Economists are warning that the latest partial lockdown of T&T’s economy will have a devastating impact on the country including the permanent closure of more businesses, further job losses, and a rise in poverty.
A year after the Government mandated the first COVID-19 related lockdown, there is a déjà vu feeling that there will be more hardship. Scores of businesses were forced to shut their doors permanently during the first phase of the lockdown and hundreds of people were left jobless.
Last Thursday when Prime Minister Dr Keith Rowley announced a second lockdown, he indicated that the Government does not have the money this time around to be as helpful as they were last year.
The announcement came on the heels of rising COVID-19 cases and deaths in T&T. The PM said that malls and gyms will be closed, restaurants, bars, cinemas, casinos and churches will also be closed among other restrictions.
Here the economists explain how a second lockdown will impact businesses and the economy in general:
Economist Dr Indera Sagewan is expecting a “severe” impact on the economy as the country has begun the latest partial lockdown.
She said while it was too early to put a dollar value on the impact of the lockdown, it will devastate the economy as the country has been closed to different extents since the pandemic started in March 2020.
“I expect more businesses to close permanently, I expect permanent unemployment to increase in the private sector. The social impact will be severe such as entertainment, tourism, the retail sectors as these sectors employ unskilled and semi-skilled individuals. They also operate in the lower-income bracket of society. This is the sector that has felt the brunt of COVID closures,” she added.
Speaking about the impact the closure of SMEs would have on the Government and its ability to collect revenue, she said while some of its employees do not pay taxes, they contribute to the National Insurance pension scheme and if they send home staff permanently this would impact the fund.
On her Facebook page last week, Sagewan had recommended:
1. All financial institutions suspend mortgage/loan payments for both businesses and individuals until the economy is reopened
2. The PM and all MPs/Ministers will take a 50 per cent pay cut until the economy is in positive growth once again
3. All public servants and state enterprise’s employee from the top be paid 50 per cent of their salaries freeing up resources to provide some relief to the private sector unemployed because they have children to feed too, so the burden must be shared if the Government doesn’t have the money to support the unemployed
4. All supermarkets and pharmacies price merchandise at cost price until the economy is reopened. It should not be necessary for every item but it could be for some of the most popular items.
During the interview with the Sunday Guardian, she justified these recommendations by saying that those who hold power must share the burden with society and not only allow it to fall on lower-income people.
“The Government should lead by example and share the pain the average citizen is feeling.”
She criticised the Government for having a “knee-jerk reaction” in terms of its economic management instead of having a real plan.
Sagewan said COVID-19 was an abnormal period in the world’s history and calls for unorthodox methods. She believes if the situation warrants it, the Government should dip into the Heritage and Stabilization Fund (HSF) if there is an emergency. However, she argues if and when it is done, the Government should use the money to generate new investments rather than mere cash transfers.
She encouraged the Government to breathe life into other parts of the economy such as agriculture and food production, the maritime sector such as allowing yachts to dock here and generating a tourism industry.
The Government was taken to task for its inability to protect our porous borders. “Although our borders are formally closed the truth is that that we are opened and people are entering through our porous borders. So whose responsibility is it?”
She also said that the authorities have failed to police people’s behaviour in public, especially those who breach the COVID-19 restrictions.
Economist Dr Vanus James expects businesses to lay off workers and cut salaries over the next few weeks.
“Many businesses are saying they do not have the financial capacity to keep staff. This will result in a drop in sales. This is not only for people in retail but in other industries. People are saying that the lockdown will reduce their cash flow and they do not know how they will keep on workers. Many told me today (Friday) they will talk to their workers and tell them for the next month they can stay on the job but they cannot get paid,” he said.
He agrees with the principle of locking down as the COVID-19 case grows but added that if there are not accompanying economic measures then the economy will be damaged badly.
According to James, the Government ought to be providing cash flow releases for lower-income people to survive the latest lockdown.
“This should include soft loans to businesses, partnering with business owners to keep workers. The British Government promised to cover 60 per cent of the costs of businesses if owners keep staff. The T&T Government has to consider conditional cash transfers rather than letting everyone become unemployed and then they end up on the Government welfare roll.”
Predicting that if the current lockdown goes on for more than just a few weeks and into months, up to ten per cent of the Gross Domestic Product (GDP) could be lost, James said. “We won’t even get close to that IMF projection of 2.1 per cent. Maybe there will be one per cent or no growth. If we have to do three to four months of lockdown there will be a major decline in output.
“Look at workers staying home, that’s a major productivity hit. That means a reduction in output. You have to watch until you get to the peak of the COVID-19 spread that may mean they may keep the lockdown for another four months. That will reduce ten per cent of your GDP right away.
“Remember we have had a year of negative growth and this just compounds it.”
Speaking about SMEs, James said that the closure of these tax-paying businesses during the month of May will have a serious impact.
“It is a catch 22 for them. If these businesses pay taxes, they bust. If they do not pay taxes then the Government will have to borrow. The Government should provide a deferral of that tax obligations. The Government should borrow through the Central Bank, borrow through bonds that they issue or borrow internationally, and hope that they get vaccines in six months. If it does not happen, everyone will be going bankrupt including the Government.”
He also believes that the Government will most likely return to the HSF.
In the short-and-medium terms, once the country gets out of the COVID-19 crisis, he said the country must look for investments to reactivate the economy.
He used Tobago’s tourism as an example of the potential of the country post COVID-19.
HURTING THE POOR
Meanwhile, Prof Patrick Watson said that the Government had no other choice to implement a partial lockdown of the economy as cases would continue to rise, which would lead to deaths and a further deterioration of the economy.
However, he said the Government seems to be in a situation with no real favourable options as the lockdown will have dire consequences as lower-income people will lose jobs and experience salary cuts.
He also said the loss of jobs and the closure of some businesses will be permanent.
“These few weeks will be enough to take out a few enterprises. If you go to the malls you will see businesses closed. The workers at the bars and KFC will be affected. I am hoping that this does not result in negative social outcomes. There could be an increase in petty theft, those who have lost their jobs may feel that they are forced to do things that are not socially acceptable.”
Watson noted that advanced economies like the United States will see positive economic growth this year as there was a lot of pent up activity that did not take place during the pandemic.
However, he said it was a different situation in T&T.
“What we learned in the university is that when money is spent it expands the economy. But it is different for T&T as when we spend money it is on limited goods and services. That requires forex. So the money that we are not spending now may be a good thing for foreign exchange. So when the pandemic ends and there’s an increase in spending there could be a depletion in foreign reserves.”
He said the Government must work quickly to find new ways of earning foreign exchange away from the energy sector.
Watson felt it was “almost inevitable” that the Government will be dipping into the HSF soon.
“The legislation recently passed made it relatively easier to go into the Fund. I understand a reluctance on their path as they understand that the general public is reluctant. But the reluctance of the public will be a function of how desperate the situation becomes.”
DIVERSIFICATION OF THE ECONOMY
Economist Dr Anthony Gonsalves told the Sunday Guardian that there will be serious economic and social effects from the partial closure of the economy in May.
This includes businesses closing permanently and loss of jobs.
“There is no question that the economic loss will happen. The Government is not in a position to sustain people as before. The choices are very difficult for the Government.”
He said the country will have to “hold strain” for another five or six months until the Government gets more vaccines before the economy could be fully reopened.
He said the Government’s economic strategy has not changed significantly since the pandemic hit.
“The idea of diversifying the economy is there. They are much more aware of the need to do it. They also know we only have a limited amount of time with oil.”
Gonsalves added that the good news with the developed world slowly re-opening would mean good news for the tourism-based countries of the Caribbean and even T&T which would be able to trade more openly with these vibrant economies.
All of this would help T&T’s post-pandemic recovery, he said.
HERITAGE AND STABILISATION FUND
In 2020, the country withdrew approximately US$1.2 billion from its sovereign wealth fund, the HSF. That sum covers the period January 1, 2020, to December 31, 2020, and the money was drawn down in the fiscal years 2020 and 2021.
In fiscal 2020, US$900 million was withdrawn from the Fund and so far for fiscal 2021, US$300 million has been withdrawn for budget support.
The HSF has been a cushion for T&T’s economy as the Government has used it when it has struggled with revenue to meet salaries and other budgeted expenditure. As of September 2020, the Fund stood at US$5.73 billion.
To mitigate the effects of COVID-19 on the economy, the Government initiated a comprehensive stimulus package that needed funding—some of which came from the HSF.
On March 26, 2020, an amendment to the HSF Act was passed in Parliament to allow for withdrawals of up to US$1.5 billion during the financial year, in the event of a health crisis, a natural disaster or a precipitous drop in budgeted revenue.
Govt spent $6B in first phase of lockdown
The Government said it spent $6 billion in the first phase of the COVID lockdown in 2020 to help citizens. Money was used for programmes such as salary relief grants, food cards, and funding for credit unions and banks to grant loans to keep businesses afloat.
On Thursday, the PM said the money was “just not there.”
“What I said is that we will not be in a position to be as helpful as we were in the beginning because the money is just not there. When we intervened in March, April last year we told you where the money was from. It was borrowed money. We borrowed money to fight the virus at that stage. We came through the year 2020 doing reasonably well. In 2021 we are now called upon again. The Minister of Finance will have to look to see that we can preserve the social support system that we have in place. This country has a large social support system in place. We do not have the resources to be as helpful as we were last year. How far we will go? I cannot say as yet.”
Businesses–both small and large–are bracing for hard times. They said that the economic depression was already pushing their businesses over the cliff and with this latest lockdown, they are on the verge of closing their doors permanently.
The Sunday Guardian emailed and tried calling Minister of Finance Colm Imbert and Minister in the Ministry of Finance Brian Manning asking for more details on what the impact would be on the population and what measures the Government intends to take to assist. But there was no response up to late yesterday.