Aug 2009 Financial News

Governor Williams: Watch the spending

Aug 20, 2009

TRINIDAD and Tobago cannot spend its way out of the current economic slowdown it now finds itself in.

Central Bank Governor Ewart Williams expressed this view last Tuesday as he formally entered the national debate over whether the country was in a recession or not.

Stating he disagreed with the views of some commentators that the country was in a recession, Williams said: “Whether the current situation is a recession or a slowdown is less important than making sure that we adopt the right polices for our specific circumstances.”

While countries like the United States might be able to spend their way out of a recession because they have significant spare capacity and other productive factors waiting to be mobilised, Williams said: “Most developing countries, including TT, lack that luxury and need to be more aware of the implications of demand stimulus, for inflation, foreign exchange, public debt and medium term sustainability.”

He said the country needed to be more circumspect and more targetted in responding to the current slowdown, “since the correct response will depend on whether we are going through a temporary cyclical event or structural change.”

Williams added that the Central Bank was not the official source of national accounts data nor the institution assigned to determine whether the country was in recession. He said that was the task of the Central Statistical Office.

“I say all this to introduce an element of caution on the interpretation that is given to our (Central Bank’s) quarterly data series.” He explained that what the economic data available to the bank shows is that “the economic slowdown is going to be with us for the remainder of the year.”

While there are tentative signs of an economic recovery in the United States, Williams said: “Unfortunately in Trinidad and Tobago, we are not seeing those signs.”

There is also uncertainty whether the bank’s projections for zero to one percent growth this year will be realised.

“All indications are that there would be a decline in real GDP for 2009 as a whole. If this occurs, it would be the first annual decline in real GDP since 1993,” Williams stated.

“This budget is going to be a difficult one to configure. We have been over the last few years accustomed to buoyant energy revenues and even with the best assumptions we are unlikely to have them.”

Even if world oil prices reach the US$60 to $70 per barrel level, Williams observed that “the gas price remains in the doldrums and it is likely to stay low.”

“Therefore the revenue envelope is likely to be very constrained,” he added.

Saddled with large economic infrastructural needs and embedded subsidies difficult to remove from the budget in the current economic scenario, Williams said: “Priorities would need to be defined and many lower priority projects may need to be postponed until the economic situation improves.”

With a risk of unemployment increasing to seven percent, Williams said: “Preventing unemployment from getting out of hand is a key policy objective.”

While Government projected to run a temporary deficit of $1.6 billion in the current financial year, Williams said there was room for a small fiscal deficit of two to three percent of GDP in the next financial year.

Stating that fiscal incentives alone were not enough to ease factors currently restraining private sector expansion, Williams said Government needed to elicit the help of the private sector and labour movement in these efforts because “lagging consumer and business confidence could make for a slow recovery in private sector credit demand.”



Editor’s note: In the last Business Day issue, we highlighted the debate on whether or not Trinidad and Tobago is in a recession. This was done ahead of Central Bank Governor Ewart Williams’ statement on the subject.

Article by: Clint Chan Tack
Source: Trinidad Newsday
http://www.newsday.co.tt/businessday/0,105847.html
Date Published: Thursday, August 20 2009