Where do we go from here?

What is the next step for TT once the covid19 pandemic is brought under control?

Specifically, how does TT seek to re-engage sections of the economy that have been locked down to curb the spread of the virus, get the country's economic engines restarted but avoid the risk of a second surge?

The situation has not been helped by continuing volatility in the world oil markets. First came an oil price war between Russia and Saudi Arabia. Then, economic turmoil caused by covid19 contributed to a historic collapse in US crude oil prices, with West Texas Intermediate (WTI) entering negative territory on Monday.

On April 16, the Prime Minister announced the creation of the Road Map Recovery Team that will work closely with public health experts to strike a balance between protecting people's health and getting the economy working again. Dr Rowley will chair the team.

At the team's first meeting on Monday, Rowley said because of covid19, "The world that we have become accustomed to and life as we know it has changed and will quite possibly never return."

He said TT was more prepared for covid19 than its Caribbean counterparts in terms of fiscal, monetary, financial and external preparedness.

“Even so," he said, "TT must now plan for its post-peak covid19 future within the confines of the 'new normal,' at least until such time that a vaccine is developed and tested." This new normal will feature things such as the continued need for physical distancing and stringent public health requirements.

The short-term plan, Rowley said, is focused on “keeping the country afloat, pursuing quick wins for jumpstarting economic activity in key sectors and stemming any further widening of income disparity through employment preservation and income and social support to vulnerable groups."

The medium term will involve remodelling, retooling and creating a new economy. Issues such as high dependency on food imports and how to diversify the economy will be examined in this framework.

"The solution to post-covid19 must lie in rebuilding our productive sector, creating employment, boosting productivity, manufacturing, trade and the services sector, improving revenue collection and reducing unsustainable expenditure."

Rowley warned the solution to the economic challenges posed by covid19 "cannot be an unsustainable welfare state." Throwing billions of dollars into unproductive subsidies, increased social welfare, increased pensions and massive grants is an unsustainable approach "which will further wreck the economy and damage any chance we have for balancing the national budget for the foreseeable future,” he said.

Last week, Rowley said a rough draft of the roadmap should be ready by the end of May.

The task the team faces is not an easy one, as seen in the efforts of different countries to ease covid19 restrictions without opening themselves to a second surge of the virus. Poland confirmed 545 new covid19 cases on April 19, the day before it planned to ease some of the restrictions. India exempted sectors such as health services, agricultural activities and public utilities from covid19 restrictions, which remain in place until May 3. In March, Japan’s Hokkaido region believed it had flattened the curve enough to reduce restrictions. Less than a month later, after a resurgence in covid19 infections, it reimposed a state of emergency.

Unprecedented upheaval

The IMF noted the significant impact of covid19 on the world economy in its Global Financial Stability report for April. "The pandemic poses unprecedented health, economic, and financial stability challenges. While the first priority in fighting covid19 is saving lives, the IMF observed that necessary containment measures to limit the spread of the virus are causing a dramatic decline in economic activity.

Early in the year, the IMF said financial markets were buoyed by a widespread sense of optimism on the back of supportive monetary policies, reduced trade tensions, and tentative signs of stabilisation in the global economy. By mid-February, the IMF said market participants began to fear the outbreak of the virus in China last year would become a global pandemic. In credit markets, spreads skyrocketed, especially in risky segments such as high-yield bonds, leveraged loans, and private debt, where issuance essentially came to a halt.

Oil prices plummeted in the face of weakening global demand and the failure of the OPEC plus countries to reach an agreement on output cuts.

In an attempt to reach agreement on output cuts and deal with the impact of covid19, on April 9, OPEC countries agreed to reduce crude oil production by ten million barrels oil per day. Non-OPEC countries agreed to cut output by five million barrels of oil per day for May and June.

On April 14, Energy Minister Franklin Khan said these actions by themselves may not lead to an increase in world oil prices in the short term.

On Monday, there was the additional challenge caused by the collapse of WTI prices. While this will not have an immediate impact on TT because its crudes are pegged to the price of international benchmark Brent crude prices, Khan said market conditions are not favourable because of high inventories and the slowdown of the world economy due to covid19. "At the end of the day, the signals are not positive but we just hope that the level of negativity is not as intense."

Tourism was another industry to take a global hit from covid19. In TT, this led to the suspension of the cruise ship season and all international commercial flights were suspended as a result of TT's borders being closed. In March, Tourism Minister Randall Mitchell said, "Each cruise ship that lands at the port brings with it tremendous economic value,” highlighting the blow to the economy. Tourism employs one in ten people in TT.

With guest occupancy at hotels and guest houses down to zero during the lockdown, their owners are trying to upgrade their facilities for whenever they reopen. Finance Minister Colm Imbert has announced a $50 million grant for this purpose.

With global supply chains taking a hit from covid19, Trade and Industry Minister Paula Gopee-Scoon met last month with the TT Chamber of Industry and Commerce and the TT Manufacturers Association (TTMA) to determine how local businesses have been affected by the threat of covid19. Gopee-Scoon said this disruption may call for some recalibration and perhaps the need to source products, raw materials, machinery parts and equipment from alternative locations.

Spend to save jobs

UWI economist Dr Vaalmiki Arjoon said TT could be looking at a $35-$40 billion shortfall in GDP from the fallout from covid19 and the slump in oil prices. The State, he said, must accelerate all efforts to ensure that the population retains some degree of spending power, especially for people who are facing job losses or severely reduced incomes. These include people working in the tourism, restaurants, retail stores, and micro and small business owners.

Every dollar spent by the State, whether for investments or social relief, must also be spent with the underlying intention of creating and retaining jobs.

He suggested that wage subsidies be considered, where the State pays a portion of the wages (50-60 per cent for employees of struggling small and medium enterprises, while the employer pays the remainder). This will allow people to stay employed, even while the company has temporarily shut down or downscaled operations.

"They would still have some job security."

With extraordinary times calling for extraordinary measures, Arjoon said, "The State ought to consider new financing mechanisms." He suggested a liquidity swap line with the US Federal Reserve to help TT access more US-dollar financing. This outlet will not expose the country to currency risk, as it involves exchanging TT dollars for US with the Fed based on the market exchange rate at the time of the transaction. The monies are re-exchanged at a later date, using the same exchange rate as in the first transaction.

"This therefore protects us from any fluctuations in the currency value and we will not incur interest costs, as it is not a loan – it is simply a currency swap to be re-swapped at a later date." This can only be established after high-level diplomatic discussions with both the TT and US governments.

Limiting fallout, rebuilding the economy

Former trade minister Vasant Bharath said covid19 has sent the world economy into its steepest freefall ever. He warned that by current estimations $30 trillion of the world's GDP will be wiped off in one year if the existing rate of attrition is not arrested.

Bharath said the enormous shock from covid19 is different from the financial crisis of 2008. That crisis needed massive government bailouts to prop up the financial sector and recovery happened soon after.

"Today the financial sector remains stable and relatively strong."

Bharath said the recovery team's core mission must be limiting economic fallout and rebuilding a sustainable economy. To do this, he explained, the team will have to determine when to reopen the economy and in what stages; what are the measures necessary to prevent deep and long-lasting recession; and what is the new normal.

The health care system's ability to suppress the virus is essential to answering those questions. Bharath said the team must be guided by a public health-care system that is strong enough to detect and respond to cases and is no longer operating in crisis mode; everybody who displays symptoms is tested and contact traced; and there must be a 14-day period of continuous declines in the infection rates.

With the right interventions, Bharath said, many of the pre-covid19 jobs and businesses can be saved. But casualties could be fatal for some retail outlets, already under pressure from online competition. Bharath said these businesses may find the temporary lockdown terminal, leading to permanently lost jobs. The team must minimise those business failures and reduce job losses that would otherwise lead to permanent scarring of the economy.

Bharath added, "They must introduce measures/incentives that reduce any enduring reduction on supply capacity and offset negative effects on demand."

He suggested these measures be aimed at creating an environment for business to invest (including ease of doing business, incentives for sectors chosen for diversification and access for foreign exchange to manufacturers), instilling confidence in an anxious and nervous population to spend, and avoiding harsh austerity measures. Bharath also said TT's complete dependency and vulnerability on other countries for food, pharmaceuticals, medical equipment, clothing and now energy (fuel) must be critically examined. "

This has become critical, considering many countries are now withholding stocks of these items for home consumption and a return to nationalism."

Undoubtedly, Bharath said, covid19 has exposed the vulnerability of TT's dependence on global supply chains, now disrupted by the pandemic. He suggested TT look at more sustainable trading within Caricom or even expanding trade with Central America.

"The world economy is an infinitely complicated web of interconnections."

Disruption in global supply chains, and uncertainty as to when they will be functioning normally, necessitates TT looking within its borders to produce some of the commodities it imports. He suggested consideration be given to boosting domestic food production, manufacturing critical medicines, possibly under licence, and manufacturing critical PPE (personal protective equipment) while ensuring an adequate stockpile for future use.

Point Lisas-based Qualitech Machining Services Ltd is developing PPE for the workers who are leading the charge against the covid19 pandemic. Formed in 1995, Qualitech specialises in the manufacture, repair, servicing and support of equipment for all industrial sectors. The latter includes but is not limited to, the petrochemical, manufacturing, marine, food and beverage, quarrying, agriculture, oil exploration and construction industries under the public health regulations.

CEO Deepak Lall last week said, “For the past couple weeks, we have been in touch with several teams to help design, develop and produce parts and equipment needed to help our frontline healthcare workers.”

Lall did not rule out the possibility of Qualitech continuing to manufacture PPE after the pandemic is over.

“Manufacturing devices for the medical industry is an avenue we haven’t pursued strongly and is being considered."

Technology has been used extensively to help provide services suspended because of social distancing. Pricesmart, Massy Stores, Tru Valu Supermarket and Pennywise Cosmetics Ltd have been promoting online orders and mobile apps to place orders for curbside pick-up. The Zoom app has been used by the government and other entities to continue many of their activities online.

Cabinet's weekly meetings, as well as the meetings of its various subcommittees, have been held online during the pandemic. The TTMA used technology to hold its first ever virtual annual general meeting. Businesses can do more online and some of their employees can work from home.

This could become a norm, especially if there is reluctance to use "in-person" services for fear of a resurgence of covid19. With an increase in digitisation and the need to expand the ICT backbone to allow all homes to access broadband and Wi-Fi to deliver digitised services, Bharath said, there will be a decline in in-person services for retail, travel, education, hospitality, entertainment and others as digitisation changes the way these services are delivered.

"An economic recovery will accelerate the ongoing digitisation and automation in the workplace. No doubt the future composition of GDP will reflect the shift to services," Bharath said.

Once it is safe for workers to return to their jobs, he urged a continuation of all covid19 protocols at workplaces to ensure prevention of further transmission. More importantly, Bharath stressed there must be enforcement of these protocols. Having interacted with members of the team before, he said he knows them to be "men and women of exceptional talent, integrity and intellectual capacity."

This is crucial, because, he said, "All of our futures depend on their success."

The members of the team are:

Chairman, PM Dr Keith Rowley

Co-chair, Public Utilities Minister Robert Le Hunte

Co-chair, UTC chairman, Gerry Brooks

Public Administration Minister Allyson West

Former finance minister Wendell Mottley

UWI chancellor Robert Bermudez

First Citizens CEO Karen Darbasie

Former Central Bank governor Winston Dookeran

Prestige Holdings chairman Christian Mouttet

EY Caribbean executive chairman Colin Soo Ping Chow

TSTT chairman Sean Roach

Caribbean Airlines chairman Ronnie Mohammed

BHP TT president and Republic Financial Holdings Ltd chairman Vincent Pereira

Finance Ministry permanent secretary Vishnu Dhanpaul

Former Finance Ministry PS and former Port Authority chairman Allison Lewis

Energy economist Gregory McGuire

Prof Karl Theodore, health economist

Selwyn Hazel, Tobagonian economist

Labour unionists Christopher Henry and Michael Annisette

Tobago businessman Allan Warner

Social activist Rhondall Feeles