saying they are already pricing at a higher rate of exchange and therefore I would adjust my formal rate.”

Bharath said the recovering gas production sector, which had been identified by the IMF report as a component of the country’s growth ,had started under the PP administration.

“I don’t think there is any cause for celebration as far as the government is concerned. They have put us into bigger debt. As the report pointed out, we are heading to the 65 per cent rate of debt to GDP. And since we are not getting any new streams of forex, our international ratings will continue to drop, and where in 2015 our reserves were at US$10 billion, in 2018 it is US$7.8 billion.”

Bharath said Moody’s Investors Service, in its September 25 report, had flagged Petrotrin “on review for downgrade.”

He said this is based on the “lack of clarity regarding Petrotrin’s new business profile and strategy as well as increasing liquidity risk related to the approaching maturity of the 2019 bonds.”

Ramnarine said there were several key takeaways from the report, the first being the engine of economic growth continued to be increased gas supply, which had started in the second half of 2017. He warned, “The IMF is correct to observe that we continue to be vulnerable to shocks from the energy sector.

The report is telling us many things, one of which is we remain tethered to the natural gas sector, and in itself is a risk.”