Economic downturn to hit T&T hard; but opposition disarray will keep PNM in charge

A prestigious international report on the state of Trinidad & Tobago presents an unflattering picture of the country in the near future and suggests things are going to get worse.

The London-based Economist Intelligence Unit (EIU), a branch of the Economist Group, makes the assessment in its latest country report. The unit covers more than 190 countries and its analysis and assessment is based on detailed research that includes interviews with economists, journalists and leaders of each country as well as critical analysis of available government data.

In a summary of its 2009-10 report on Trinidad and Tobago the EIU states:

• The already low popularity of the prime minister, Patrick Manning, will be eroded further by the economic downturn and the worsening violent crime situation.
• Policymaking will become more challenging in 2009-10, as the deterioration of the fiscal and current-account balances leaves Trinidad and Tobago exposed to global financial and economic woes.
• After slowing in 2008 to 3.5%, GDP growth will weaken further in 2009, to 0.9%, as the global recession bites. A mild global economic recovery will help to lift GDP growth to 1.9% in 2010.

The report anticipates that with lower global energy prices and falling demand in the U.S., the government "will be forced to scale back its ambitious public-investment 2020 development programme."

The EIU warns that the Government's insistence on continuing its large-scale infrastructural works and development plans in the energy sector will not be sustainable in the long term based on the global economic outlook.

And it suggests that the measures that the Manning administration has taken to date to reduce expenditure are not enough because of a lack of global liquidity and the real prospect that foreign direct investment in Trinidad and Tobago won't materialize.

"Although the Government revised its budget projections for a second time in January, we believe that its energy price assumptions are still too high; as a result, its planned spending reductions will be insufficient to balance the budget, " the report states.

The EIU also warns that the Central Bank will have difficulty in managing the fiscal downturn.

"The Central Bank may need to turn its attention to deteriorating credit portfolios in the domestic banking system. After posting relatively large surpluses over the past six years, the fiscal accounts will move into deficit in the outlook period as energy revenue is hit by lower global, energy prices, which will be only partly compensated for by recently-announced cuts to budgeted spending plans", the report notes.

The report predicts a deficit of 1.6 per cent of GDP in 2008/09 but adds that the Stabilisation Fund will keep the country insulated against a prolonged downturn in energy prices.

It notes that the low support for the Manning administration will grow worse in the months ahead as the country struggles under the weight of the global financial and economic problems.

It's because people are disenchanted with the PNM administration and have a perception of the current administration as one that has squandered the country's resources. The report says that despite the energy boom people have not seen any significant improvement in their living standards and they have serious concerns about corruption.

Perhaps the worse news for Trinidad and Tobago is the pessimism about the political landscape. The EIU's assessment in that the fragmented opposition is not perceived as an alternative to the current administration and that has left people entirely frustrated about the future.