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Sunday, November 27, 2016

How the national community should embark on the road to transformation of the economy must be the focus of national discussion, rather than bemoaning the 6.7 per cent decline in the Gross Domestic Product over the first six months of 2016.

Why? Because such a fall in output was inevitable, given the crash in international energy prices for our main exports and foreign exchange earners; the continuing fall away in production of oil and gas; a GDP bloated over several years by government overspending (fuelled by borrowing and leaning on the overdraft from the Central Bank) on non-sustainable projects, and the contribution of that spending to import-led growth in parts of the private sector. Forced cutting of that expenditure to the bone has resulted in a GDP down to more sustainable levels.

Let us therefore bring the wailing and blame game over the GDP decline to a stop; it had to happen.

We have reached this point after another relatively long period of high international prices for our major exports without utilising the billions earned in US dollars to at least begin the expansion of the economy into vibrant and sustainable non-energy manufacturing, into agriculture, into tourism services that can earn foreign exchange, into exploration of our innovative capacity in the creative sectors, and creating interlinking jobs to move beyond the old economy.

The figures given by Finance Minister Colm Imbert in the 2016-2017 budget statement (and I do not need to repeat them here) foretold the significant contraction in GDP as the Government does not now have the revenue to lubricate the economy and to fund social welfare programmes-the whole country being on Dewd (Development and Environmental Works Division) as was pointed out two decades ago by Ralph Henry.

The fact is that the borrowing capacity to fund massive budgets which boost the GDP has not merely shrunk, but the national debt is increasing while the ability of the economy to service that debt must surely be weakening-debt to GDP ratio now at 60 per cent, the minister has set 65 per cent as the borrowing limit.

I want to suggest that one of the figures given by the CB that we should pay close attention to is the reported approximately 53 per cent of sales of foreign exchange (the lifeblood of the economy) that went to retail and distribution and to pay for credit card purchases.

Further, if the 7.8 per cent of the foreign exchange that was absorbed by the automobile sector is disaggregated into purchases of luxury vehicles and those which can be used for productive purposes, the expenditure on pure consumption of foreign goods, without the capacity to regenerate meaningful production in the economy, may be even higher.

The critical line item on the use of the foreign exchange reserves was the mere 13 per cent which was purchased by the manufacturing sector for raw materials and semi-finished imports to be used productively to create value-added exports.

The second set of figures released by the Central Bank which I choose to highlight are those associated with lending by the commercial banks and the non-bank financial sector; they are really the other side of the foreign reserves consumption coin.

“Consumer lending remained buoyant,” states the CB’s report, indicating the use of funds to purchase consumer durables inclusive of new private cars.

It is that kind of lending and level of consumption of imports that we have to convert into the production of replacement goods and services for local consumption if we are going to begin the turnaround.

“Vision,” according to Gervase Warner (CEO Massy Group), “innovativeness and creative thinking of the kind that led to the fabrication of the pan is what the country has to embrace.”

Yes, it is well understood that banks and non-bank financial institutions have to protect the funds of their investors and depositors. And yes, the financial sector has to be secured from venturing too far into “Greenfield investments.” However, continuing high levels of consumer lending can also cause the financial sector and economy to crash, simply because without replacement of the energy revenue through a diversified economy, all is vulnerable.

My question to Governor of the Central Bank, Dr Alvin Hilaire, was to the effect: In seeking to build the capacity for innovation, do we have to engage the thinking from kindergarten to the post-tertiary levels? Do we have what it takes for transformation?

“Long-term transformation, I totally believe that that is the juncture at which we are. And I believe we have to start to think differently about how we do things. My personal view is that we don’t have to start from kindergarten; I believe we have a lot within us. Sir Hilary Beckles recently said he viewed T&T as the intellectual powerhouse…perhaps now that we don’t have that quantity of resources our latent potential may come to the fore. But I am very optimistic…we have the buffers. But we have to think very carefully, think strategically and organise ourselves…I think we can do it,” states Governor Hilaire, sounding an optimistic note.

The Government has awarded a house construction contract worth $145 million under the Public Private Partnership model; the Sandals project in Tobago may emerge and trigger tourism in Tobago; and road construction is due to start.

There is need, however, for greater dynamism for sustainable transformation; internal combustion is required.


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