Embed Size (px)
Citation preview
The Macroeconomic Context
www.central-bank.org.tt; email: [email protected]
© Central Bank of Trinidad & Tobago, 2019
Launch of 2018 Financial Stability Report
Central Bank Conference Facilities,
May 28, 2019
Alvin Hilaire, Governor, Central Bank of Trinidad and Tobago
2
The Macroeconomic Context to the Financial Stability Report
Key Points
1. The global economic mood has darkened.
2. A moderate energy based recovery is underway in
Trinidad and Tobago.
3. Fiscal stimulus plans should help to support
investment and non-energy activity.
4. However, deficit financing could have serious debt and
monetary implications over time.
5. While external buffers remain substantial, they will
likely slip further in the short run as the economy
continues to adjust.
6. The lessons from past experiences must be used in
guiding Trinidad and Tobago’s current adjustment
episode.
7. Despite its small size, the economic influence of
Trinidad and Tobago remains far reaching.
3
Chart 1: Global Growth Comparison
January 2019 vs April 2019 WEO*
Source: International Monetary Fund
* World Economic Outlook
Trade tensions, tighter financial conditions
and a weak recovery in commodity prices
dampened the outlook for global growth.
Chart 2:
International Stock Market Indices Chart 3:
Crude Oil Price (WTI)
Stock market volatility affected the
performance of funds with large equity
exposures.
15,000
17,000
19,000
21,000
23,000
25,000
27,000
29,000
Index V
alu
e
DOW JONES
NIKKEI
Source: Bloomberg
Crude oil prices started to recover in 2019 in
light of OPEC actions and US sanctions on
Venezuela and Iran.
Source: Bloomberg
1. The global economic mood has darkened.
2.0
2.5
3.0
3.5
4.0
4.5
Per
cent
Jan-19 Apr-19
2019: 3.5
2019: 3.3
3.20
3.25
3.30
3.35
3.40
3.45
3.50
3.55
Jan-19 Apr-19
Per
cent
0
10
20
30
40
50
60
70
80
90
US
$/b
bl
Chart 4: T&T GDP Growth Chart 5: Crude Oil and Natural
Gas Production
2,000
2,500
3,000
3,500
4,000
4,500
30
35
40
45
50
55
60
65
70
75
80
mm
cf/d
‘000s b
bls
/d
Crude Oil (left axis)
Natural Gas (right axis)
Natural gas output in early 2019 continued to
improve while oil production remains on a
downward path.
Source: Ministry of Energy and Energy Industries
-15
-10
-5
0
5
10
15
20
25
Per
cent
Total
Energy
Non-Energy
Source: Central Statistical Office
p: Provisional
Energy sector production started to recover in
2018 on the strength of major investments.
2. A moderate energy-based recovery is underway in Trinidad and Tobago.
The Energy Sector in 2019
• Startup of Angelin project in early 2019
will boost natural gas production.
• In December 2019 the Pointe-a-Pierre
Refinery could resume operations.
• The Caribbean Gas Chemical Methanol
to Dimethyl Ether Plant is expected to
come on stream.
• According to the Energy Ministry, natural
gas and oil production are expected to
stabilise at 3,800 mmcf/d and 60,000
bbls/d respectively in 2019, representing
a 6.0% and -5.6% change relative to 2018.
• Natural gas production for 2020
adversely affected by recent exploration
results from BPTT.
4
Source: Ministry of Finance
Chart 6: Non-energy Indicators
Sources: Central Statistical Office and Central Bank of Trinidad and Tobago
The non-energy sector indicators showed mixed performance so far…
3. Fiscal stimulus plans should support non-energy activity.
-10
-8
-6
-4
-2
0
Per
cent
Chart 7: Fiscal Balance to GDP
-10
-8
-6
-4
-2
0
Per
Cent
Announced Fiscal Plans
• The Government has committed to
progressively lower the fiscal deficit over the
medium term.
• In the short run, the focus is on:
• Accelerating capital spending,
particularly infrastructure such as
roads, highways, bridges and
hospitals.
• Discharging arrears to commercial
suppliers and contractors.
• Liquidating the backlog of VAT
refunds.
• With an economy traditionally very heavily
reliant on public sector spending, the fiscal
impulse is expected to spill over to the non-
energy sector.
a. Quarterly Index of Real Economic Activity – Non-Energy Sector (y-o-y % ∆)
b. Index of Retail Prices –
Headline Inflation (y-o-y % ∆)
c. Index of Retail Sales
(y-o-y % ∆) d. Financial System Credit to the Private Sector
(y-o-y % ∆)
0
1
2
3
4
Per
cent
-10
-8
-6
-4
-2
0
2
4
Per
cent
-5
0
5
10
Feb-17 Jun-17 Oct-17 Feb-18 Jun-18 Oct-18 Feb-19
Per
cent
Real Estate
Business
Consumer
Total
-10
-5
0
5
Per
cent
5
4. However deficit financing could have serious debt and monetary
implications over time.
Four basic sources of
financing the deficits need
to be carefully balanced:
Continued fiscal consolidation towards a balanced budget is essential.
As the implications can be far reaching:
TT$4.7bn –
CLICO recovery in FY 2017/18
Limit to reliance on this source; may be one-off;
raises broader issue of the role of the state
Has monetary and inflationary implications.
Debt creating; can be expensive depending on the
source; Need to be repaid in foreign currency later on
Debt creating; can lead to crowding out and rise in
sovereign exposure of financial institutions
Asset sales (including
repayment of past support)
External funding
Domestic borrowing
Central Bank financing
US$241mn –
Oct18-Mar19
20% of budgeted revenue
TT$2.8bn –
Oct18-Mar19
6
Chart 9: Heritage and Stabilisation Fund,
International Reserves and Import Cover
Source: Central Bank of Trinidad and Tobago
HSF balances and international reserves remain
healthy but some reserves will likely to be further
used in the short run as adjustment continues.
Chart 8: Authorised Dealers’
Purchases and Sales of Foreign Currency
While inflows were higher, CBTT
interventions remained the same as outflows
also increased.
0
2
4
6
8
10
12
14
0
2
4
6
8
10
12
14
2014 2015 2016 2017 2018 Apr-19
Month
s
US
$B
n
Gross Official Reserves (Left Axis)
Heritage and Stabilisation Fund (Left Axis)
Import Cover (Right Axis)
5. While the external buffers remain substantial, they are expected to
slip further in the short-run as the economy continues to adjust.
Structural Structural
Monetary
Source: Central Bank of Trinidad and Tobago
Chart 10: US Fed Fund Rate and
T&T Repo Rate
Tapering of US Fed rate hikes releases
pressure on the TT/US interest rate differentials,
a factor considered in domestic monetary policy.
Sources: Bloomberg and Central Bank of Trinidad and Tobago
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
Per
cent
Fed Funds Target Rate (Upper Limit) Repo Rate
Latest
Forecasts
June 2018
Forecasts
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
2013 2014 2015 2016 2017 2018
US
$M
n
Sales Purchases CBTT Interventions
7
6. The lessons from past experiences must be used in guiding T&T’s
current adjustment episode..
Structural Structural
Monetary
6. The lessons from past experiences should be used in guiding T&T’s
current adjustment episode.
Adjustment should be:
1. Comprehensive (take entire economy into account);
2. Coordinated (complementary fiscal, monetary and structural policies); and
3. Forward looking (save and plan to build resilience to future shocks).
-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
0
10
20
30
40
50
60
70
80
90
100
1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015 2018
Pe
r ce
nt
US
$/b
bl
WTI Crude Prices (US$/bbl) Real GDP Growth (Per cent)
1970s
Oil Boom
1980s
Economic
Recession and
Financial Sector
Failures
1990s
Economic
Restructuring
and Flotation of
the TT Dollar
Early 2000s
Move to a gas-based
economy
followed by another
boom period
2009
The
CLICO
crisis
2015 onward
Energy prices
decline to ‘new
normal’
Sources: Central Statistical Office and Bloomberg
B. Economic spillovers
• Significant regional financial capital
flows centered around T&T
• A strong T&T helps the Caribbean
region via trade, investment and support
C. Lessons from our experiences • Sovereign Wealth Funds (Mozambique, Guyana)
• Energy sector management (Africa, Guyana)
• Financial resolution strategies (Curaçao)
A. Migration and Remittances
• T&T attracts migrants from all around the world
• Outward remittances exceed inward remittances
• The Venezuela migrant situation has important
short and longer run economic implications
The resulting
feedback
effects can be
intense.
10
Thank You
