Thursday, July 19 2012

OUTGOING Central Bank Governor Ewart Williams said he is not unduly worried about the state of the economy. However he is advising Finance and Economy Minister Larry Howai against running too many deficit budgets and do all he can to stimulate private sector activity in the economy and achieve some kind of meaningful economic diversification. Asked during an interview on July 6 whether he was worried about the economy, Williams replied, “Yes in a way but we have significant buffers. We have a reasonable public debt burden and if we are in trouble we can afford to borrow. We have significant external reserves. We are by no means facing a balance of payments crisis.”

He explained, “The economic reasoning would say that if you have significant spare capacity, if the economy is sluggish, you could continue increasing demand, private demand or public demand for a while without adding to inflationary pressures. Clearly we have significant spare capacity.” Against this background, Williams said it was important to keep a close eye on “what happens with core inflation” which excludes the impact of food prices.

He said while oil and natural gas have brought the country to where it is today, “there is no guarantee that oil and gas can take us the rest of the journey.” Noting the plethora of energy discoveries being made in Africa together with exploration activity taking place in Brazil, Guyana and French Guiana, Williams said Trinidad and Tobago may no longer be the first choice again for multinational energy companies as it was in the past.

Williams said even if new oil and gas reserves are found within the next five years, “you cannot expect expansion in the energy sector to be more than two, three, four percent. That is under good assumption,” he added. Williams explained that even if there is continued growth of the non-energy sector of the economy, “the arithmetic shows you that you can’t get beyond economic growth of two to three percent per year.” “In order to get to five percent, the non energy sector would need to grow by double digits,” he added.

Williams said this meant “we are in for a few years of, at best, modest growth because we are now at that early stage of economic diversification.” He further stated that should Government attempt to push economic diversification solely “by pushing construction,” that strategy would end in failure. “You can’t do that because all your reserves would run out,” Williams stated.

Acknowledging that Howai has a task on his hands but confident the new Finance Minister could get the job done, Williams said,

“In order to increase the growth horizon, his challenge would be to get as much private sector investment activity as possible. I think he has all the credentials that would lead to boosting private sector confidence and private sector activity, including foreign direct investment in the petrochemical and other sectors but we need that.”

However he noted, “Even when we get the turnaround, we are unlikely to experience the high growth rates that we had in the early part of the next decade where there was significant investment in these petrochemical complexes.”