Lower output in energy sector as well as non-energy industries
The economy of Trinidad and Tobago is in crisis today, as the country’s Central Bank has painted a grim picture of the twin island republic’s economy.
In its latest Monetary Policy Report, the T&T Central Bank indicated that economic activities contracted in the first half of 2020 in both the energy and non-energy sectors. The decline in output was seen in natural gas, crude oil, liquefied natural gas (LNG) and petrochemicals, especially methanol and ammonia.
According to the report, “as several businesses closed and others reduced their operations, declines were recorded for several non-energy sectors, such as Wholesale and Retail Trade (Excluding Energy), Construction, and Manufacturing (Excluding Energy and Petrochemicals)”.
In spite of the grim picture, there was a glimmer of hope in that growth was recorded for real estate activities and the financial and insurance activities.
The report highlighted labour market adjustments including furloughed employment, layoffs, pay cuts, and reductions in working hours, evidence of the crisis in which the economy has found itself.
More job losses on the horizon
The report painted a more grim picture of the labour market situation in T&T. Despite the gradual re-opening of the economy, the report cited that labour demand softened, resulting in higher job retrenchments.
“Job advertisements in the print media, a proxy for labour demand, declined during May to October 2020,” the Monetary Policy Report stated.
The report showed that the government’s accounts came under increased strain in this fiscal year, as a result of the COVID-19 crisis. The Central Bank revealed that data from the Ministry of Finance showed that the budget deficit jumped to 11.2 per cent (as a per cent of Gross Domestic Product) in FY2019/20 from 2.6 per cent in FY2018/19.
Public revenues decline compounded by a jump in expenditure
Public revenue collections declined by 27.1 per cent in FY 2019/20 from FY2018/19 due to lower energy prices and a smaller corporation tax in-take, as business operations were curtailed. The country’s finances were compounded by the fact that as revenues dipped public expenditures increased.
The jump in public expenditures due to higher outlays on transfers and subsidies and the capital programme to shore up the health system and support those adversely affected by the pandemic. In the case of the country’s foreign exchange position, the T&T Central Bank reported that conditions in the foreign exchange market remained relatively tight during the first 10 months of 2020.
FX purchases on the decline
Purchases of foreign exchange by authorised dealers from the public declined over January to October 2020, relative to the same period in 2019. The bank said this decline in purchases was related to a reduction in conversions by energy companies, while the demand for foreign currency also slipped in the context of trade and travel restrictions as well as the state of aggregate demand.
By the end of November 2020, official international reserves stood at US$7.1 billion, which represents about eight months of import. The Central Bank of T&T expects that next year the domestic economic outlook will be centered around the lingering effects of the pandemic, which are expected to persist well into the first three quarters of the New Year.
The bank added that going into the pandemic, T&T had a relatively good starting point, with significant buffers, including sizable international reserves and its sovereign wealth fund (Heritage and Stabilization Fund). However, the bank warned that given the finite nature of these buffers it is imperative that the transition be managed very carefully.