Aleem Khan

Next year, 2013 is not look­ing good for T&T's ma­jor ex­port mar­kets, Cen­tral Bank Gov­er­nor Jwala Ram­bar­ran has said.

"The pic­ture is one where pol­i­cy­mak­ers in our ma­jor ex­port mar­kets of the Unit­ed States and Eu­rope are bat­tling weak growth, stub­born­ly high un­em­ploy­ment, widen­ing fis­cal deficits and bur­geon­ing pub­lic debt. And what about the Caribbean, which ac­counts for a sub­stan­tial share of our ex­ports?

While the Caribbean re­gion as a whole ap­pears to be grad­u­al­ly re­cov­er­ing from the deep re­ces­sion caused by the glob­al eco­nom­ic cri­sis, the twin con­straints of low growth and high debt are weigh­ing on re­gion­al eco­nom­ic prospects, and the state of af­fairs in the East­ern Caribbean is not too en­cour­ag­ing, he said.

Some Caribbean coun­tries have ap­proached the In­ter­na­tion­al Mon­e­tary Fund (IMF) for fi­nan­cial sup­port, Ram­bar­ran said.

An­tigua and Bar­bu­da and St Kitts and Nevis are re­ceiv­ing fi­nan­cial as­sis­tance from the IMF in the con­text of stand­by arrange­ments, while Grena­da and Haiti are un­der the ex­tend­ed cred­it Fa­cil­i­ty. In ad­di­tion, Do­mini­ca re­ceived IMF fi­nanc­ing un­der the rapid cred­it fa­cil­i­ty in ear­ly 2012 to help man­age the eco­nom­ic fall­out from a se­ries of nat­ur­al dis­as­ters in Ju­ly-Sep­tem­ber 2011.

Ja­maica is ac­tive­ly ne­go­ti­at­ing a new IMF pro­gramme. The Gov­ern­ment of Ja­maica hopes to con­clude a new stand­by agree­ment with the IMF by the end of 2012. Some of the out­stand­ing is­sues re­volve around Ja­maica's tax and pen­sion re­form, and the need for cuts in the pub­lic sec­tor pay­roll, he said.

Oth­er Caribbean coun­tries have de­layed or re­sist­ed the im­ple­men­ta­tion of harsh aus­ter­i­ty mea­sures, pre­fer­ring to re­ly main­ly on fis­cal stim­u­lus to kick­start growth, which, in turn, is el­e­vat­ing the risk of debt dis­tress, the cen­tral banker said.

"Gen­er­al­ly, a pub­lic debt ra­tio of be­low 50 per cent of gross do­mes­tic prod­uct (GDP) is con­sid­ered com­fort­able. By this mea­sure, on­ly three coun­tries–Haiti, Suri­name and T&T –have low debt. An­oth­er six coun­tries have height­ened debt vul­ner­a­bil­i­ties, av­er­ag­ing in the range of 50 to 90 per cent of GDP. These coun­tries are the Ba­hamas, Be­lize, Do­mini­ca, Guyana, St Lu­cia and St Vin­cent and the Grenadines.

Four coun­tries in the Caribbean have ac­cu­mu­lat­ed ex­cep­tion­al­ly high pub­lic debt, av­er­ag­ing in ex­cess of 90 per cent of GDP: Ja­maica (143 per cent), St Kitts & Nevis (145 per cent), Grena­da (105 per cent), and An­tigua & Bar­bu­da (98 per cent)," he said.

Ram­bar­ran was speak­ing at the T&T Cham­ber of In­dus­try and Com­merce's lun­cheon meet­ing on Sep­tem­ber 27 at its West­moor­ings head­quar­ters.

Debt re­struc­tur­ing

The grav­i­ty of the Caribbean's debt sit­u­a­tion is gen­er­at­ing debt re­struc­tur­ing or cred­it events in a few coun­tries, and plac­ing sig­nif­i­cant pres­sure on cred­it rat­ings, Ram­bar­ran said. Al­ready in 2012, rat­ings agen­cies have down­grad­ed three Caribbean coun­tries.

Speak­ing on "re­cent eco­nom­ic de­vel­op­ments in T&T," the head of the Cen­tral Bank said: "The T&T econ­o­my has shown tremen­dous re­silience against this tur­bu­lent back­drop, but we are yet to ex­pe­ri­ence a full and sol­id re­cov­ery from the down­turn that start­ed in late 2008."

Based on its re­vised es­ti­mates, the Cen­tral Sta­tis­ti­cal Of­fice in­di­cates that re­al GDP in T&T de­clined by a much larg­er than ex­pect­ed 4.5 per cent in 2009 and growth was flat in 2010. Re­al GDP de­clined fur­ther by just over 2.5 per cent in 2011. Pro­jec­tions made by the CSO point to a turn­around in 2012, with re­al GDP in­creas­ing by just over one per cent, he said.

High fre­quen­cy da­ta com­piled by the Cen­tral Bank in­di­cate that eco­nom­ic ac­tiv­i­ty is still quite slug­gish, but the pace of con­trac­tion of the T&T econ­o­my seems to have slowed in the first half of 2012.

Ac­cord­ing to the Cen­tral Bank's Quar­ter­ly In­dex of re­al GDP, the do­mes­tic econ­o­my de­clined, on av­er­age, at a slow­er rate of 1.5 per cent in the first six months of 2012, fol­low­ing a deep­er con­trac­tion of 2.25 per cent over the sec­ond half of 2011, he said.

En­er­gy sec­tor per­for­mance

De­spite more in­tense ex­plo­ration ac­tiv­i­ty, longer-than-ex­pect­ed plant main­te­nance op­er­a­tions and se­cu­ri­ty up­grades at en­er­gy sec­tor com­pa­nies con­tin­ued to hin­der crude oil and nat­ur­al gas pro­duc­tion, Ram­bar­ran said.

Low­er sup­plies of nat­ur­al gas im­pact­ed the pro­duc­tion of petro­chem­i­cals. In the first half of 2012, crude oil pro­duc­tion fell by 13 per cent, av­er­ag­ing 82,700 bar­rels per day, while nat­ur­al gas out­put was low­er by six per cent when com­pared to the same pe­ri­od in 2011, the Cen­tral Bank Gov­er­nor said.

Ac­tiv­i­ty in the non-en­er­gy sec­tor was fair­ly ro­bust, al­though the pro­longed 90-day strike ac­tion at Trinidad Ce­ment Ltd led to a se­vere drop in ce­ment out­put that curbed growth in the con­struc­tion and man­u­fac­tur­ing sec­tors, he said.

In fact, the non-en­er­gy sec­tor has reg­is­tered growth in three of the past four quar­ters to June 2012, sup­port­ed main­ly by the fi­nance and dis­tri­b­u­tion sec­tors, he said.

In­fla­tion is­sues

Growth in the fi­nance sec­tor was dri­ven by an ex­pan­sion of com­mer­cial bank de­posits and loans, Ram­bar­ran said. The per­for­mance of the dis­tri­b­u­tion sec­tor re­flect­ed in­creased re­tail sales in sev­er­al in­dus­tries, in­clud­ing dry goods, su­per­mar­kets and gro­ceries and mo­tor ve­hi­cles.

Ram­bar­ran said oth­er no­table eco­nom­ic de­vel­op­ments in­clude, "One, some tight­en­ing in labour mar­ket con­di­tions in the face of still weak eco­nom­ic ac­tiv­i­ty."

Ac­cord­ing to the lat­est of­fi­cial da­ta pro­vid­ed by the CSO, the un­em­ploy­ment rate rose to 5.4 per cent in the first quar­ter of 2012, from a his­toric low of 4.2 per cent in De­cem­ber 2011, he said.

Sup­ple­men­tal da­ta on re­trench­ment no­tices from the Min­istry of Labour and Small and Mi­cro En­ter­prise De­vel­op­ment (MLSMED) sug­gest that this de­te­ri­o­ra­tion in em­ploy­ment might not have ex­tend­ed be­yond the first quar­ter of 2012.

These da­ta show that re­trench­ment no­tices de­clined by more than ten per cent dur­ing the first eight months of 2012, from 567 to 503 no­tices. Over half of these no­tices orig­i­nat­ed in the dis­tri­b­u­tion sec­tor; trans­porta­tion ac­count­ed for close to 11 per cent of to­tal re­trench­ment no­tices reg­is­tered in 2012, he said.

Two, in­fla­tion­ary pres­sures have re­treat­ed from the high dou­ble dig­it rates that were record­ed ear­li­er in the year to more mod­er­ate lev­els, he said. Head­line in­fla­tion slowed to 7.7 per cent in Sep­tem­ber 2012 from 11 per cent in June 2012, he said.

Core in­fla­tion has re­mained low and fair­ly sta­ble at just un­der three per cent for the past two years.

A ma­jor fac­tor be­hind this de­cel­er­a­tion has been the sharp slow­down in food prices, as sup­ply shocks re­sult­ing from in­clement weath­er have less­ened, he said.

Three, he said, pri­vate sec­tor cred­it con­tin­ued to grow at a steady, but slow pace for much of 2012. On a year-on-year ba­sis, loans grant­ed by the com­mer­cial banks grew by al­most five per cent in Sep­tem­ber 2012, com­pared with six per cent at the end of De­cem­ber 2011. Among the ma­jor cat­e­gories of cred­it, con­sumer lend­ing grew very slow­ly, while loan de­mand from the busi­ness sec­tor, which had been de­clin­ing for most of 2011, staged a par­tial re­cov­ery in 2012, Ram­bar­ran said.

Re­al es­tate

Re­al es­tate mort­gage lend­ing by the con­sol­i­dat­ed sys­tem has main­tained a strong, steady pace, Ram­bar­ran said.

In the face of weak pri­vate de­mand, the gov­ern­ment bud­get has served as the main stim­u­lus to eco­nom­ic ac­tiv­i­ty over the past few years, Ram­bar­ran said.

In fis­cal 2012, the non-en­er­gy fis­cal deficit in­creased to $31.5 bil­lion com­pared with $28.4 bil­lion in the pre­vi­ous fis­cal year, sug­gest­ing that the mag­ni­tude of the fis­cal stim­u­lus was high­er than en­vis­aged, he said.

At the same time, the over­all deficit of cen­tral gov­ern­ment op­er­a­tions widened from al­most $4 bil­lion in fis­cal year 2011 to $6.6 bil­lion in fis­cal year 2012, he said.

As at the end of Sep­tem­ber 2012, pub­lic debt (ex­clu­sive of trea­sury bills and trea­sury notes is­sued for open mar­ket op­er­a­tions) out­stand­ing in­creased to $71.6 bil­lion (46.6 per cent of GDP) from $54.4 bil­lion (36.2 per cent of GDP) for the same pe­ri­od in 2011.

The in­crease in pub­lic debt re­sult­ed large­ly from fi­nanc­ing of the over­all fis­cal deficit and fi­nanc­ing of pay­ments to Cli­co pol­i­cy­hold­ers, he said.

"Giv­en the coun­try's strong for­eign ex­change re­serves and low debt to GDP ra­tio, I be­lieve that the Gov­ern­ment has the fis­cal space to pro­mote a strong enough eco­nom­ic re­cov­ery by means of a deficit bud­get," Ram­bar­ran said.

"With head­line in­fla­tion on a de­clin­ing trend, the Cen­tral Bank main­tained an ac­com­moda­tive mon­e­tary stance to sup­port a re­cov­ery, es­pe­cial­ly in the non-en­er­gy sec­tor. The re­po rate was held steady at 3.00 per cent since Ju­ly 2011 be­fore be­ing re­duced to an all-time low of 2.75 per cent in Sep­tem­ber 2012.

"Com­mer­cial banks have al­ready start­ed to ad­just down­wards their prime lend­ing rates in re­sponse to the re­duc­tion in the bank's pol­i­cy rate," he said.

The Gov­er­nor said: "Sig­nif­i­cant net fis­cal in­jec­tions along with slug­gish cred­it de­mand con­tin­ue to in­flu­ence the build-up of liq­uid­i­ty in the fi­nan­cial sys­tem and help­ing to sup­press in­ter­est rates.

"Com­mer­cial banks' ex­cess re­serves peaked at $6.6 bil­lion in March 2012, but fell steadi­ly there­after fol­low­ing Cen­tral Bank ac­tion, reach­ing a dai­ly av­er­age of $2.1 bil­lion in June 2012. Since then, con­tin­ued fis­cal in­jec­tions have steered ex­cess liq­uid­i­ty back on an up­ward trend. To­wards the end of Sep­tem­ber 2012, ex­cess re­serves reached a dai­ly av­er­age of $3.8 bil­lion."

On the ex­ter­nal side, the de­mand for im­ports of goods and ser­vices is still quite ro­bust, he said, even in the slug­gish eco­nom­ic cli­mate, prompt­ing the Cen­tral Bank to in­ter­vene con­sis­tent­ly in the for­eign ex­change mar­ket.

"The bank sold US$1.4 bil­lion to the mar­ket over the pe­ri­od Jan­u­ary�Oc­to­ber 2012, com­pared with US$1.2 bil­lion for the cor­re­spond­ing pe­ri­od in 2011," he said.

"With the bank in­creas­ing its sales of for­eign ex­change to ad­dress im­bal­ances in the for­eign ex­change mar­ket, the lev­el of of­fi­cial re­serves, al­though still quite sub­stan­tial, fell slight­ly to US$9.3 bil­lion at the end of Sep­tem­ber 2012, the equiv­a­lent of 10.7 months of im­ports," he said.

Out­look for 2013

The Cen­tral Bank Gov­er­nor said: "It is ev­i­dent that un­cer­tain­ty is weigh­ing heav­i­ly on ex­ter­nal con­di­tions. Over­all, glob­al prospects have weak­ened and in its Oc­to­ber 2012 World Eco­nom­ic Out­look, the IMF low­ered its fore­casts for world eco­nom­ic growth to just over 3.5 per cent in 2013 (from an ear­li­er es­ti­mate of al­most 4.0 per cent for 2013)."

He said pro­jec­tions for growth in the Unit­ed States have been trimmed slight­ly, with a larg­er down­ward re­vi­sion for the Eu­ro area.

The im­pli­ca­tions of these ex­ter­nal con­di­tions for our re­gion­al economies are mixed, he said.

"Guyana and Suri­name are ex­pect­ed to show ro­bust growth. Ja­maica and Bar­ba­dos are like­ly to ex­pe­ri­ence slug­gish growth. What is clear, how­ev­er, is that pol­i­cy­mak­ers in the Caribbean must be­gin to re­think their pol­i­cy strat­e­gy and con­sid­er more in­no­v­a­tive ap­proach­es to fi­nanc­ing in or­der to help solve their oner­ous debt dilem­ma," he said.

"Bar­ring any weath­er-re­lat­ed set­backs or a new round of com­mod­i­ty price shocks, in­fla­tion is pro­ject­ed to re­main be­low dou­ble dig­its in 2013," Ram­bar­ran said.

On the down­side risks to the Cen­tral Bank's out­look for 2013, Ram­bar­ran said: "The most ob­vi­ous is a pro­nounced de­te­ri­o­ra­tion in the glob­al en­vi­ron­ment, which could con­strain our ex­ports and weak­en eco­nom­ic con­fi­dence, push­ing the econ­o­my back to sce­nar­ios which pre­vailed dur­ing 2009."

A sec­ond down­side risk is the de­te­ri­o­ra­tion in the in­dus­tri­al re­la­tions cli­mate. Pro­longed in­dus­tri­al ac­tion sim­i­lar to that ex­pe­ri­enced at the TCL plant could set­back the in­cip­i­ent growth trend in the non-en­er­gy sec­tor, he said.

"Fi­nal­ly," he said, "bot­tle­necks in project im­ple­men­ta­tion (for ex­am­ple, fail­ure to set­tle con­trac­tor pay­ment of ar­rears or to agree on which projects are suit­ed to the P3 mod­el) al­so rep­re­sent a se­ri­ous down­side risk to the en­vis­aged growth out­look. The re­cov­ery in 2013 de­pends heav­i­ly on a strong fis­cal im­pulse," Ram­bar­ran said.