Home' Trinidad and Tobago Guardian : September 10th 2015 Contents SEPTEMBER 10 • 2015 www.guardian.co.tt BUSINESS GUARDIAN
NEWS | BG5
When the new
he or she
would have a
long list of issues to deal with includ-
ing reduced energy prices, labour
issues and the availability of US cur-
rency to satisfy demand, said Roger
Hosein, senior lecturer in economics
at the University of the West Indies.
Stating that the previous adminis-
tration was too involved in the running
of the economy when it comes to
labour, Hosein said the shortage of
labour would be an issue which would
have to be dealt with.
"In some sectors with excessive
State involvement---especially the
make-work sector---the marginal pro-
ductivity of labour may be negative.
In other sectors, such as manufactur-
ing and agriculture, plants operate at
sub-optimal capacity and are labour
starved in part," Hosein said in a state-
ment to the Business Guardian.
He suggested that even if the State
wants to continue involving itself in
the labour market, it should look to
involve itself in sectors that generate
"This is essential as the decline in
oil and gas prices has compromised
the foreign exchange capacity of the
economy. The crunch in the labour
market may also be partly alleviated
by increasing the retirement age in
the public sector, in the State and
state-owned companies and no doubt
at some point a managed migration
strategy for labour would have to be
Hosein said cuts in expenditure are
likely to happen, adding that the price
of crude oil is "likely to remain
depressed in the next 12 months."
"All of this means that the average
budgetary prices for crude oil of US$70
per barrel and similar numbers are no
longer practical and a new normal
across the medium term seems likely.
On the basis of lower predicted prices
for the main energy commodity
exports from the TT economy, it fol-
lows that the next government will
have to start an urgent and immediate
process of reducing state expenses."
Referring to oil prices, he said the
average price so far for 2015 has hov-
ered around US$51 per barrel as com-
pared to US$93 per barrel for 2014.
"By September 3, 2015, natural gas
prices had reached US$2.68 per
mmbtu averaging US$2.81 per mmbtu
for 2015. In 2014, the average daily
price of an mmbtu of natural gas was
US$4.37. These sharp changes reflect-
ed in both oil and natural gas are
instructive given the slowdown in the
growth of the US economy, the buoy-
ancy of the US production of shale
oil and shale gas and the temerity of
the EU market alongside enhanced
production by non OPEC economies."
Given the volatility of the oil price,
he said diversification is urgent but
must be dealt with under a "more rig-
orous structure and guidance."
On diversification, he suggested:
"The three most under-developed
parts of the economy are the south-
west, southeast and northeast of
Trinidad. These geographic blocs need
to be pushed and a champion sector
for each bloc promoted.
"For example, in northeast Trinidad,
it is possible to build many small cot-
tage industries around the fish fry
logic of Oistins in Barbados and the
thriving leatherback turtles. At the
same time, the southeast seems to
have a thriving but ad hoc small
domestic-oriented tourism industry."
Having a tax system in place for
graduates after they have completed
their tertiary education is imperative,
"It is well known that transfers and
subsides would have to be revised and
indeed the GATE programme should
be revisited with a graduate tax imple-
mented, to replace it. The graduate
tax will be one where upon graduating
and gaining employment, university
students pay a well determined higher
tax rate say for a five-year period.
This strategy will not deter a poor
student entering tertiary institutions
as tertiary education would remain
free at the point of consumption, but
the user-pay principle will now take
Advice to finance minister:
emphasizing is that competitiveness is not just
about price, but a whole range of issues and we
think that there are many structural impediments
to diversification, some of which have been been
dealt with. Some of these impediments include
starting businesses, trade facilitation and the effi-
ciency of the public sector."
He said the IMF is looking at competitiveness as
being much broader than the exchange rate, but
that is an issue as is the TT dollar being tied to the
Canetti said that at root the problem of availability
of foreign exchange was that both the price of foreign
exchange and the quantity released to the market
are controlled, which means that the market does
not get the opportunity to clear, meaning that
demand does not meet supply.
"Such a system can work, but requires a great
deal of active management because the only signal
you get is when people start queueing up for foreign
He said one thing that needs to be made very
clear is that the availability of foreign exchange is
not a problem of an overall shortage of foreign
"The IMF has a number of ways to gauge whether
the foreign exchange reserves of a country are ade-
quate and T&T far exceeds the standard norms on
many of them," he added.
No non-energy slowdown
Asked about the state of the T&T economy, Canetti
said the IMF has not been on the ground in the
country since January and will have a better reading
when it makes the official Article IV consultation
visit before the end of the year.
"We are also hampered by the state of statistics,
which we have spoken at length about."
He said the IMF s projection of the T&T econ-
omy---as best as it can be
pieced together based on
the available information---
is that it will eke out pos-
itive growth for this year,
but the institution will be
revisiting its 2015 growth
projections based on infor-
mation in the semi-annual
Economic Bulletin, which
was published after the
Canetti said: "The big
concern for us was what would be the impact on
the T&T economy of the declines in energy prices.
"The kinds of things that we have been looking
at for economic prospects are the impact of the
decline in energy prices on investment going forward.
So far, the signs seem to be that there has not been
a significant withdrawal of interest in investing in
the energy sector, so that s positive.
"On the non-energy side, I think we would be
concerned if there were to be an over-reaction to
the decline in energy prices in the sense of an unmer-
ited loss of confidence and a slowdown in consump-
tion and investment."
So far, the IMF mission chief said, the IMF has
not seen any signs of a major slowdown in the non-
He said one of the windows to assess a possible
slowdown in the non-energy economy is to examine
banking credit to the private sector.
"I have heard anecdotal evidence that while credit
may be slowing down, that s not being seen in the
numbers as yet."
"The thing you would be worried about was if
there was a significant decline in investment and
people started to worry and tighten their belts in
anticipation of a tighter environment going forward."
Questioned on the impact of the failure of the
T&T government to tighten its belt and to call on
the population to tighten theirs, Canetti said: "I am
referring to private sector behaviour, primarily. In
terms of what the public sector needs to do, we have
been calling for some time for the government to
tighten its belt but to do it early and gradually, so
that there is not a big economic impact."
He said the IMF still sees the need for that to
happen and the new environment of lower energy
prices means that the belt-tightening by the gov-
ernment is "more urgent and has to happen at a
slightly faster pace."
T&T s economic circumstances require some fiscal
tightening, "which we understood was on the cards
He said: "If the low energy price environment
continues, it telescopes the need for fiscal tightening
from being a long-term, inter-generational issue into
something, which if not managed properly, eventually
turns into a cyclical macro-economic issue.
"But that s not going to happen in the next two
years. If the government does not adjust to the
lower energy-price environment, in a few years
debt service ratios will go up from quite low levels
now to moderate or even higher levels."
He said the gradual fiscal tightening will mean
some adjustment on the revenue side, which may
have some impact on consumer behaviour.
"We hope, though, that the fiscal tightening is
done in the context of a re-engineering of fiscal
expenditure, towards more investment so that
there is an enhancement in the capacity of the
economy to grow, in terms of the diversification
of the economy."
It was put to Canetti that there may be a danger
of a mixed message and that T&T politicians
might hear his nuanced call for slightly faster
fiscal belt-tightening as facilitating a delay in
dealing with measures like the fuel subsidy, the
re-introduction of the property tax regime and
the need to tighten up on tax collection.
He responded by saying that that was not the
message and that the IMF s message in its last
few staff reports following the Article IV consul-
tations has been that T&T the adjustment needs
to start now.
Canetti said: "In the 2014 staff report, we took
the position that the cyclical position of the econ-
omy was strong enough that the tightening of
belts could begin.
The message is
that the sooner
you start doing it,
the more gradual
it can be.
don t want is to
put off fiscal
another two years
because then the problem gets larger and the
adjustment process does have to be greater."
He pointed out that the groundwork needs to
be set for many of the fiscal reforms, noting in
particular the effectiveness of the VAT had been
undercut by exemptions and zero-rating of food
items and that much work needs to be done in
making VAT a clean and revenue-generating meas-
He said the IMF believes that the property tax
is a good measure and should be phased in. And
he described the reduction of the fuel subsidy is
"absolutely critical, not just for the fiscal position
but also for the environment, traffic and distri-
He said there were some measures that should
be taken irrespective of the fiscal position and
the fuel subsidy was one. Canetti noted that
countries like the United Arab Emirates, India and
Indonesia have lowered or eliminated their fuel
subsidies and that "most of them have done it
right after an election, so we are hopeful that the
moment is coming for T&T.
"Even so, to do it there should be a commu-
nication effort. Governments need to think care-
fully about how they do it and communicate care-
fully the need to do it and the plan for doing it."
Pointing out that the number one issue for the
IMF in T&T is the fuel subsidy, Canetti agreed
that the best time to lower or eliminate them was
when international energy prices are low as there
would be less impact on consumers.
Continued from page 4
If the government does
not adjust to the lower ener-
gy-price environment, in a
few years debt service
ratios will go up
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