tracted by 2.0 per cent in 2015, and there is broad consensus that—
given the output by major energy companies so far in 2016, their plans
for the rest of the year, and the sluggishness in the non-oil sectors — a
recovery this year is hardly on the cards. Latest 2016 growth estimates
from the Central Bank, the International Monetary Fund (IMF) and rating agencies Moody’s and Standard and Poor’s (S&P) all hover around
-2.0 to -2 per cent. There has also been some labor shedding in energy
service companies and a few manufacturing firms although the official
overall unemployment rate has moved marginally from 3.3 per cent
at the end of 2014 to 3.5 per cent during the fourth quarter of 2015.
“
O
ver the period 2010-2015, every
US$1 change in the price of
oil affected export values by about
US$50 million.
”
While the order of magnitude of the shock and the immediate impacts are fairly well known, there is a large degree of uncertainty as
to how long the situation will persist. As an energy producer, Trinidad
and Tobago has been here before, with the vicissitudes of oil and gas
prices often calling the economic beat. Two of the starkest episodes
of energy price surges were in 1973/82 and 2002/08, and of price
falls were 1985/88 and 2008/09. Not only was the duration of each
episode different, but for the most part there was little clue while they
were happening as to how long each would last.
The current situation is also characterised by uncertainty. In late 2013,
with oil prices fluctuating around the US$100 per barrel mark, few
forecasters would have predicted a plunge to US$30 and below several months later. A scan of price forecasts this week show the variation — the IMF forecasts Brent crude prices from 2016/20 in the
US$36-$50 range; Bloomberg’s predictions range from US$40-$60,
while Business Monitor Intemational’s estimates are between US$40
and US$71. A year ago these institutions’ forecasts for 2016-20 were
between US$60 and US$90. On the local energy production side
there does however seem to be greater consensus on the short term
outlook, involving a dip in output in 2016 followed by a gradual recovery over the next few years.
Deciding Macroeconomic Policy: It is within this context of uncertainty that macroeconomic policies must be developed and
coordinated. Given the characteristics of Trinidad and Tobago, the
key macroeconomic components are fiscal, structural and monetary
policies. With a still dominant state sector, a sharp decline in energy
revenue is felt widely — from the direct results of attendant pullback
in spending on transfers or capital projects through to the influence
on local capital markets via government borrowing. Structural policies
or reforms, often overlooked when an economic shock is short-lived,
44
must take center stage over a longer time horizon, especially to facilitate a greater role for the private sector once the government’s role
is constrained over time. Finally, monetary policy would be available
to influence credit conditions to facilitate an eventual recovery, while
avoiding overheating and inflationary pressures which could erode the
external value and purchasing power of the domestic currency. But
policies in these three areas must be well coordinated to increase the
chances of success (barring a recovery in energy prices and output).
So how is all of this to be achieved in an environment characterised
by uncertainty? While there are no foolproof answers, there are a few
guidelines that can help to shape the approach to macroeconomic
policy setting.
Guidelines: First of all, it would be prudent to treat the shock as
permanent. Unlike some other countries, Trinidad and Tobago is
currently in the relatively fortunate position of having at hand some
buffers —shock absorbers if you will— to deal with the economic situation. A starting point of relatively low debt by i