Editorial: Not all carnival in Trinidad & Tobago
Should Prime Minister Andrew Holness desire vindication for his promise to honour Jamaica's agreement with the International Monetary Fund (IMF), including the programme of fiscal consolidation, he might look to Trinidad and Tobago (T&T), the English-speaking Caribbean's economic powerhouse, where the Fund has just completed its annual Article IV consultation on the country's economy.
Things, these days, aren't looking so rosy in Port-of-Spain. So, the six-month-old People's National Movement, government of Prime Minister Keith Rowley, is likely to have accelerated its belt-tightening exercise, the requirement of which, by the IMF's estimate, could be to the tune of "six per cent of GDP over the next few years".
To be clear, Trinidad and Tobago is nowhere near the precipice at which Jamaica teetered when it entered a Fund programme four years ago. But there are certain parallels between the two countries, including the habit of governments of forgetting, or ignoring, during the good times, the lessons that should have stuck from the times when things were bad.
The central pillar of the Trinidad and Tobago economy is its reserve of oil, which, since the 1970s, in the face of mostly high prices, has enabled it to flirt with relative wealth. Energy accounts for more than 40 per cent of GDP. But over the past two decades or so, in part to cushion the sometimes bust in oil and leverage its cheap access to energy, the twin-island state has built, by regional standards, a relatively strong manufacturing sector.
The problem that now confronts Mr Rowley's government is the bust in the global oil market, where prices have tumbled by more than two-thirds in the past year. The upshot is that the T&T economy is expected to decline by one per cent this year, and the government is expected to run a deficit of five per cent of GDP, after taking into account earnings from divestment and additional revenue measures, including a widened reach of the value-added tax. There is disequilibrium in the foreign-exchange market where the domestic currency is in a dirty float.
The positive news of the Port-of-Spain government is that the country has foreign reserves of around US$9.6 billion. There is another US$5.6 billion in sovereign wealth fund - the Heritage and Stabilisation Fund - the kind of investment that Jamaica was expected to make when it imposed its bauxite levy but was mostly consumed in general spending.
Despite Trinidad and Tobago's cushion, the IMF points out that in recent years, the country has not done as well as it might have with its energy windfalls, having, according to the Fund, "undersaved and underinvested in its future".
The slump in oil prices, which is Trinidad and Tobago's bane, has been to Jamaica's benefit. It has contributed to the sharp decline in Jamaica's visible trade and current account deficits, the nascent resurgence in domestic manufacturing, and other measures of macroeconomic stability achieved over the past four years.
Mr Holness is understandably keen to get on with his promised supply-side spending, including via income tax breaks. But this stimulus programme is balanced on a fragile high wire. Jamaica has neither Trinidad's reserves nor its relatively low government debt of 42 per cent of GDP. A slip for Jamaica would be too expensive and painful.