Economist Dr Vanus James has rubbished the International Monetary Fund’s projection of a whopping minus 4.5 per cent contraction in the T&T economy saying it is nothing more than voodoo economics and nothing short of conjecture.
In an interview with the Business Guardian, the Economist said: “The IMF, of course, is very notorious for being very wrong—they predicted oil prices would be US$65 and US$70 and where it is now. So you take all of these things as voodoo economics for now.”
“I hear the IMF. It’s their job to make a pronouncement. I, as an economist, am not particularly excited to hear any predictions from any economist until we understand much better, how the world will deal with COVID,” said James
According to James, any current projection, would be all of speculation because no one knows how the COVID-19 pandemic would play out in various economies. He noted that the questions of the time frame behind the release of therapies and a vaccine for virus still loom large.
The economist indicated that until society receives answers to those questions, prediction cannot be made concerning what will happen to the demand or supply side of any economy.
Nonetheless, the IMF’s economic counsellor Gita Gopinath indicated in its recently released Chapter 1 of the World Economic Outlook Report entitled “The Great Lockdown”, that there remains considerable uncertainty around the forecast, the pandemic itself, its macroeconomic fallout, and the associated stresses in financial and commodity markets.
While the IMF projected negative growth of -4.5 per cent for 2020 the institution’s data indicated that the country is expected to grow by 2.6 per cent in 2021.
Previously the IMF, projected the T&T economy would grow by 1.5 per cent in 2020 and for the years 2021 to 2024, the forecasted growth was at 2.3 per cent, 2 per cent, 1.6 per cent and 1.7 per cent respectively.
However, the IMF’s revised projections do not show revised forecasts for the years 2022 to 2024, presumably because the institution has not yet assessed the damage COVID-19 would register on the global economy.
Nonetheless, James noted that the pandemic appears as if it would continue to impact the country for six to nine months. He indicated that he doesn’t not believe that the negative would cease in three months, as people will still be suspicious of any reassembling; even if the government lifts the current stay at home order.
According to James, this can keep the demand in the economy low and possibly crash the economy. He also noted that projections are based on supply chains which currently do not look good for T&T.
Another challenge highlighted is that T&T sells many of its products to Caricom countries—whose tourism sectors have been flattened by COVID-19—and hence, their demand will be low.
Therefore, James noted that there are a lot of factors that must be plugged in to a forecast model and currently much of what is projected would largely be speculation.
Meanwhile, economist Dr Marlene Attzs remarked that the country was already in a difficult position because of the impact on the energy sector. She noted that COVID-19 intensified this hit and because of this “double whammy”, the economist was not taken aback by the IMF projections.
“I’m not surprised by the projections. It seems significant, -4.5 per cent is not a small decline in economic growth,” Attz said.
“I think anyone in their right mind would have expected that they’re going get some significant fall out from the double whammy that we have experienced in T&T.”
According to Attzs, on top of the negative economic growth, T&T is also going to have a significant budget deficit, given the additional expenditures had to be incurred and the loss of revenue coming out of the oil and gas sector.
However, the economist noted that the 2021 projections of economic rebound is likely. She said one of the ‘good things’ that will come out of this period is that because so many of the larger economies have been hit and some more significantly than countries like T&T – these countries are going to be eager to return to business as usual.
Attzs indicated: “So there will be, I think, a fairly interesting curve in terms of how the global economies are coming out of this recession and rebound from this recession and actually turn what has been a very dismal start to 2020 into a more prosperous medium- to long-term outlook.”
She articulated that there will be some kind of silver lining for T&T, but it will have to come at the price of more prudent fiscal management as the nation moves forward.
Attzs also indicated that even as there was an agreement with OPEC to reduce the supply of oil in the global economy, the uptick in prices would not be sufficient to offset the losses T&T incurred in the last month.
According to Gopinath, the IMF is assuming in its projections that the price of oil would be around US $35 a barrel in 2020 and around that level in 2021— and then go back up to US$45.
Attzs remarked that the country is cornered in a way that it has not been cornered before, where the global scenarios are revealing how vulnerable T&T really is as a nation.
She noted that this is a an opportunity to re-engineer and re-determine how the country can strategically capitalise on the learning that comes out of this period. This is a position where economic diversification must be seriously considered, Attzs said.
Echoing the notion put forward by Attzs was Economist Dr Daren Conrad who said that as a country we will now be “forced to consider diversification.” One of the areas the country should diversify into, according to Conrad is technology.
Conrad, who indicated that T&T’s growth trajectory may not be as dire as forecasted by the IMF, likened the country to a patient who has been induced into a coma due to brain swelling.
“So you’ve induced this coma, economically, until things turn around.” Conrad said based his assessment of the IMF projections there is an inability to say when the country would return to business as usual.
According to Conrad, the important thing that should be done during this time is improving efficiencies, which would in turn, generate a faster recovery. “With that said,” Conrad asked, “are we in a position, nationally to be able to leverage technology?
“Is the government ready, in a technological space?” Conrad said that a lot of businesses and even institutions like the University of the West Indies have migrated to doing business through online platforms. However, Conrad noted that the government has not moved their delivery of services online.
When the crisis recedes, Conrad argued there would be massive unemployment if significant fail-safe mechanisms are not put in place to re-tool and re-orient individuals to a world of doing business online.
One of the strategies that could prove effective, Conrad said, is to require the people who are collecting grants, to spend some of the time at home learning how to transition to working in a digital economy.
He also indicated that this can happen where the government partners with the private sector to make such an initiative possible. According to Conrad, labour would play an important role in technological diversification as well. He noted however, instead of unions having a predominant focus on higher wages – there should also be a concentration on empowerment, education and enablement of the worker.
Conrad added that food security is important during this time and it would also be a viable option for diversification. He recalled that when Sir Arthur Lewis put forward the notion of a dual economy, it required an agricultural surplus.