Stimulating the Economy

Moody’s Investor Service July 2011 report has stated that Trinidad and Tobago’s recovery has begun, albeit modestly.  However, the rate at which we are recovering and the fact that we are recovering at all is mainly due to our reliance on the energy sector exports.  Therefore, as the rest of the world recovers and demand picks up so will our economy, once again reflecting our heavy dependence on our energy sector and our vulnerability to external activities.

A clear diversification strategy is urgently needed.  However, this will only bear fruit in the medium to long term. What can we do in the meantime to stimulate our domestic economy in the short term to steer us back on a path of growth?

Any stimulus aimed at increasing business investment will not yield the desired results until consumer and government demand picks up. Consecutive Central Bank reports have stated that private sector credit has been on a continuous decline since 2009 up to April 2011 when we saw a small increase of 2.9%.  Consumer lending has been modestly increasing since late 2010, albeit mainly in the area of mortgage loans. Local and foreign businesses still lack the confidence to invest for as they await a clear direction on the Government’s diversification policy.

Do we therefore look to the Government to increase spending to ensure we have a positive outlook for future growth? Undoubtedly government’s capital expenditure is needed to stimulate private investment, as was done in the mid-1970s to encourage the development of this country’s industrial sector.   This stimulation must be done against a backdrop of managing our current level of debt which even though low by international standards must ideally not increase given the slow growth we are experiencing, as well as ensuring government does not crowd out potential private sector spending.

The Chamber would like to suggest that an appropriate balance would be to apply public/private partnership models, particularly for extensive capital projects where the public and private sectors join forces to design, finance, build, manage or maintain infrastructure projects. Such partnerships can take many forms depending upon the exact allocation of risks and responsibilities. PPPs can also provide a principal vehicle for Foreign Direct Investment, though it should be noted that the necessary administrative and regulatory capacities should be present, i.e., public governance to exist to provide an adequate environment for PPPs.

Canada has been using this model successfully as it relates to the provision of public services or public infrastructure.  In 1993 they established the Canadian Council for Public-Private Partnerships and PPPs have become a common tool as they provided much needed capital to finance government programmes and projects, thereby freeing public funds for core economic and social programmes.

An opportune project for the government to engage in PPPs would be for the construction and management of CNG stations. The petroleum subsidy costs the government roughly TT $3 billion annually.  However, a gradual reduction in the cost of this subsidy can only take place if volume reduction measures are implemented, with CNG being one such vehicle.

The Chamber has put forward recommendations to reduce the cost of this subsidy and stands ready to discuss the recommendation of the PPP model further with the Government all with the aim of once again re-energizing our economy.