By Kimberly Ramkhalawan
March 3, 2023
While the pandemic has been one of the hardest periods to emerge from economically, there is a glimmer of hope for those in Trinidad and Tobago, as latest statistics show that there is room for moderate economic growth ahead in 2023.
Central Bank Governor Dr Alvin Hilaire in presenting his keynote address at a United Nation’s Public Seminar entitled ‘Global Economic Update and Probable Impact on Trinidad and Tobago’, attributed this hopefulness from its monetary policies which he says has been more focused on more indirect instruments sustained through its open market operations. He says the bank targeted and monitored the external conditions, employment, inflation, and credit. However, Hilaire remarked that Trinidad and Tobago has remained steady as it holds a sophisticated, diversified financial system, inclusive of not just commercial banks, but insurance companies, that as of 2019, have been characterized as being sound.
It also saw fairly substantial buffers at the end of this year, and while many countries went into debt distress after all the shocks, he says Trinidad and Tobago has some things that helped to not have to deal with inflation.
Listing the main areas of focus, Hilaire cited fairly high international reserves that helped with import cover, its Heritage and Stabilisation Fund which acts as sovereign wealth fund and collects windfalls . At the same time on the fiscal side, the Central Bank governor says there has been a fair degree of fiscal space with the country’s debt at a manageable state not crossing 60 percent, while external debt stood at a reasonable rate below 20 percent, and its fiscal deficit, allowing for some borrowing if there is a shock which requires some maneuvering.
He describes the TT economy as being a small, open integrated one with bias toward the energy sector, and inflation he terms ‘quite low’, with some rigidity that exists. Swiftly following the pandemic was the Russia Ukraine war which spiraled inflation in food products, to which Trinidad and Tobago’s reaction saw an output side tanked, and inflation going up to 8.7 percent relatively high, mainly due to external factors he says owed to its open economy, coupled with a reduction in the subsidy in petroleum affecting a number of products, but still largely a result of external generation.
To deal with it, he says the Central Bank took the decision to drop the reserve requirement and the repo rate, freeing up large bit of liquidity and provided for the business revival credit. Yet, the TT Central Bank remained one of the few in the region that still did not raise its rates, a question to which Dr Hilaire says the decision was based on “looking at things carefully including the inflation dynamics, interest differentials with the rest of the world, but also aware that the economy is in a fledgling state of recovery”. He does admit they are still open to doing so upon review of data perhaps in the future.
Dr Hilaire added that the Central Bank supporting insurance companies and other financial institutions, providing payment deferrals, providing rate reductions for their clients, allowing this to foster for a period time. While asset quality has not deteriorated, in patting the CBTT on the bank, the governor says the buffers did their job, and despite its HSF is invested in assets abroad, and fluctuating values often resulted in an altered HSF value, this he notes comes with the territory of volatility in markets.
Citing the offsetting factors for revenue suppressed due to less activity, and heightened expenditure supporting programmes in health, social, improved energy prices helped to mute the fiscal measures and general government debt compared to other countries. Here in bears the room he says there is for optimism in Trinidad and Tobago in the wake of recent internal and external shocks. To Dr Hilaire, he believes T&T continues to weather the storm, but believes there are signs that global inflation is tapering off, partly because of the potential of tight monetary policies compared to other countries, while supply issues in other countries are being worked out. But there are some countries that are facing debt induced stress, and admits they are aware that something can come forward and affect TT later on.
Numbers do show that domestic inflation at the Central Bank continues to rise up in the next few months, but in line with international developments is hopeful this will taper off soon. In helping to reduce the problems faced, there is need for financing without a build up of debt, but caution should be taken, as this should not be allowed to postpone structural reform.
With special interest, Hilaire says it has been the capacity of its people, who he describes as being creative, and a well-educated labour force. Nevertheless, challenges were often found and continue to be improving the ease of doing business in Trinidad and Tobago.
He says new opportunities arise, but there are deep scars that need to be addressed, and cites fintech as part of the solution. Already there are four companies in the local market authorized to issue electronic monies.
The Central Bank Governor says focus on no-nonsense approaches are needed to move domestic service delivery to international standards. He says while the world is becoming a more difficult space to do business due to competitiveness, with a vicious fight for market share, as problems that came about during the pandemic, businesses do not wish to see, the bank notes that the consumer has become more ‘footloose, demanding and impatient’ and with this he says Trinidad and Tobago needs to be quickly and purposely so that it does not get left behind.
Gregory Hill, Managing Director, ANSA Merchant Bank Limited Trinidad & Tobago, who represented the private sector, says he also holds an optimistic perspective for growth in Trinidad and Tobago stemming from the pandemic.
This hope is dependent partly on the country’s will to divert and look to nontraditional sectors for growth. Taking a page from UAE, where they have pivoted their economies from energy toward education, innovation and fintech, doing things bigger and better to garner attention from around the world, attracting tourism dollars to their state and thereby diversifying their economies, Trinidad and Tobago should also view how the world is moving away from oil and gas, and so should the economy. However, he says it’s a matter of finding what is the best fit for T&T that goes with our population change, and putting forward the daring question as to whether the country should be teaming up with Multinational technology companies for setting up offices that handle AI and digitization to prevent the brain drain with those upskilled in those areas.
With the current population positioned with 22 percent holding university education, Hill says Trinidad and Tobago stands to lose its space in the economic cycle if continues to work as robots and not stand out with its creativity, separating itself from everything else. Something he says has vast potential among locals, giving it a huge head start in building skillset fueled by what he calls inherent optimism to pick paths into the future.
In seeking to put a plug as to what the ANSA Merchant bank has been doing, he highlighted its Natural Capital Hub which he says aims at fostering innovation and investments in the green economy.
Victor Guato, Senior Country Economist, Inter-American Development Bank gave his perspective, of an expected GDP growth increase happening from 1.9 percent per year to 2.5 percent per year for the period 2023-2027, signaling some moderate recovery.
Last December, the Inter-American Development Bank (IDB) approved a US$80m loan as part of a US$315m conditional credit line for the Trinidad and Tobago National Water Sector Transformation Program which is said to be aligned with the IDB Group’s country strategy for Trinidad and Tobago 2021–2025.