Home' Trinidad and Tobago Guardian : December 31st 2015 Contents BG6 NEWS
BUSINESS GUARDIAN www.guardian.co.tt DECEMBER 31 • 2015
T&T is going through a period of adjust-
ment that the population is not prepared to
deal with because the changes imposed by
the previous and the current administrations
have not as yet affected people's pockets,
economist Terrence Farrell says. He said
already there have been many changes such
as job losses in the Energy sector.
Farrell, who is chairman of the Economic
Advisory Board, was commenting on S&P's
revision of its outlook for T&T from stable
In its December 24 statement, rating agency
Standard and Poor's had said: "The change
in outlook to negative from stable reflect an,
at least one-in-three chance that prolonged
low energy prices and potentially poor GDP
growth prospects could result in a steadily
rising debt burden leading to a downgrade in
the next two years."
And in a statement to the Guardian news-
papers on Monday, Farrell said: "We are not
prepared for adjustment because citizens have
not yet felt the effects of the decline in our
incomes, that is, in what we can earn for our
oil and gas exports.
"We have used up almost US$2 billion of
our foreign exchange reserves in 2015, and
this has made it appear that nothing much
has changed. But the reality is that employ-
ment in the energy sector is falling, govern-
ment revenues from oil and gas have declined
sharply, and the non-energy sectors will begin
to feel the adverse effects before long."
Asked whether a devaluation of the TT
dollar would be an appropriate move for T&T,
he said the Government does not directly
dictate the exchange rate and this is deter-
mined by market forces.
"We operate a managed float and in that
system the exchange rate may appreciate or
depreciate in accordance with market forces.
"The Government does not directly dictate
or set the exchange rate. It is determined by
the Central Bank taking into account various
factors including the competitiveness of the
economy, the level of foreign exchange
reserves, the stance of fiscal policy, and wage
and price pressures. The government's views
on the likely impact of any depreciation or
appreciation on prices and on wage demands."
Expanding his point further he said: "It is
theoretically possible for us to do like Barbados
and maintain the exchange rate more or less
fixed. But then, we must also be prepared to
do like Barbados has had to do (if we have
a fixed rate), and retrench large numbers of
workers in the public service, cut wage rates,
run down the foreign exchange reserves, and
increase the domestic debt substantially. We
can't have our cake and eat it. Choices have
to be made."
What is clear, he said is that there is need
to have adjustments to be able to cope with
the declines in the energy sector and in other
parts of the economy.
"It is frankly silly to say: "no devaluation",
"no wage freeze", "no reduction in employ-
ment", "no price increases", "no tax increases",
"no expenditure reduction", "no reduction of
subsidies". If one says 'No' to any policy to
effect the required adjustment, what then
will be the outcome of that?"
Making adjustments in the country's econ-
omy is unavoidable, it must be done and there
may be impact. If changes are not made to
operate the economy effectively, he said there
may be negative outcomes.
"The outcome will be that the foreign
exchange reserves will haemorrhage at an
ever faster rate and we will surely fall into the
embrace of the IMF in a couple of years."
Describing the decision by S&P to down-
grade ( T&T, as being predictable, he said
their rating action is fair and reasonable and
he did not have an issue with it.
"They have pointed out that they expect
our macro-economic situation to be stabilized
within two (2) years and this too is reasonable.
However, we have maintained our investment
grade rating and this is very important to our
debt management strategy over the medium
Not surprised that one of the criteria for
revising its outlook for T&T, is low energy
prices, he said the indicators were showing
the decline in energy revenues.
"Since the fourth quarter of 2014, the indi-
cators were there that the global energy market
was entering a period in which prices would
remain low for some time. The November
2014 OPEC meeting confirmed the Saudi
strategy and that strategy has recently been
reaffirmed. However, Trinidad and Tobago
cannot generate export revenues to replace
those revenues we have lost from falling oil
and gas prices. In addition, our output of oil
and natural gas has been falling as well.
Former Minister in the Ministry of Finance,
Mariano Browne said S&P's downgrade was
expected given falling oil and gas prices leading
to falling revenues, no medium-term strategies
to deal wish the fiscal deficit and, or return
to a position of balance or surplus. The third
factor which he believed would have con-
tributed to S&P's downgrade, he said would
have been "inadequate economic data and
data which is not delivered in time to facilitate
evidence based decision making."
He said the declining revenues have been
"on the wall" since June 2014 according to
Browne, the signals of declining revenues
"Several commentators are on record indi-
cating that government expenditures needed
to trimmed to more realistic levels. This is
not simply a fall in prices," Browne said.
Browne who is Managing Partner at Browne
and Company, said the international markets
have changed substantially. He said: "The
shale revolution has changed the energy equa-
tion. And we are in middle of war for market
share between the US and the rest versus
OPEC. America is now self-sufficient and is
soon to be an exporter. China's rate of growth
is slowing and the super commodity cycle is
now at an end. We can therefore expect energy
prices to be depressed for some time estimated
to be at least 5-7 years."
There are no quick or short-term fixes for
this situation, he said. Browne added that
the country was not prepared for a reces-
"The last administration spoke to a small
budget shortfall and at times to budget surplus
refusing to acknowledge the danger signs or
that times had changed.
"The current administration has indicated
that they are waiting for confirmation, saying
that we are in some kind of downturn and
that they are awaiting confirmation of the
figures. The best opportunity to address the
situation was the budget speech in October.
Rather than address the situation prospectively,
it played the blame game and said that things
were worse than they expected."
On the issue of a devaluation, he anticipated
that there would be a change in the rate but
there would not be a devaluation.
"The TT dollar is a floating peg to the US
dollar and its price will be determined by
demand and supply. When oil and gas prices
fall the supply of foreign exchange diminishes.
In 2009, the rate went to $6.495= US $1 and
devaluation was the specter raised by the
UNC opposition; it did not happen. Indeed
it will not happen. But that is not to say that
the rate will not change."
Concerning natural gas prices, he said it is
likely to recover just like oil.
"OPEC (according to a report carried in
the Financial Times 24/12/2015) has forecast
an eventual return to an oil price in the region
of US$70 by 2020. This also has implications
for the natural gas prices which will recover
in a similar fashion."
Overall, he said the short-term revenue
outlook is "grim," and the immediate options
are, "to cut expenditure and to focus on inef-
ficiencies. To make good the deficit, the Min-
istry of Finance has already started to prepare
the ground for accessing the Heritage and
Stabilisation Fund. But this will not solve
anything. And it is better too keep a trophy
than to spend it."
He suggested that the country should adjust
to the "new economic reality" and that T&T's
"standard of living cannot be maintained
doing what we are currently doing. It will
require much more work and improvement
in our work ethic and productivity if we wish
to stay in the same place. This is not business
as usual.," Browne warned.
2016---a year of adjustment
Terrence Farrell, chairman of the Economic Advisory Board
Former Minister in the Ministry of Finance, Mariano Browne
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