Trinidadians and Tobagonians will have to tighten their belts as the country is now in a recession.
The Governor of the Central Bank Jawala Rambarran announced that T&T is now officially in recession. The last time T&T faced a recession was in 2009.
In making the revelation, Rambarran said four consecutive quarters of decline in real Gross Domestic Product (GDP) in 2015 means that Trinidad and Tobago is in a recession.
Addressing members of the business community at the Bank’s Monetary Policy Forum at the Hyatt Regence Hotel, in Port of Spain last Thursday, Rambarran noted that the response should not come as a major surprise.
“It is not the kind of news you want to deliver to the country 19 days before Christmas. However the economic events over the past year should have started sobering even the most financial nonchalant among us,” he said.
Rambarran pointed out that the effects of the recession will start next year.
He said while many may not have felt or seen any effects of the decline this year, as 2016 progresses there will be noticeable signs of businesses hold back on investments, consumers cut back on spending and fewer loans taken.
The governor stressed that the Central Bank and the Ministry of Finance must work together to ensure monetary and fiscal policies are put in place to support a firm enough economic recovery.
He said the recession was triggered by prolonged supply disruptions in the energy sector which resulted in shortfalls in natural gas, and which in turn adversely affected output of Liquefied Natural Gas (LNG) and petrochemicals.
Rambarran painted a dismal picture for the economy in 2016.
He said the 1.5 percent contraction in real GDP is expected as the energy sector continues to grapple with natural gas shortfall and low oil and gas prices.
The country’s gross official reserves will also fall again as energy exports decline further, Rambarran said, adding though, it will continue to exceed conventional benchmarks of reserve adequacy.
He said this decline will translate into less foreign exchange availability to support the market.
“Energy exports are expected to decline by around $600 million, constraining foreign exchange flows,” he noted.
Rambarran said the Monetary Policy Committee’s decision to raise interest rates also came about because of its concern about rising inflationary pressures into early 2016 caused by fiscal measures announced by the Dr. Keith Rowley’s government in the 2015 / 2016 budget.
The Central Bank governor said core inflation accelerated to nearly 2.5 percent in October 2015, partly reflecting the 15 percent increase in the price of diesel and super gasoline announced in the 2015 / 2016 budget.
Rambarran said if VAT (Value Added Tax) is introduced at 12.5 percent (down from 15 percent) on all previously VAT-exempt items, core inflation could increase to almost 3.5 percent and food inflation could reach double digits.
The announcement of the recession came a day before the PNM government went to the Parliament for approval to borrow to a maximum of TT$120 billion (US$20 billion).
Minister of Finance Colm Imbert said the government would minimize borrowing for budgetary support and would also borrow for “projects with a maximum potential to reap maximum economic, financial and social benefits for Trinidad and Tobago.”
Imbert said the last government “wiped out” the cash balance of $.6.5 billion in the Central Bank and then “raided” the overdraft limit.
“They took almost TT$16 billion from the government’s accounts at the Central Bank,” he said.
Former Prime Minister Kamla Persad-Bissessar now Opposition leader cautioned citizens with their money advising them to spend within their means as there is more doom and gloom to come with government’s poor management of the economy.