T&T Central Bank warns of significant challenges for economy

Create: 03/12/2017 - 06:41

PORT OF SPAIN, Trinidad (CMC) — The Central Bank of Trinidad and Tobago

(CBTT) says the local economy will benefit this year from the

coming on stream of new gas production even as it warned that the economic

conditions in oil rich the twin-island will continue to face significant challenges.

“Specifically, production from bpTT’s Juniper platform is likely to begin

in the third quarter of 2017, which should boost natural gas supplies and

the energy sector on the whole.In Trinidad and Tobago, production indicators

of real economic activity monitored by the Central Bank suggest weaker

performances in both the energy and non-energy sectors in the latter half of 2016.

In the fourth quarter of 2016 the energy sector showed year-on-year

declines in the production of crude oil (4.2 per cent) and natural gas (10.8 per cent)

“These declines by upstream producers were largely attributed to preparatory

work to facilitate the inclusion of new fields by major oil and gas producers and

increased maintenance activity. At the downstream end, petrochemical

producers were negatively impacted by reduced oil and gas supplies which

resulted in lower LNG, fertilizer and methanol production.”

“While international oil and gas prices are expected to rise in the wake of the

December 2016 agreement by OPEC members to cut production, price

increases could be muted by higher shale oil output in the US,” the CBTT said in

its March Economic Bulletin.

It said that the revival of the non-energy sector, especially construction and

distribution activity, could be helped by faster execution of government’s capital

expenditure programme.

“Overall, economic conditions are likely to remain challenging in 2017 as the

economy continues to face reduced export earnings, constrained fiscal

accounts and rising unemployment,” the CBTT added.

The bank said that over the first half of 2016, the external accounts of Trinidad

and Tobago registered a deficit of TT$367.3 million (One TT dollar =US$0.16

cents) with gross official reserves amounting to US$9,565.7 million at the end of

the period.

The current account showed a deficit of US$582.7 million, which was primarily

driven by depressed conditions within the energy sector.

The CBTT said that a decline in exports coupled with a marginal increase in

imports led to a deficit of US$114.4 million on the Goods sub-account. Energy

sector exports are estimated to have fallen by US$1,340.8 million during the first

six months of 2016 to US$3,361.2 million as a result of lower energy prices and

production.

At the same time energy imports climbed by 37.1 per cent to an estimated

US$1,556.8 million reflecting an increase in the volume of petroleum imports

over the period.

But the bank noted that with falling inflows from the energy sector, conditions

within the domestic foreign exchange market remained tight during the first six

months of 2016 and that in order to support the market, it sold US$706.6 million

to authorized dealers in the first six months of 2016.

The financial account registered a net inflow of US$573 million, which was a

reversal of the net outflow of US$429 million in the similar period in 2015. This

was mainly due to net inflows of portfolio investment which occurred primarily as

a result of residents reducing their holdings of foreign assets.

“The change in the gross official reserves for the second half of 2016 suggest a

deficit of US$99.9 million on the external accounts, bringing the level of gross

official reserves at the end of December 2016 to US$9,465.8 million, equivalent

to 10.5 months of imports,” the CBTT said.

The CBTT said that in the context of lower energy revenue, the Central

Government’s fiscal position worsened.

It said the latest revised estimates from the Ministry of Finance show an overall

deficit of TT$7.3 billion or five per cent of gross domestic product (GDP) on the

fiscal accounts for fiscal year 2015/16, October 2015- September 2016,

compared with an initially budgeted deficit of TT$2.8 billion and the deficit

outturn for the previous fiscal year of TT$2.7 billion or 1.8 per cent of GDP.

“Provisional data provided by the Ministry of Finance suggest that the central

government recorded a deficit of TT$2.5 billion for the first quarter of

FY2016/17. This was financed through domestic borrowing comprising of

Government draw-downs on the overdraft facility with the Central Bank and the

issuance of a one billion TT dollar domestic bond in December 2016.

“Notwithstanding new borrowing by the Central Government, the public sector

debt outstanding declined to TT$87.4 billion (56.6 per cent of GDP) at the end

of December 2016 from $88.3 billion (60 per cent of GDP) at the end of

September 2016 owing to repayments on contingent debt.”

The CBTT said that amidst weak domestic economic conditions, it held its key

policy interest or repo rate unchanged at 4.75 per cent since January 2016.

It said lending by the consolidated financial system slowed to 3.8 per cent in

November 2016 as business credit, consumer credit and real estate mortgage

lending softened. Meanwhile, the Central Bank adopted a tighter liquidity

management approach in the latter half of 2016, withdrawing TT$1.2 billion from

the financial system via open market operations.

The CBTT said petrochemical output contracted by 12.9 per cent while refining

output fell by 8.5 per cent. For the second half of 2016, oil and natural gas

production were lower by 7.7 per cent and 15.4 per cent, respectively. Available

data suggest that non-energy output may not have been strong in the third

quarter of 2016.

The CBTT said construction activity appears to have been subdued as

indicated by large declines in local sales of cement and retail sales of hardware

and construction materials. The decline in the Index of Retail sales for the third

quarter of 2016 also points to marked contractions in distribution activity.

However, there was growth in the finance, insurance and real estate sector on

account of increased commercial banking activity.

The bank said that the labour market continued to slacken in the first half of

2016. The unemployment rate increased to 4.4 per cent in the second quarter

of 2016 from 3.2 per cent in the corresponding quarter of 2015.

“While the number of persons with jobs fell by 16,200 persons, a significant

decline in the labour force of 8,200 persons resulted in the number of persons

classified as unemployed rising by just 8,000 persons over the twelve months to

June 2016,” the CBTT said.

 

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