Speaking at the bank’s Fifth Monetary Policy Forum, co-hosted by the Downtown Owners and Merchant’s Association (DOMA) at the Hyatt Regency, Wrightson Road, Portof- Spain, he said the recession was caused by prolonged disruptions in the energy sector in 2015 (which) continued to result in sharp shortfalls of natural gas production which, in turn, adversely affected output of Liquefied Natural Gas and petrochemicals (methanol, ammonia, urea and iron and steel).
He said lower energy prices also hit the local energy sector and has aready been reflected in job losses at some energy companies. He added that the decision by Arcelor Mittal to idle its steel plant will not only affect energy output but also jobs.
He said that the non-energy sector, which had been buoying the economy over the last few years seemed to have lost its momentum. “Weakness has crept into key sectors such as distribution and construction, following a temporary pick-up in non-energy activity driven by spending in the run-up to the general elections.
Rambarran said that on the basis of these developments, “Central Bank estimates the Trinidad and Tobago economy is likely to contract by 1 1/2 percent in 2015, a reversal of the sluggish but still fairly decent growth of around 1 percent in 2014. We expect the energy sector to contract by just over 3 1/2 percent, while activity in the non-energy sector is expected to be flat in 2015.” He said while many citizens may not have seen or felt any indications of the recessionary conditions of which he spoke this year, the recession will start setting in next year. “As 2016 progresses there will be noticeable signs as businesses hold back on investments, consumers cut back on spending and fewer loans will be taken out. A lower capital expenditure programme will hit the construction industry, as well as a more lasting reduction in steel production by Arcelor Mittal. Depressed construction activity will temper cement production.” He projected that the country’s gross official reserves will fall as energy exports decline further but will still continue to exceed conventional benchmarks of reserve adequacy (such as import cover and short term debt coverage). “The anticipated drop in reserves will translate into less foreign exchange available to support the market. Energy exports are expected to decline by around US$600 million, constraining foreign exchange inflows.” Rambarran said the Central Government’s fiscal deficit is projected to reach about $7 billion, higher than the $3 billion deficit budgeted for 2016 which will have to be financed by higher borrowing. He said, “Non-energy revenues are overly ambitious, budgeted at a little over $40.5 billion, the highest level ever.” However, he said that over half of the non-energy revenues, $26 billion is coming from just two limited sources: the broadening of the country’s VAT base through the removal of “extensive” exemptions and zero-rated items. He said the Government’s VAT revenue target of $12.5 billion is too optimistic since it requires the Board of Inland Revenue to “significantly ramp up compliance and enforcement, a process which takes a few years. We project Government will realistically collect around $8.5 billion, or two-thirds of its anticipated VAT receipts.” He said implementation of several other fiscal measures will require legislative changes and these are unlikely to take place within the fiscal year and this could worsen the already delicate revenue position.
Rambarran said the other source is “a heavy reliance on large extraordinary non-energy revenue inflows of almost US$13.5 billion which will be realised but will not be repeated in the future to support spending.
According to Rambarran, these inflows include continued dependence on dividends from the National Gas Company which he said could further undermine the company’s weakened financial performance