Depressed economy requires end of premium subsidy | Local Business

UWI economist Dr. Roger Hosein said yesterday he “strongly supports” comments made by Treasury Secretary Brian Manning in Friday’s budget debate that he believes the government should scrap premium fuel subsidies.

In his contribution, Manning said that the fuel subsidies are designed to alleviate poverty, but that the fuel subsidies are an ineffective means of alleviating poverty.

“In my view, the subsidy for premium fuel should be completely abolished. Anyone driving a vehicle that requires premium fuel is driving a luxury vehicle and should not be eligible for a poverty alleviating fuel subsidy. And that includes me,” said Manning, member for San Fernando East.

In response to Manning’s comments, Hosein, a senior lecturer in economics at the University of the West Indies St. Augustine campus, said: “In the context of the state of the TT economy and its dismal performance over the past six years, I strongly support the comment by Secretary Manning.

“Basically, Secretary Manning says that given the depressed economic climate, with real GDP falling nearly 20 percent over the past six years, the economy is unable to carry forward any more subsidies for premium gasoline. To me that makes sense.”

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According to Hosein, real GDP falling so sharply means that the government’s ability to do things it could have done 10 to 15 years ago is simply no longer possible.

“So, given the other pressing development needs of our developing country, the position is not unreasonable,” Hosein said.

The economist noted that T&T ranks among the top 15 worst performing economies in the world by growth over the period 2016-2021, according to International Monetary Fund (IMF) data available online.

“Indeed, the performance of the T&T economy has not been strong since 2008. For 2021, again using available online IMF real GDP growth data, TT ranks as the 16th worst performing economy in the world despite energy prices being very buoyant in 2021 compared to 2020,” Hosein said.

He said he believes the performance of the T&T economy since 2008 is not a linear scenario, but rather suggests that something is fundamentally wrong with the structure of the economy.

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“I call on policymakers to immediately restart the Economic Development Advisory Board (EDAB) to work in parallel to support the work being done at Treasury and help turn the TT economy around in a sustainable way . There is nothing lost and potentially much to be gained by restarting the EDAB,” argues Hosein.

He suggested that one way to improve the structure of the VT economy is to reduce the level of transfers and subsidies related to state capital injections into the economy.

As it stands, he said, transfers and subsidies eat up too large a percentage of total government spending, and in doing so have partially crowded out some government spending on capital injections.

“In the context of the economic depression at play in the TT economy, I think it’s crucial that the government focus on expanding capacity on the supply side, and that would require larger capital injections in some cases,” Hosein said Adding: “To be fair and clear, the 2023 budget indicated that the government plans to put more investment into the economy.”

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The economist also pointed out that when stimulating economic output, “great care must be taken to ensure that the production of non-energy, non-tradable goods is reduced more compared to non-energy tradable goods, so that the foreign exchange stock is not further reduced.”

Hosein also said that if the homicide rate and overall crime situation in T&T can be reduced, we can bring about greater accumulation of private sector investment in the TT economy.

Hosein said: “If we do a simple linear estimate, the number of homicides that would have occurred in the TT economy from 1966 to 2022 (I predict about 580 homicides in 2022) is about 11,727.

“Of that total number of homicides committed in the period 1966-2022, 29 percent percent occurred in the period 2016-2022. I think that turns off some private investors.”

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