A few weeks ago, in his regular Quarterly Monetary Report, the Governor of the Central Bank, Ewart Williams, described our economy as being in a "slump". This description incurred the wrath of the Government. One Minister, Jack Warner, saw something nefarious in the fact that the Governor had released his report on the eve of the People's Partnership's second anniversary celebrations.
Finance Minister, Winston Dookeran, for his part, hastened to deny that the economy was in a slump. As far as he was concerned the accurate description of the state of the economy is that "growth prospects may have slowed but we are still in recovery mode."
It is perhaps understandable that the Governor of the Central Bank may wish to couch his description of the economy in the most circumspect of terms so as not to give offence to the Government. And we know that the politicians, even those who were once economists, are mortally afraid of giving bad news to the electorate. So between the two we end up with statements which serve only to confuse and obfuscate our economic reality.
So what is the true reality of our economy and how can we translate the jargon of the economists and the obfuscation of the politicians into language which the ordinary citizens can understand? Let us start from the fact, which neither economist nor politician can deny, that our economy has experienced three consecutive years of economic decline, and even the prediction of very modest growth in 2012 is problematic and may not be realised.
What does this mean? It means that for each of those three years not only did the economy not grow but in fact it produced less than it did the year before. Now strictly speaking that is not a slump. The term "slump", in economic jargon, usually refers to a sudden decline in business or stock market activity. Three consecutive years of economic decline can hardly be described as "sudden". After three years of decline the more accurate term to describe the economy is "stagnated".
The next question, of course, is why is economic growth important? Economic growth is the increase in the amount of goods and services produced by the economy. It is conventionally measured as the percent rate of increase in gross domestic product (GDP) which is the market value of the total of goods and services produced by the economy.
The importance of economic growth is that it is the necessary condition for achieving an increased standard of living for the population. With an increased production of goods and services people can benefit from consuming more goods and services. The government, through increased tax revenues, can spend more on important public services such as health and education. By stimulating greater investment economic growth helps to reduce unemployment by creating jobs. More jobs means less social problems such as crime and poverty.
Now economic growth by itself does not necessarily bring all these benefits. Whether it does depends in large part on attendant governmental fiscal and social policies. But what is certain is that where there is no economic growth these benefits cannot be realised and with prolonged economic decline the standard of living of the population is certain to be reduced and the social problems such as crime and poverty will increase.
The next question is why is our economy stagnant and in decline? The answer is that growth in our economy has always been dependent almost exclusively upon the energy sector. This sector generates over 90 per cent of exports and foreign exchange and more than 50 per cent of gross domestic product (GDP) and government revenue.
It is these revenues from the energy sector which, when spent by the government, drive the economic activity and growth in the so-called "non-energy sector". Indeed it is something of a fallacy even to say that 50 per cent of our GDP comes from the "non-energy" sector. For without the government expenditure which derives from the energy sector revenues the so-called "non-energy sector" will swiftly shrink almost to insignificance.
But the energy sector, upon which so much of our economic activity depends, is not within our control. In the first place the sector is dominated by transnational corporations which use international enterprise, capital and technology to exploit our indigenous natural resources for their global operations. Second, the prices obtained for these resources, which in turn determine the revenues the government obtains, are set by international market forces over which we have no control and finally, the resources of this sector are depleting assets which require huge dollar investments, which we do not have, to find and generate.
Our current economic stagnation and decline therefore stems directly from the fact that after a period of very high international oil and gas prices which obtained from 2002 to 2007, prices of these commodities declined precipitously in 2008 with a consequential significant decline in government revenues.
Furthermore, even prior to 2008, the energy sector had been in a state of decline both in terms of production levels and new investments. Oil production has declined from 130,000 barrels a day in 2002 to some 90,000 barrels a day, currently.
As far as gas is concerned the situation is even more critical. Not only are gas prices still very depressed, but the country's reserves to production ratio is now less than ten years. This means that at current production rates we won't have any gas in ten years and all the huge petrochemical industry which was created based on the availability of cheap natural gas will shut down.
What all of this means should be clear. Government revenues are going to remain depressed for the foreseeable future and are likely to decline even further as the contraction in the so-called non-energy sector continues. As government revenues continue to fall its current levels of expenditure on transfers and subsidies are going to become, even with increases in the national debt, unsustainable.
When that time comes no one will need to explain to the population the truth of our economic reality.
• Michael Harris has been for many years a writer
and commentator on politics
and society in Trinidad and the wider Caribbean. He is a
of the Tapia House Group and works as a human