Dec 2015 Financial News

Economy will contract by 1.5%

Dec 07, 2015

Central Bank Governor Jwala Rambarran predicts that T&T’s economy is likely to contract by 1.5 per cent in 2015. He made the comment while outlining the state of the economy at the Central Bank’s Monetary Policy Conference yesterday.

The energy sector, he predicted, was expected to contract by about 3.5 per cent while activity in the non-energy sector was expected to be flat in 2015.

Rambarran is also concerned about a rise in inflation.

“Despite some volatility in food inflation, headline inflation has been relatively moderate to date, slowing to about 3.5 per cent in October 2015, core inflation—a measure of underlying price pressures—accelerated to nearly 2.5 per cent in October 2015, partly reflecting the 15 per cent increase in the price of diesel and super gasoline announced in the 2015/2016 budget.”

Concerning VAT, he said if it was introduced at 12.5 per cent on all previously VAT-exempt items, the bank estimated “this could push core inflation to almost 3.5 per cent and food inflation into double digit territory. As a result, headline inflation could pick back up to around five per cent.”

Explaining the rationale for his projections, he said Real Gross Domestic Product was expected to contract by 1.5 per cent in 2016 as “the energy sector continues to grapple with natural gas shortfalls and low oil and gas prices.

“We do not expect all three wells from BGTT’s Starfish gas field to be fully operational in 2016. Production from BP’s Juniper field is not expected to come on stream until 2017,” he said. Steel production is also to be decreased.

Addressing the issue of revenue from VAT, he said the “VAT revenue target of 12.5 billion is too optimistic, since it requires the BIR to significantly ramp up compliance and enforcement, a process which takes a few years.”

The governor predicted that the Government would realistically collect around $8.5 billion or two-thirds of its anticipated VAT receipts.

He added, “Implementation of several other fiscal measures requires legislative changes which are unlikely to take place within the fiscal year and could worsen the already delicate revenue position.”

Source:
Trinidad Guardian
Saturday December 5, 2015

http://www.guardian.co.tt/news/2015-12-05/economy-will-contract-15