Home' Trinidad and Tobago Guardian : February 11th 2016 Contents FEBRUARY 11 • 2016 www.guardian.co.tt BUSINESS GUARDIAN
COMMENTARY | BG3
Chief editor-business: ANTHONY WILSON
Editing and design: NATASHA SAIDWAN
Telephone: 225-4465, ext 2035, 2025
(868) 225-3147 (Editorial)
Fax: (868) 623-2050 (Advertising)
4--10 Rodney Road,
PO Box 122.
It is now well known that the former Central Bank
Governor pronounced that T&T was in a recession
in delivering the fifth Monetary Policy Forum, which
was held at the Hyatt hotel in downtown Port-of-
Spain, on December 4, 2015. Although he was speak-
ing on the basis of, at most, three-quarters of infor-
mation and data, the former governor said: "Four
consecutive quarters of decline in real GDP in 2015
means Trinidad and Tobago is now officially in a recession."
The former governor attributed three factors to the slowdown
in the T&T economy:
• Prolonged supply disruptions in the energy sector continued
to result in sharp shortfalls in the production of natural gas,
which impacted on the output of LNG and petrochemicals
such as methanol, ammonia, urea and iron and steel);
• Lower energy prices---the sharp decline in the price of oil
and natural gas in particular---also negatively impacted the
domestic energy sector, which was reflected in job losses at
companies in the energy sector. "The decision by ArcelorMittal
to idle its steel plant will not only affect energy output but
also jobs," said the former governor;
• The non-energy sector "seems to have lost its momentum
with weakness creeping into key sectors such as distribution
and construction, following a temporary pickup in non-energy
activity driven by spending in the run-up to the general elec-
The Central Bank s prediction was that the T&T economy
is likely to contract by 1.5 per cent in 2015 and contract again
by 1.5 per cent this year.
In presenting the Central Bank s short-term outlook for
2016, the former governor said that the T&T economy was
"stuck in a low-growth cycle, vulnerable to further declines
in energy prices and production.
As a result, in 2016, T&T can look forward to:
1) Continued contraction in the economy, on the back of
a further decline in the energy sector, which will compound
sluggishness of the non-energy sector;
2) The country s external position---meaning its balance of
payments and ability to earn foreign exchange---to come under
3) The Government s deficit to increase from what was bud-
4) Public debt to rise as a result of more government bor-
rowing to finance projects.
How can it be argued that the current administration has
contributed to a slowdown in the economy?
The argument is that there are two issues that are creating
dysfunction in the local economy at this time:
• Outstanding monies owed to public officers and suppliers
of goods and services to the Government; and
• The inability of commercial banks and/or the Central
Bank to supply enough foreign exchange to businesspeople
and others to allow them to meet their legitimate foreign
invoices and bills.
The shortage of foreign exchange could mean that certain
T&T businesses are on the cusp of being blackballed by foreign
suppliers, which may lead to the country being "derisked" by
the so-called money-centre banks in New York. That would
jeopardise the future of every commercial enterprise in this
country, especially those that depend on the importation of
goods and services.
The fact that scores of suppliers of goods and services and
thousands of T&T s public officers are owed billions of TT
dollars could spark off a wave of bankruptcies and asset repos-
sessions as commercial banks run out of patience with con-
struction companies, suppliers and individuals.
: The PNM administration has, as yet, done little
or nothing to address the structural problem of the supply of
foreign exchange to those who need it.
The cause of the problem of foreign exchange supply to the
local market is the sharp decline in the amount of foreign
exchange the country is earning, as a result of the reduction
in the price and production of T&T main energy-sector based
Finance Minister Colm Imbert inherited the problem from
the previous administration and it is clear that the problem
was exacerbated by the decision of the previous Central Bank
Governor to tamper with the entrenched foreign exchange
allocation system on April 1, 2014.
: The administration led by Prime Minister Keith
Rowley has, as yet, done nothing to address the debts that
it inherited from the previous administration of Kamla Per-
These debts include about $5 billion owed to public servants,
about $3 billion owed to local contractors and other suppliers
of goods and services and $9 billion that the previous admin-
istration "borrowed" from the Central Bank. This $17 billion
in debt does not even consider the borrowing that the Gov-
ernment would need to do to kickstart its own development
or capital expenditure programme for 2016.
Having raised the debt ceilings in December, the question
that must be asked is this: Why has the Government not
tapped the local and international capital markets in order to
pay the debts left by the previous administration?
Part of the reason is the sharp decline in the liquidity of
local commercial banks. According to the Central Bank s data
centre, commercial banks average excess reserves peaked in
August and September 2013, at $8.4 billion and at the end
of 2015 had declined to $3.36 billion.
What that means is that if the Government came to the
local capital market for the estimated $8 billion that it needs
to pay public officers, contractors and suppliers, the commercial
banking system would not be able to fund the bonds from its
This is how it was explained to me in December by an
official in the Ministry of Finance: "Market liquidity is in the
$3 billion range. The (hopefully short-term) borrowing for the
arrears of salary (back pay) will be at least $5 billion and addi-
tional financing will be required for development purposes.
"In order to ensure that undue pressure is not placed on
loan rates, therefore, there may be a need to adjust the reserves
held at the Central Bank, because the arrears (back pay) alone
will mop up liquidity.
"In addition the Ministry of Finance has the authority to
request the CBTT to utilise Section 44A of the Central Bank
Act to adjust the spread between the rates on loans and on
deposits, and, if considered necessary, to lower the repo rate.
"We are looking at external loans as well, to get the best
fit and to bring in some foreign exchange, as well as the supply
of foreign exchange itself, to see what can be done, as well
as other avenues, such as Treasury Bills, and the mechanism
that you referred to (sale of US dollars to the market).
"None of this is cast in stone at this time (December 12),
however, since there are a range of options available, and we
are looking at all options and wide open to ideas and sug-
"All of this will be fleshed out over the next two months,
as we engage the banks, send out Requests For Proposals
(RFPs), and continue our analysis."
But why has the Ministry of Finance not as yet adjusted
downwards the reserve requirement that commercial banks
must hold at the Central Bank, which would quickly increase
the liquidity among local commercial banks and allow the
Government to raise TT-dollar bonds to pay off its debts?
And if there are liquidity issues stymieing the flotation of
TT-dollar bonds, what is holding back the Government from
raising US-dollar bonds, which would address the two issues
that plague T&T at this point: the non-payment of arrears
and the inadequate supply of foreign exchange?
Is it a deliberate strategy by the Government to run the
entire public sector on cash flow from tax revenues only or
has the Minister of Finance found himself in a unique and
unprecedented perfect storm of illiquidity?
Clearly, the answer to backpay and foreign exchange issues
would be for the Government to start its borrowing programme
and pay off the debts left by the previous administration.
If this does not happen quickly, the economy may stall
completely, which defeats the thinking of the Government to
increase the amount of revenue it derives from the changes
it has made to the VAT regime.
It is strange, but T&T may soon be in a position in which
both TT and US dollars are in short supply...if we aren t already
Will the 40 days of Lent bring a reprieve or more sacrifice?
Is the PNM deepening
Links Archive February 10th 2016 February 12th 2016 Navigation Previous Page Next Page