T&T | Cost of living crisis in Trinidad and Tobago says UWI Economist Arjoon
PORT OF SPAIN, Trinidad and Tobago, September 5, 2022 - UNIVERSITY of the West Indies (UWI) economist Dr Vaalmiki Arjoon has intimated that there is a cost of living crisis in Trinidad and Tobago which he hopes will be corrected by the Finance Minister shortly.
Arjoon said he hoped Finance Minister Cilm Imbert will "announce measures to soften the impact of the high cost of living, such as increased allocations to the food card and school feeding programs, cash transfers, temporary adjustment to import tax rates etc."
The economist suggested that there ought to be "a strategy to ensure that our earnings continue to be healthy should energy and petrochemical prices fall in the short term, or else debt levels will increase again."
His comments were made on Sunday, in light of statements made by Prime Minister Dr. Keith Rowley, and Finance Minister Colm Imbert at a "Spotlight on the economy" event hosted by the Finance Ministry in Port of Spain on September 2.
Arjoon said, "With a total deficit of over $64 billion in the last six years averaging $10.7 billion annually, it is highly favourable that the deficit is narrowed to a projected $3.7 billion – the lowest fiscal deficit since 2012."
According to a Newsday report, Arjoon attributed much of this to the increase in taxes on income and profits which usually account for over 60 per cent of the state’s earnings, increasing by approximately $12 billion since 2016.
"This was not only accounted for by the petrochemical sector companies, but also the manufacturing sector, who in the last 18 months took advantage of the surge in global spending and ramped up their production to increase their export revenues," he said.
Arjoon is quoted as saying that there needed to be a more efficient tax collection system, noting that, "Naturally, with fewer tax collection and avoidance practices, these taxes would have been higher, which underscores the need for a more efficient tax collection system.
He anticipated higher energy revenues in the coming months, partially due to the deepening energy crisis in Europe, as a result of the indefinite shutdown of the Nord Stream gas pipeline which is expected to cause further cuts to European gas supplies.
"This will place upward pressure on the price for gas and LNG, since Europe is placing more emphasis on the use of LNG as an alternative to Russian gas, and this price hike will be more apparent since winter is around the corner," Arjoon is quoted as saying.
He added that TT would have benefitted us even more from this if Atlantic LNG's Train One was operational.
But while TT's revenue streams and other macroeconomic indicators are undoubtedly better, Arjoon had a concern.
"It does not change the fact that there is a deepening cost of living crisis, more so for those in the middle to lower income brackets."
He said while TT's inflation rate of 4.9 per cent remains lower than many other economies like the United States (8.5 per cent) and United Kingdom(10.1 per cent), inflation is the percentage change in prices from one period to another."
"Prices are currently the highest they have ever been for generations. Our price index at June 2022 was 116.2 – an 11 per cent increase since 2016."
"Even if inflation remains low, if a household is already paying a high cost for a basic basket of items per month, say hypothetically $2000, and inflation is, say, one per cent, then the price of that basket increases to $2020, but the price still remains high – it is the change that is small," Arjoon said.
The purchasing power of households is what really matters, Arjoon said, and if prices are already high, then purchasing power is low even if there is a fall in the inflation rate.
" Inflation fell marginally from 5.1 per cent in April 2022 to 4.9 per cent in June. But does not mean that prices fell – it means that prices increased but the pace of this increase was slower."
While world food costs fell by almost nine per cent in July, given the modest increases in grains supplied from the re-opening of Ukraine’s ports and increased seasonal availabilities from countries like Argentina and Brazil, Arjoon said, "We are yet to see any meaningful relief to households’ food expenses from a fall in food prices locally."
"For our next rating’s exercise, it is highly likely that Moody’s will at the very least keep our rating at Ba2 but adjust the outlook from stable to positive, suggesting a possible upgrade by next year once revenue earnings continue to be healthy," Arjoon said
Arjoon acknowledged that TT has healthy foreign exchange reserves of US$6.8 billion and some of this was from foreign loans taken and drawdowns taken from the HSF (Heritage and Stabilisation Fund)
"We do not spend US dollars locally, so when the state borrows in US dollars and withdraws from the HSF, these USD must be converted to TT dollars by the Central Bank for use by the state.
Arjoon said, "The US dollars that are converted now forms part of the forex reserves held by the Central Bank.
In the meantime, the Trinidad and Tobago Central Statistical Office (CSO) has reported that the economy declined by four per cent in the first quarter of this year.
In its release of the quarterly Gross Domestic Product for the first quarter 2022 on Sunday, the CSO said, "This was due to contractions in both the energy and non-energy Industries of 1.3 per cent and 5.2 per cent respectively."
The former recorded declines in asphalt (56.1 per cent), petroleum support services (46.7 per cent), crude oil exploration and extraction (5.2 per cent) and manufacture of petrochemicals (5.1 per cent).
In the latter, there were declines in trade and repairs (excluding natural gas and petroleum distribution) – 15.2 per cent, other service activities – 10.2 per cent, construction – 9.2 per cent, electricity (excluding gas) - 3.8 per cent and textiles, clothing, leather, wood, paper and printing –5.3 per cent.
The CSO said declines in parts of the energy sector were offset by increases in other parts
These were refining (including LNG-liquefied natural gas) – 12.1 per cent, natural gas exploration and extraction – 5.5 per cent, condensate extraction – 4.5 per cent and petroleum and natural gas distribution –0.5 per cent.
The decline in areas of the non-energy sector were similarly offset by increases in other areas of the sector.
These were food, beverages and tobacco product – 8.9 per cent; other manufactured products - 5.6 per cent; transport and storage – 4.2 per cent and accommodation and food services – 1.9 per cent.