Home' Trinidad and Tobago Guardian : September 13th 2015 Contents SBG4 COVER STORY
SUNDAY BUSINESS GUARDIAN www.guardian.co.tt SEPTEMBER 13 • 2015
A new government has been in office for just under
a week and has to produce and pass a budget by October
31. Oil is hovering at US$45.92 per barrel (West Texas
Intermediate, US$48.89 Brent Crude). Natural gas is
at US$2.69 (New York Mercantile Exchange). The Cen-
tral Bank July 2015 Economic Bulletin, moreover, paints
a grim economic picture. It says the T&T economy
has contracted by 1.2 per cent in the first quarter of
2015. Meanwhile, the energy sector contracted by 3.3
per cent and unemployment grew by 0.4 per cent.
The Sunday BG s NATALIE BRIGGS sought the opin-
ion of economists on what they think the new gov-
ernment should proceed in light of these facts, as well
as to get a better sense of what the economy holds
over the short to medium term for the average man.
A new economic normal?
Dr Lester Henry
economist, UWI Lecturer,
Former PNM Senator
Today, perhaps because more information is available out there and there is greater
sophistication on the part of the people, they understand that oil at US$35, US$40 a barrel
means something and it means that the government will be under pressure, not that the
government is made up of bad people. So, there seems to be a greater understanding of
I don t expect the current government to have major cuts to spending on social programmes.
While, there will be some social sector programmes that may be cut because they are non
essential, or redundant---for example, three, four programmes doing the same thing---I
hardly see say major cuts being made to essential services that affect the average person.
Cuts will only be resorted to as an extreme last resort. But that is according to the infor-
mation that is available. I can t say much more as we do not know the current state of
post-election finances of the country in terms of how much borrowing was done and how
much that will have to be paid back in between now and six months from now.
Remember also, the number of labour negotiations that were settled in the past three
months. Most of that money still has to be paid. The current government will be coming
to a situation where there are many things they will have to pay immediately and they
are under pressure to source the funds to do that.
Regarding the budget itself, I don t want to speculate. I really don t know except that
a lot of the programmes will be maintained because it is not possible to review all of these
programmes within the next two to three weeks.
There is not enough time for the proper analysis. A lot of the programmes, they don t
really have the time to judge them and analyse them and say whether they are giving value
for money. That is going to need a little more time.
Dr Roger Hosein
economist, UWI lecturer
T&T must become accustomed to a eco-
nomic "new normal". In the period of 1994-
2008, the Trinidad and Tobago economy expe-
rienced a rapid period of growth. Some may
refer to this as the golden era of growth. GDP
per capita and real GDP increased considerably.
Note that the growth in GDP can be divided
into several parts.
In the period 1994-1996, GDP growth was
moderate, averaging around 2 per cent, but in
the period 1996 to 2006, when the Atlantic
LNG plant was started and oil from REPSOL
came on stream, GDP growth in the economy
was very buoyant, averaging in constant price
terms, over 10 per cent.
What we have seen since 2008 however,
particuarly, for the period 2009-2014, is a
considerable slowdown in the economy. Some
economists will point to the fact that the T&T
economy is at full employment in terms of
productive capacity and so unless urgent atten-
tion is paid in the medium-term period towards
enhancing the capacity of the economy to
supply more, growth rates are going to remain
modest for the next three to five years.
In this new normal, what is needed is policy
that focuses on supply side measures, such
as the highway from San Fernando to Point
Fortin, which is in train, and the highway from
San Fernando to Mayaro, which is planned.
Using these as two examples, both types of
infrastructural investments open up the eco-
nomic space so that the unemployed and
underemployed can be brought into the econ-
omy and contribute in a greater way toward
overall economic activity.
Another thing that the T&T economy will
have to do in this new normal is to target the
extra-regional markets in more pronounced
way. Access to the Caricom is good and it
fetches valuable foreign exchange. But the
Caricom market is protected by a common
external tariff and is a fairly safe market.
Exports to extra-regional markets are more
competitive and therefore represent a com-
parative advantage. Policies will have to be
implemented to permit a movement away
from a regional orientation in exports, toward
an extra-regional orientation in which will
also promote greater backward and forward
linkages in the economy.
Adjustments to the income tax rate are also
needed across the board. It may be done in
a tiered fashion in which the current rate is
maintained or the income tax rate may be
This is to increase government s intake of
tax revenues given that oil and gas prices are
likely to remain moderate over the medium-
term period with no adequate, substitutable
good or service on which taxes can be imposed
to earn a source of funds comparative to that
lost from taxes on the energy sector.
Expect also some changes to be made in
the labour market. The State may find it rea-
sonable to cut back on its participation in the
economy. A major part of the State s partic-
ipation is through transfers and subsidies. An
important expenditure outlay is expenditure
on make-work programmes.
The State will now need to relax its par-
ticipation in make-work programmes and any
surplus from these should be absorbed by the
labour, cultural, services and manufacturing
sectors. This is another area the ordinary per-
son could expect some changes.
I think there will now be a different thrust
from government and, at some point in time,
some of the subsidies---such as that on energy
and fuel---will have to be removed. Perhaps
in time, therefore, what you will realise is the
price at the pumps will increase to some extent
as the State tries to rationalise the amount
of money it spends on various types of sub-
In the context of the new normal, the State
will also need to enhance its revenue flows.
This means that the state will need to pay
more attention to revenue streams.
The business community in particular may
see the state in a short space of time seek to
improve the level of tax compliance. As was
mentioned in the PNM manifesto, this would
include tax compliance in VAT.
PHOTO: UNIVERSITY OF THE WEST INDIES
DR LESTER HENRY
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