Friday, December 15, 2017

economic growth in 2013?

In its World Economic Outlook, the IMF projected world economic growth for 2012 at approximately 3.5 per cent and for 2013 it projected growth in the range of 3.5 per cent to 3.9 per cent.

The IMF also enumerated a number of threats to these forecasts and continues to point to the eurozone as a significant downside risk to the achievement of these rates. The eurozone is currently in recession and faces another two years of flat growth. The IMF notes the fragility of the world economic recovery and slower growth in the Asian economies. The US economy is on its feet, even if it is limping. In Trinidad and Tobago, the Finance Minister indicated that growth would be in the "vicinity" of 1.2 per cent for 2012 and projected an annual growth rate of 2.5 per cent and an inflation rate of 5.6 per cent for 2013 during the 2013 budget speech.

These projections as stated in the budget statement are based on the following: first, the growth of the non-oil sector; second, a strong public sector investment programme; third, substantial investment in the energy sector by the major players and last, an increase in the budget deficit by $1billion relative to 2012. The projected fiscal deficit for 2013 is $7.669 billion or 4.6 per cent of Gross Domestic Product.

In more developed countries, projections of this nature would have been subjected to rigorous analysis and commentary. Indeed, it would be expected that economic growth projections and the assumptions on which they are based would have been published by either the Finance Ministry or some other official body and tested against the models and projections of the private sector or the university, or business schools. Instead, the projections and the bases on which they are prepared are not made available for comment and the economic data to substantiate such analyses are generally unavailable or are quite late. Further our universities have not developed any working models. But that is another story.

Using the latest data for June 2012, as published by Central Bank in its October Monetary Policy report, 2012 is likely to show a decline and not a positive 1.2 per cent as projected by the Finance Minister. The last two quarters of 2011 and the first two quarters of 2012 are negative, with the last quarter, June 2012, showing a deep decline at an annualised 3.6 per cent.

The critical factor in this dismal performance is the weakness of the energy sector and in particular, low gas production as a result of "ongoing maintenance".

Data on the energy sector is generally unavailable and those in the know at the energy sector companies are not prepared to either go on record, or to provide details about the current output levels. Anecdotal evidence suggests that these "maintenance" exercises will continue until the end of the second quarter of June 2013.

In other words, the current depressed conditions are likely to persist well into 2013 and we are likely to see four more quarters of decline. A key factor to offset or to mitigate this would be a strong inflow of foreign direct investment.

The Energy Minister speaks positively about increased activity in the energy sector. Whilst this is both important and useful, it cannot reverse the effects of declining energy output which is pervasive. The Finance Minister is more positive as he says in the budget speech "Total investment in 2013 by companies operating in the sector is expected to be US$3.016 billion". Inflows of this magnitude would be both positive and timely. But the minister does not say whether these are gross or net inflows. This distinction is very significant.

The IMF defines foreign direct investment as net inflows of investment… "the sum of equity capital, reinvestment of earnings, other long-term capital, and short-term capital as shown in the balance of payments."

Over the past 34 years, the value for this indicator in Trinidad and Tobago has fluctuated between a high of US$$2.1 billion in 2008 and a low of US$21.8 million in 1986. In 2009 and 2010, net inflows were US$704 million and $549.4 million respectively. Neither sum was sufficient to give a big enough impetus to spur GDP growth. So for this measure to offset the declines registered in the four quarters noted above, it would have to be in the order of magnitude noted by the Finance Minister.

International convention suggests the figure for FDI should be net. Is the figure given by the Minister gross or net? If the figure is net, it would represent the highest figure ever achieved in the last 34 years. What therefore are these projects and when will mobilisation start as to have any effect they should already have started.

Mr Dookeran noted similar numbers which did not materialise. It is unlikely that the outcome will be any different in 2013 and if growth is achieved it will be half that projected by the minister.

• Mariano Browne is a

former minister of finance.