The year 2021 was perhaps more challenging than many expected and while economic institutions anticipated economic recovery in 2022 they noted many downside risks.
The optimism brought with the advent of covid19 vaccines had been dimmed by late 2021 due to a slowdown in vaccine uptake globally and the emergence of the new dominant variants. However, while the omicron variant has heightened uncertainty, economic analysts are of the opinion that the global economy is more resilient to the emergence of new variants.
Exactly when the dust settles remain to be seen as countries across Europe go back into lockdown; flights are being cancelled as crews go into quarantine and prolonged supply chain disruptions continue.
This leaves small open economies once again vulnerable to the external shocks.
Trinidad and Tobago and many others are witnessing domestic inflationary pressures due to supply chain issues, most notably on food prices. This is likely to erode the positive impact of the removal of VAT on several items that was introduced in the last national budget.
The TT Central Bank noted however, that the surge in food prices also resulted from domestic weather conditions leading to increases vegetable and fruit prices.
Despite the continued challenges of the pandemic grabbing everyone’s attention, and while stabilisation policies are necessary in the short run, TT several long-term challenges that it must tackle with laser-focus if we are to position ourselves for recovery.
In its November 2021 statement the IMF stated that for TT, “a strong economic recovery is projected for 2022. Real GDP growth in 2022 is expected at 5.7 per cent, reinforced by the continued policy support and the anticipated recovery in oil and gas production. Still, output would remain below pre-covid19 levels well into the medium-term.”
Though a positive energy outlook at the end of 2021 seemed credible, one may approach this outlook cautiously after experiencing many consecutive years of negative growth.
The focus on climate change has gained momentum with more companies around the globe making commitments to get to net zero emissions by 2050 and across the world the pace of the energy transition is increasing. COP26 seemed to give renewed life to the Paris Agreement and this year has been deemed a critical year for climate action given how significantly off-schedule all countries are in meeting the goals of the Paris Agreement.
TT therefore needs to be deeply strategic in how it approaches short and medium term activity aimed at transforming the local economy consistent with the energy transition. The impact of the energy transition as our main revenue source means that while efforts should be made to monetise our current energy reserves, we must simultaneously institute a plan to decarbonise the gas value chain, attract investment in renewable energy projects and assess our technical skills base to identify which skills will are transferable.
It has to be accepted that our economic issues existed pre-covid19 and it is therefore imperative that we continue to focus on transforming our revenue streams and drive non-energy growth.
The IMF noted that comprehensive structural reforms are key to promoting the non-energy sector and boosting potential growth. Given the economy’s heavy dependence on energy, policies to develop the non-energy sector are critical to support medium-term inclusive growth and enhance resilience.
In this regard, reforms to remove obstacles to doing business, improve education and vocational training to help address skills mismatches alongside boosting productivity, as well as stimulating entrepreneurship will be important.
We must also continue to support SMEs and efforts to enhance the transition to the digital economy.