Growth policy needed

A critical issue arising out of this latest report is the state of the economy. The MPR reported that the economy contracted by 6.7 % with the energy sector down by 10.8 per cent and the non-energy sector by 4.3 per cent. Along with such contraction there are job losses, with the unemployment rate having climbed to 4.4 per cent. Despite this, the country’s foreign reserves and the excess demand conditions has led to a depreciation of 4.5 per cent from the start of the year, with the weighted average TT$/US$ selling rate at TT$6.7507 recorded in October 2016.

The depreciation of the currency must be set against the backdrop of the external debt we are servicing. The two latest bond issues were US$550 million and US$1 billion with 10-year tenors.

Today we are facing the level of gross official reserves of $9,756.6 million as at the end of October 2016, equivalent to 10.9 months of import cover. While there has been some tightening in the distribution of foreign currency, consideration can be given to the need for changes in the philosophy governing the foreign exchange market. Is this simply a change that must be made to the distribution system? The Inter-American Development Bank (IDB) has reported that in the Caribbean just around 11% of the private sector firms are involved exports. This means just a small percentage is contributing to the pool of foreign exchange. To stem the tide of depreciation and loss of foreign exchange reserves perhaps we must consider an improvement to Import Productivity as a principle - we must ensure efficiency in the use of scarce foreign exchange.

The latter means that we should seek to ensure that we, as a country, get the most benefit from each dollar spent on imports. .

The last issue that the MPR raised is the specter that the debt-to-GDP ratio will reach 60.2 per cent by the end of the 2017.

The Government has said that they would limit public sector debt to no more than 65 per cent of GDP. We need to remind the government that work by IMF economist Keven Greenidge et al has pointed out that beyond the 56 percent threshold debt/GDP will have a negative impact on growth. A plan must be developed that stabilizes the economy, that gets it back to growth and prevents excess debt/GDP that can be debilitating.