Absorbing Caricom’s pain
FINANCE ministers cannot be expected to speak the whole truth. When they speak they must choose their words with care. If their words are too gloomy they may have unintended consequences such as causing a run on the banking system, spurring capital flight or scaring off both external and internal investment. But if they paint too rosy a picture, and the expectations and actions of investors, businessmen and ordinary citizens are shaped by that picture and such expectations are not realised, then the same problem of negative consequences arises.
So when Minister Howai stated recently that he has a “very positive” outlook for the T&T economy in 2014 we have to examine carefully not only what he is saying but as well what he is not saying to arrive at some approximation of what he really intends to say. We must note therefore that his “very positive” outlook is based on the “reasonable expectation” that there will be “normal performance” in the economy. If those conditions are met then our Minister of Finance expects to see growth of about 2.5 per cent over the coming year.
Clearly if we were to examine that forecast more minutely we would want to ask the good Minister exactly what he meant by “normal performance”. But let us for the moment take the term at face value because a more urgent question to be posed to the Minister is whether and how, his “reasonable expectations” have factored in the effects on the “performance” of the economy of the impending collapse of much of the Caricom economy.
The collapse of a large part of the Caricom economy is going to be brought about by the dire economic circumstances currently facing two of the so-called “more developed” states, namely Jamaica and Barbados, both of which are facing virtual economic implosions.
In the case of Jamaica the core problem is the horrendous accumulation of debt incurred by that country over the last 20 years. The debt now stands at close to US$20 billion, representing some 140 per cent of GDP. Servicing of that debt now accounts for about half of the government’s expenditure. Forty-five per cent of the 2012/13 budget was financed by borrowing.
Indeed Jamaica has become a prime example of the classic debt trap. So much of the country’s revenue is spent on debt servicing that after paying public service wages and salaries, there is nothing left to spend on the type of investments which would generate future growth which is, in turn, the only path to escaping the debt. In the meanwhile unemployment grows, poverty deepens, and productivity declines, all of which result in decreased revenues.
Lest it be thought that I am exaggerating the problem, let me quote from the present Minister of Finance in Jamaica who justified the decision to go back to the IMF by saying that, “This is essentially a matter of the survival of the Jamaican nation as a viable nation.”
In the case of Barbados the entire Caricom region was shocked by the recent announcement by the government of that country that it intended to lay off over 3,000 public servants in January as a first step in cutting government expenditure and reducing national demand for goods and services.
For many in the region that announcement was the first real indication of how desperate the economic situation in Barbados really is. But the fact is that the Barbadian economy has been in trouble ever since the world economic collapse of 2008 and the government has steadfastly refused to make the difficult choices which its problems entailed.
The recent IMF report of Barbados showed that government’s debt had risen to 94 per cent of GDP; the government’s deficit is expected to rise to 9.5 per cent of GDP by the end of the current fiscal year; the government’s wage bill had risen to 10.3 per cent of GDP in 2012/13; and, most worryingly of all, international reserves had fallen to US$468 million at end-October (from 19 to 16 months’ cover).
What “reasonable expectations” can we derive from this gloomy economic outlook in Jamaica and Barbados with regard to the performance of the T&T economy in 2014? It does not take a great deal of insight to recognise that our economy will be significantly impacted in at least two areas.
In the first place the growth of some 1.5 per cent in the local economy over the last fiscal year was considerably driven by growth rates in excess of two per cent in the so-called non-energy sector. And growth in this sector is heavily dependent upon growth in the level of exports to Caricom and, in particular, to the economies of Jamaica and Barbados.
“Reasonable expectations” would suggest that what is happening in Jamaica and Barbados would therefore impact significantly on the fortunes of the non-oil sector in this country and ultimately affect levels of growth in the economy as a whole even if there is no major “maintenance” in the oil sector.
The second area of impact on this country, from what is happening to the Caricom economies in general, is to be found in the increasing migration of Caricom citizens to these shores. Trinidad has historically attracted immigrants from other Caribbean countries. The difference this time around is that we are now attracting thousands of people from Jamaica, the most populous of the English-speaking Caricom countries.
The attraction of T&T to Jamaicans who hitherto had sought escape north to the United States arises first from the fact that the economic recovery in the US has been very sluggish and moreover growth in employment has lagged behind overall economic growth.
Meanwhile, here in T&T, not only is the economy still experiencing modest growth but there is in place an extensive system of social protection and welfare programmes which provides the immigrant, at very low risk of being caught, with an immediate and reasonable expectation of a sustainable level of existence.
As the economies in Jamaica, Barbados, and the OECD countries worsen in the coming year, the levels of migration to this country from our Caricom neighbours, particularly Jamaica, are only going to rise, with or without Caricom-agreed rules of entry.
Our Minister of Finance may want to explain to us just how he factored in the impact of such reduced exports and increased migration on our economic performance, as well as our social fabric, in arriving at his growth estimates for next year.
• Michael Harris has been for many years a writer and commentator on politics and society in Trinidad and the wider Caribbean