Do not view the arrival of the COVID-19 vaccine on T&T’s shores as the end of our economic woes, economist Dr Vaalmikki Arjoon has warned.
By next month this country is expected to receive its first allocation of the COVID-19 vaccine.
T&T has been allocated an initial 100,000 to 120,000 doses of the Oxford-AstraZeneca vaccine via the COVAX facility.
The Oxford-AstraZeneca vaccine is one of several vaccines currently in use globally.
Arjoon said without the vaccines, the world stood to lose an additional US$3.45 trillion in gross domestic product every year.
Given the vaccine rollouts and the anticipated rates of inoculation, the International Monetary Fund now expects a global growth of 5.5 per cent in 2021 and 4.2 per cent in 2022, Arjoon stated.
“With continued rollouts and provided they are able to protect from the mutations of the virus, it is possible that transmission levels internationally can reach to low levels by the end of 2022, with some countries restricting transmission even before,” Arjoon said.
He said any chance of an economic recovery is predicated on how quickly we are inoculated with the vaccine and develop herd immunity to stop or at least severely mitigate the spread of the virus.
“Even after the vaccine arrives, the government cannot simply lift restrictions altogether; they must continue to lift them gradually and cautiously to prevent a recurrence of accelerated virus spread which will inhibit persons from being able to take the vaccine. It will also take some time for there to be enough doses for everyone and thereby provide effective nation-wide protection,” Arjoon said.
“We should therefore not view the vaccine as the end to our economic woes; while it is a much-needed ray of light, we are nowhere near the end of the tunnel, especially since the economic difficulties we were facing before COVID are still a reality, made worse by the pandemic,” he said.
Arjoon said fiscal revenues will remain low in the short to medium term especially since taxes on income and profits, which usually accounts for 60 per cent of all taxes collected, will be limited.
“There was significant damage to the SME sector where many closed their doors as they simply had no funds to continue to operate. Even after we are inoculated, a large segment of them will remain closed as they will still be cash strapped,” Arjoon said.
“Many currently operating are making losses, and even if any profits are made next year, they will carry forward these losses and therefore pay less taxes.
“The average annual taxes on income and profits from 2016 to 2020 was $19.4 billion (it was $22 billion in 2019) but this past year it was $14 billion due to the business closures,” he said.
Arjoon said the state has budgeted to earn $16.6 billion in fiscal 2021, but this could be an over-estimation, since many private sector entities will continue to remain closed.
“This naturally implies that employment levels will not return to pre-pandemic levels, underemployment levels could also rise, while some persons may take up jobs in the parallel economy. There will however be some uptick in activities in the service sectors, though not at the pre-pandemic levels especially since many persons are likely to remain out of jobs and therefore will spend less,” Arjoon said.
Arjoon added that while we can expect some increase in energy prices, especially as global economic activities increase, these prices will not be higher than 2019 levels, especially given the oversupplied global market.
“With shortfalls in revenues, the state will have little choice but to borrow more to fund their budgetary obligations, and may also be left with little choice but to spend some of these social relief, which will still be needed in the short term even after receiving the vaccine,” Arjoon said.
Arjoon said investment by the private sector is a much-needed shot in the arm.
This will only happen, however, if the state can re-ignite confidence and open a path to financing, he said.
“Like many other countries, the Central Bank has freed up some extra liquidity of almost $13 billion to be used by the private sector for investment purposes.
“Many SMEs however cannot access it as they do not meet the loan provision standards, but those that can are hesitant due to a lack of confidence to invest,” Arjoon said.
“At least half of these funds ought to be injected into productive private sector activities, and it can be done if the state uses some of these reserves to establish and capitalise a new state-owned lending institution strictly for financing some distressed SMEs who otherwise cannot access the funds from banks,” he said.
He said the state, in this case, could be more lenient in their loans criteria and also back them with a state guarantee.
This can help SMEs to continue operations and keep people employed, away from the poverty line, Arjoon said.
“Many in the private sector will continue to embrace technology and move away from operating in a physical retail outlet. This will save them much on rental costs and other overheads. They may set up their own website to serve customers, only needing a physical location to store goods for delivery. This means that malls and other commercial rental spaces may continue to be underoccupied,” Arjoon said.
He said the state must also accelerate its drive to automate all segments in the ease of doing business such as paying taxes, providing licenses, submission of trade documents.
“Indeed, COVID has forced us to recognise the importance of being able to conduct all business processes online. Embracing technology also means that we could see local online payment platforms developing, and more persons switching to online banking.
“COVID has shown that cash transactions and retail banking activities became more bothersome, so we could in due course find private entities being set up to establish e-wallet services,” Arjoon said.
He said we should not underestimate how much our recovery depends on the rest of the world, especially our major trading partners, developing their herd immunity.
“In the short term, the international trade revenues will not return to the pre-pandemic levels as our trading partners will also take some time to improve their income streams to afford to import as they previously would.
“However, one aspect of the supply chain complications that manufacturers and retailers are still facing will be eased somewhat— with more segments of the private sector in foreign countries and trade routes re-opening, they will be better able to source their raw materials and goods for re-sale,” he said.
“The issue of how they will pay for these goods will still rear its ugly head; access to the forex to make these payments. This is an urgent hurdle that the state must prioritise to fix, through broader fiscal stimulus, aggressively developing our maritime services especially our port facilities, encouraging greater FDI, increased non-energy production for exports and plugging leakages through trade mis-invoicing,” Arjoon said.