While the Guyana economy is still some distance away from beginning to factor oil revenues into the country’s economic fortunes, it is not too soon for the administration here to learn critical lessons from its close Caricom sister country, oil-rich Trinidad and Tobago. The twin-island republic has never been able to resist the temptation to parade the fortunes accruing from its oil and gas resources, though, over time, it has learnt that wasting resources, the fortunes of which depend heavily on the vagaries of global price fluctuations can often be unreliable economic allies.
Earlier this month, the administration of Prime Minister Keith Rowley was given a sharp reminder of the vicissitudes of an oil economy in an International Monetary (IMF) statement issued at the conclusion of a March 3 – 15 visit to that country.
Far from being in an economic state that even remotely resembles a “crisis,” the country, the IMF says “still has enormous strengths, including a well-educated work force and a stable political system.” And while the country’s economy continues to be kept afloat by what the Fund says are its “substantial financial buffers and low, albeit rising levels of public debt, when account is taken of the size of its energy windfalls, the country has “under-invested in its future.” It is a less than discreet charge of profligate spending, an act of delinquency in the management of its finances which the Fund says “could lead the country to uncomfortable levels of debt and external financial cushions absent further action.”
The new PNM government gets a measure of credit from the Fund for at least acknowledging the need for policy adjustments, alluding to what it says have been the “difficult but necessary measures” taken by the political administration in the face of reduced oil and gas revenues. In its statement the Fund makes reference to the widening of the VAT tax base, cutting fuel subsidies, reducing the number of ministries with a view to streamlining the civil service, and instituting spending cuts,” measures which have resulted in pockets of resentment in the country but which the Fund clearly supports.
For all its efforts there are, says the Fund, more challenges ahead for Trinidad and Tobago. The IMF says that with energy prices having fallen further still since the promulgation of the country’s 2016 budget, a deficit of around 11 per cent of GDP is projected.
The Rowley administration, the IMF statement says, “agrees that policy adjustments are needed.” The signs of trouble are just too pointed to ignore. “Trinidad and Tobago’s economy,” the statement says, “is confronting a major shock with the sharp fall in energy prices that accelerated through early 2016. Based on available information, including job losses and continued supply-side constraints in the energy sector, the mission projects GDP to fall 1 per cent this year. In addition, declines in energy-based revenues will constrain the government’s ability to act as an engine of growth.” Further, according to the IMF, “beyond 2016, new energy projects will modestly boost energy production, while non-energy growth could start to recover,” though these will only be realized if there is “confidence in the country’s ability to navigate the harsher global environment.”
The likelihood of the twin-island republic successfully navigating the current unfavorable economic weather is enhanced by the fact that the country still has “enormous strengths,” not least of which are “a well-educated work force and a stable political system,” though, arising out of what has been a propensity for under-saving and under-investing in its future, “taking into account the size of its energy windfalls,” the economic chickens have now come home to roost in the form of “imbalances that are now starting to build up” and which “could lead the country to uncomfortable levels of debt.”
