Party Done - An analysis of T&T's Current Economic Situation


This is not ah fete in here. This is madness!

This is not de kind ah jam wey yuh stand up like ah chupidy begging for mercy

This is not ah fete in here. This is madness!

Ah ya yay! Ah ya yi! Ah ya ya ya yaay!

Everybody mad!

 

If yuh see de glasses thing

De one dat does lime with Brown

De same one dat used to walk de road like she cah touch de ground

Since she loss she Texaco wuk, if yuh see de chile!

Gettin’ on kinda wild and wassy

Like wassy goin out ah style.

 

This is not ah fete in here. This is madness!

The above are lyrics are from David Rudder’s 1987 classic, ’Madness’. It is the most fitting description of the current moment that we as Trinbagonians are facing.

The following two-part series analyzes the recession that Trinidad and Tobago has been plunged into.

“Trinidad and Tobago is now officially in a recession”- This was the announcement by the then Central Bank of Trinidad and Tobago (Central Bank) Governor, Jwala Rambarran. He announced this at the 5th Fifth Monetary Policy Forum of the Central Bank co-hosted with the Downtown Owners and Merchants Association (DOMA) on Friday 4th December 2015.

On the heels of his gloomy statement and bleak outlook for the Trinidad and Tobago economy, came scathing retorts and criticisms from almost every possible corner of the society. Some questioned the timing of his statement; others questioned the accuracy of it and some went as far as to say that the Central Bank Governor is seemingly “insulated, if not alienated” from the work of his predecessors and moreover the general public that he serves. Whether it was politically motivated or otherwise one cannot clearly confirm but what is critical at this junction is how and why this recession came about. Furthermore, it is critical to analyze its impacts and implications on the average citizen in light of the job cuts, wage freezes and other expenses like value added tax( VAT) and increased national insurance contributions.

Recession- How and Why?

That’s the billion dollar question: how and why are we in a recession? To many, this news came as a shock but to others, the writing was on the wall. In its simplest form a recession is defined as two consecutive quarters of declining economic growth.

How did this happen?

Well the answer is quite simple- we as a nation did not learn from the past. The recession that we are confronted with at present started with one pivotal moment: the fall in oil and gas prices. Drastic falls in the price of hydrocarbons have provoked this recession as far back as June 201. Yes, I said it. There have been multiple revelations of this recession since June 2014 but the administration did not take stock of it or simply refused to acknowledge it. When oil and gas prices started to plummet, policy makers should have been clued into the fact that serious consequences were on the horizon. Our current situation is further compounded because we have failed miserably to restructure our economy away from the energy sector.

1983-1989, 1992, 2009-2010 and now 2015. What these dates have in common is that they are all recessionary years. They also demonstrate moments where the Trinidad and Tobago flagrantly failed to learn from the past when coming to the economy. At all these intervals in time, our economy was not diversified from such a high dependency on the energy sector . Amazingly, we have continued to survive as a Monocrop Economy. Ancillary sectors like manufacturing, agriculture and even the service industry have contracted considerably, displayed low productivity or nosedived in terms of the quantity of foreign exchange they rein in.

Additionally, the lifestyles that have been furnished by our energy sector have further exacerbated our situation because it has reared another demon that we have to deal with, i.e.  the foreign exchange crisis. As we have not diversified from the lucrative hydrocarbon sector, it has made subsequent governments complacent to such an extent that their revenues and expenditures have become a function of the price of oil and gas. As such, when prices are ‘pumping’, as we would say in local parlance, government expenditure balloons dramatically. Take for example the massive construction booms, the wanton “squandermania” and massive union settlements in the years past.

This filters down to ‘John Public’ and creates a mentality many refer to as ‘Eat ah Food’. This mentality governs how people think, consume and interact with one another on a daily basis. We, the public, are of the belief that because we are endowed with oil and gas, we are entitled to have what we want, how we want and when we want irrespective of the consequences . In classic economic terminology, one would aptly describe Trinidad and Tobago’s society as a rentier state.

This is a state that derives majority of its revenues from the rents it collects from the foreign exploitation of a natural resource that it is endowed with. Trinidad and Tobago is a perfect example of such a state. 45% of the Gross Domestic Product (GDP) and 80% of our exports comes from oil and gas. As at 2013, the energy sector contributed TT$21.3 billion to central government revenue, more than 50% of its budget! All of this translates into the lavish, imported lifestyles that we enjoy locally.

The cars we drive, the food we eat, the clothes we buy, even the water we drink are all to some extent imported. Please note that for every imported good that comes into the country, we must pay for it in US dollars. Businesses demand for foreign currency is a derived demand from what we as consumers demand them to purchase on our behalf. Therefore, when there exists huge shortfalls in foreign exchange, it is as a direct result of our spending habits.  All of us, not just the businesses casually name dropped by the then Central Bank governer. The announcement of the top users of foreign exchange was not only an abject betrayal of confidentiality but it demonstrated an endemic problem in our society,i.e., our insatiable and unsustainable demand for foreign goods. The fall in oil and gas prices, the gradual contraction of the economy  and now the foreign currency crisis have all culminated into a perfect environment for a recession to take hold.

In the the second part of our series, we will look at the potential implications of this recession on us


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