Room for optimism, but an end to a pandemic is necessary
Clint chan tack
CENTRAL Bank Governor Dr Alvin Hilaire is confident that Trinidad and Tobago will determine the best way out of the covid19 pandemic.
He expressed his optimism during the virtual launch of the bank’s 2020 Financial Sustainability Report (FSR) on Thursday.
“We are at a delicate moment. We have a stable (and) stable financial system. But we are not complacent.”
As the report showed a contraction in national economic activity last year, Hilaire said TT’s external buffers have been helpful in helping to mitigate the effects of the pandemic.
The report showed in 2020 that gross official reserves increased slightly to US $ 7 billion (8.5 months of import coverage) from US $ 6.9 billion (7.7 months of import coverage). ) in 2019. external loans and withdrawals from the Heritage and Stabilization Fund (FSS) to cushion the effects of the pandemic.
Hilaire said: “We have a lot to do. We are optimistic about the future. We have the right capacity.
But he added: “What we want is a sustainable exit from this pandemic. This is the basic thing we need.”
One of the factors that could accelerate TT’s exit from the pandemic, he said, is a resilient population through vaccination against covid19, which could ease the pressure on businesses.
“You can then reopen the business and things get more dynamic, etc.
“We still have some resilience, but we don’t want to test this thing for too long.”
The report indicates that a resurgence of national cases of covid19 in the second quarter of 2021 and the reinstatement of containment measures “may further encroach on an already fragile recovery with spillover effects for the financial sector”.
Hilaire and Financial Institutions Inspector Patrick Solomon agreed with the report’s position that the financial sector has been resilient despite the challenges posed by covid19. The report said: “Financial Soundness Indicators (FSIs) for the banking and insurance sectors suggest that the risks associated with the pandemic were largely contained.”
He added: “Institutions have maintained healthy capital and liquidity buffers, while dealing with deteriorating asset quality and profitability ratios.”
On the national debt, Hilaire said the bank’s position is that “we disapprove of undue increases in debt commitments if they are not justified.
“In some cases you have to increase your debt. You have to borrow more than you do, and not spend more than what you earn, if you have no choice or if things are very difficult.”
Hilaire added: “The pandemic is one of those cases … and indeed the most dramatic example of it where across the world countries are spending more than they are earning through taxes.”
Saying “You have to make your country survive,” Hilaire added, “However, we believe it has to be measured, any spending has to be well targeted and precise.”
He also warned against “creating expectations that become difficult to resolve”.
He reiterated, “We believe a temporary increase in debt is warranted. It should be accompanied by a program to eventually wean off borrowing and then reduce over time.”
The report indicates that the public sector net debt to GDP ratio fell from 65.5% in 2018/2019 to 80.9% in 2019/2020.
This has been attributed to a large shock to government revenues in 2019/2020 due to lower energy prices and reduced non-energy tax revenues and budget financing (including withdrawals from the SSF, some borrowing external and domestic bond investments).