Performance trumps rhetoric

Mar­i­ano Browne Trinidad and To­ba­go's rapid eco­nom­ic growth be­tween 1998 and 2014 was dri­ven by for­eign di­rect in­vest­ment in Liq­ue­fied Nat­ur­al Gas (LNG) and petro­chem­i­cals. As a re­sult, the econ­o­my ex­pand­ed rapid­ly. Boom con­di­tions do not last for­ev­er. The weak eco­nom­ic per­for­mance since 2014 is the re­sult of a weak­ened en­er­gy sec­tor. First, be­cause en­er­gy prices dipped in 2014, and sec­ond, be­cause nat­ur­al gas pro­duc­tion has de­clined by 40 per cent from its high point in 2010. Since then, every gov­ern­ment has been wait­ing for the prover­bial turn­around, whether from new gas wells or from ris­ing en­er­gy and petro­chem­i­cal prices. This ex­plains the em­pha­sis on Man­a­tee and ac­cess­ing gas in Venezue­lan wa­ters. En­er­gy and petro­chem­i­cal prices in­creased be­cause of the war in Ukraine, but the im­pe­tus was short-lived, last­ing less than 18 months. The cur­rent war be­tween the Unit­ed States and Iran has af­fect­ed en­er­gy mar­kets but has not pro­vid­ed the kick­start T&T needs. The world econ­o­my has been re­silient, part­ly be­cause Chi­na has re­duced its dai­ly oil de­mand by five mil­lion bar­rels and coun­tries have been draw­ing down their oil re­serves. In­fla­tion has been mut­ed, but en­er­gy, man­u­fac­tur­ing, and trans­port are cur­rent­ly ex­pe­ri­enc­ing the strongest in­fla­tion­ary pres­sure due to com­mod­i­ty price shocks and sup­ply chain dis­rup­tions. The longer the war con­tin­ues, the greater the im­pact on in­fla­tion as a trans­mis­sion mech­a­nism. The world's strate­gic en­er­gy re­serves can­not last for­ev­er. Sim­i­lar­ly, the on­go­ing war be­tween Rus­sia and Ukraine se­vere­ly threat­ens glob­al food se­cu­ri­ty by re­duc­ing grain ex­ports, dri­ving up in­ter­na­tion­al food prices, and dam­ag­ing cru­cial agri­cul­tur­al and port in­fra­struc­ture. The con­flict be­tween Rus­sia and Ukraine af­fects the Caribbean pri­mar­i­ly through im­port-dri­ven in­fla­tion and se­vere sup­ply chain shocks. The same is true of the US/Iran war, though it is like­ly to have a much big­ger im­pact be­cause it af­fects a larg­er share of trade with the Glob­al South. T&T's flour mills, like those in the rest of the Caribbean, de­pend on glob­al com­mod­i­ty prices. When the war dis­rupts fer­tilis­er sup­plies or chokes glob­al grain sup­plies, in­ter­na­tion­al prices spike. This trans­lates di­rect­ly to high­er prices on Caribbean gro­cery shelves for dai­ly sta­ples like bread, flour, ce­re­al, and poul­try. This out­look is ex­ac­er­bat­ed by the El Niño im­pact, which caus­es hot­ter tem­per­a­tures and drought con­di­tions, both of which will af­fect do­mes­tic agri­cul­tur­al pro­duc­tion. The T&T Me­te­o­ro­log­i­cal Ser­vice has al­ready is­sued a drought watch due to be­low-nor­mal rain­fall, high­er tem­per­a­tures, and a strength­en­ing El Niño. Dri­er con­di­tions dur­ing the lat­ter half of the year threat­en to ex­tend in­to the 2027 dry sea­son, prompt­ing of­fi­cials to urge wa­ter con­ser­va­tion. These wars have con­tributed to glob­al mar­ket in­sta­bil­i­ty, par­tic­u­lar­ly in fi­nan­cial mar­kets. This af­fects all fi­nan­cial mar­ket par­tic­i­pants, whether they are large or small. Ris­ing bond yields in­crease bor­row­ing costs for al­ready-in­debt­ed Caribbean gov­ern­ments, leav­ing them with lit­tle fi­nan­cial room to cush­ion the im­pact on cit­i­zens. Mar­ket yields are trend­ing at five per cent and above. T&T's Last two bonds (US$1 bil­lion in Jan­u­ary and US$800 mil­lion in Ju­ly) were is­sued at rates above six per cent, cost­ing 45 per cent more than the nom­i­nal yields of the bonds they re­placed. The fore­go­ing sug­gests that the T&T fi­nance min­is­ter faces some tough de­ci­sions when pre­sent­ing the 2027 Bud­get Es­ti­mates. The ele­phant in the room is the out­stand­ing set­tle­ments for pub­lic ser­vice unions, which were ne­go­ti­at­ed and promised in 2025. These wage set­tle­ments are for the two bar­gain­ing pe­ri­ods 2014-16 and 2017-19. Still to come are wage set­tle­ments for two ad­di­tion­al pe­ri­ods, 2020-22 and 2023-25. Any fur­ther de­lays are like­ly to com­pli­cate the in­dus­tri­al re­la­tions cli­mate and add ad­di­tion­al un­cer­tain­ty to busi­ness con­fi­dence. De­lays in VAT re­funds and pub­lic sec­tor wage pay­ments are clear sig­nals that the pub­lic fi­nances are un­der pres­sure. De­lays in pay­ments to the pri­vate sec­tor and nor­mal pur­chas­es re­duce the cir­cu­lar flow of in­comes and af­fect every­one. Many busi­ness­es and the gen­er­al pub­lic are feel­ing the pinch. What are the op­tions? There is lit­tle room for Key­ne­sian-type pub­lic ex­pen­di­ture pro­grammes, in­clud­ing in­fra­struc­ture de­vel­op­ment pro­grammes. These pro­grammes have to be fi­nanced ei­ther by in­creas­ing tax­a­tion, by bor­row­ing more, or by some com­bi­na­tion of the two. There are com­pli­ca­tions in in­creas­ing pub­lic ex­pen­di­ture pro­grammes. Any do­mes­tic in­crease in de­mand quick­ly leads to in­creased de­mand for for­eign ex­change. Every dol­lar spent in the lo­cal econ­o­my has a 70-80 per cent for­eign ex­change com­po­nent. For ex­am­ple, whilst cit­i­zens would gen­er­al­ly agree that the road net­work needs im­prove­ment. Even if the equip­ment is avail­able, the bi­tu­men must be im­port­ed, as the re­fin­ery which pro­duced the bi­tu­men no longer op­er­ates. As­phalt from the pitch lake is used on­ly as an ad­di­tive in im­port­ed bi­tu­men on the T&T high­ways. Im­port­ed bi­tu­men is used ex­clu­sive­ly on all oth­er roads. The em­pha­sis has been on se­cur­ing more gas, ei­ther from Venezuela or from new wells in T&T wa­ters. On­ly 'Gin­ger' will have any ef­fect on the 2027 bud­get cal­cu­la­tions. The largest fi­nan­cial con­tri­bu­tion comes from the petro­chem­i­cal sec­tor. Methanex's methanol plants and Nu­trien's op­er­a­tions at the Point Lisas In­dus­tri­al Es­tate re­main shut down. All plants still open are op­er­at­ing well be­low ca­pac­i­ty, as is At­lantic LNG. The Re­vi­tal­i­sa­tion blue­print projects are on hold. The Da­ta Cen­tre projects have enor­mous im­pli­ca­tions for the elec­tric­i­ty grid and wa­ter sup­ply. An­oth­er bud­get deficit is as­sured. The on­ly is­sue is how the fi­nance min­is­ter will con­tain the deficit with­in the 3-5 per cent range even af­ter ac­cess­ing the Her­itage and Sta­bil­i­sa­tion Fund. Mar­i­ano Browne is the CEO of the UWI Arthur Lok Jack Glob­al School of Busi­ness.