Published: Friday October 24, 2008
Trinidad and Tobago's economy, which has enjoyed over 10 successive years of positive economic growth, is in a better position to withstand a global slowdown, the country's finance minister, Karen Nunez-Tesheira said this week.
However, the slowing down of growth in their major trading partners, including North America and the CARICOM region, has implications for the domestic manufacturing sector.
"In particular, a slowing of growth in the North American and European economies may negatively impact receipts from tourism and remittances in many countries of the region.
"However, the situation at present remains unchanged and we are closely monitoring developments with a view to proactively countering any negative movements that may materialise," the finance minister said during a wide-ranging statement to the Senate.
Performing remarkably
She said the current global financial instability comes at a time when the economy of Trinidad and Tobago is performing remarkably well and that the macroeconomic indicators place Trinidad and Tobago as well positioned to withstand the effects of the crisis.
Trinidad and Tobago, she said, has enjoyed more than 10 successive years of overall balance of payments surpluses, driven primarily by strong performance of the merchandise trade account, and high oil and gas prices.
The external current account remains in surplus and the stock of foreign reserves stand at US$8.5 billion which provides the country with more than 11 full months of import cover of goods and services.
She added that the country's foreign reserves will help to bolster the banking sector, should liquidity become strained and would help to service international debt.
The country's external debt has declined from 41 per cent of gross domestic product (GDP) in 1994 to approximately 6.0 per cent at the end of 2007.
In 1996, the fiscal balance was -0.2 per cent of GDP compared to 7.6 per cent at the end of 2007.
Nunez-Tesheira said the country's external reserves of US$8.5 billion have not been affected by the financial turmoil in the United States.
Varying risk profile
As part of its approach to risk management, the Central Bank of Trinidad and Tobago allocates reserves among three tranches of varying risk profile. In addition, highly reputable money managers, including the World Bank, are responsible for managing 32 per cent of the total official reserves.
"The composition of the investment portfolio for international reserves has provided significant insulation from any loss," she added.
Nunez-Tesheira also reassured that there was very little immediate risk facing Trinidad and Tobago's banking system, which she described as well capitalised with a capital asset ratio of about 18 per cent, a low level of non-performing loans and a high liquidity position.
"The commercial banks have limited direct exposure abroad withforeign assets representing only 18 per cent of total assets. The impact of the credit crunch is also muted by the commercial banks' limited reliance on foreign borrowing reflected in the fact that foreign liabilities amounted to a mere eight per cent of total commercial bank liabilities as at end of May 2008," she said.
No undue risks
The normal flow of dividends from subsidiaries to parent bank also does not create any undue risks for the domestic banking system.
In the unlikely event that there is a demand for uploading of payment between the domestic subsidiary and parent, Nunez-Tesheira said the central bank has the authority to intervene to protect the domestic banking system.
The finance minister also told the Senate that the US$2.8 billion Heritage and Stablisation Fund (HSF) reserves have not suffered any capital loss and are at no undue risk.
"A few months ago, the HSF board approved a strategic asset allocation policy, however, whilst the procurement of services of external managers is proceeding, the board took a decision that, in the interim, 95 per cent of HSF funds would be invested in short-term money market instruments and five per cent in US treasuries.
The holdings are subject to the same prudential guidelines. Consequently, these reserves have suffered no capital loss and are at no undue risk.
"The growing financial contagion, however, has impeded a more aggressive approach to investing HSF resources, and we are currently monitoring with a view to preserving value for future generations," according to the finance minister.
Won't resort to hsf
Government also does not plan to resort to the Heritage and Stablisation Fund in the event of oil prices falling below budgeted target, although the legislation provides for withdrawal in such cases.
The fund generates savings for future generations and helps to insulate fiscal policy from fluctuations in revenue from the energy sector.
In response to calls for the government to review its budget which was based on oil prices remaining at US$70 a barrel on average, the finance minister said the price was determined on the basis of an established process and on information available at that time.
In arriving at the oil and gas prices for the budget, the Ministry of Finance set as its ceiling the 11-year moving average for oil and gas prices based on IMF data taken from its World Economic Outlook publication.
Medium-term projection
It also took into consideration information from the medium-term projection for oil and gas prices of the Organisation of Petroleum Exporting Countries (OPEC), and the planning prices being utilised by major companies operating in the Trinidad and Tobago jurisdiction.
"While the consensus on oil price trends remains uncertain, there is general agreement that high volatility will continue to be a feature of oil prices which will continue into the medium term. For oil exporting countries such as Trinidad and Tobago, an immediate challenge is to ensure that such volatility does not impact government's planned infrastructure programmes, " she said.
While the country grapples with issues related to its traditional trade channels, the government official said it must embrace new opportunities.
The global financial turmoil, she said, also makes the establishment of the Trinidad and Tobago International Financial Centre even more of an imperative.
Moving to leverage dynamism
Government is also moving ahead to leverage the growing dynamism of the domestic financial sector, by providing the requisite infrastructure and deliberate policy direction leading to the creation of the offshore centre.
"The TTIFC will be an intense concentration of a range of international financial businesses and other transactions, specifically tailored and sufficiently marketed to attract financial business from around the globe.
In going forward, bearing in mind the lessons learned from this international crisis, we are strengthening the design of the TTIFC in respect of effective risk management and governance," she added.
Nunez-Tesheira insists there is nothing complacent about Government's approach to the international crisis and to the impending conditions that are expected to feature in the global economy over the next two years and more.
The Ministry of Finance, she said, is currently undertaking the research and analysis that will form the basis of informed judgements regarding the policy responses that will best serve the interest of the country.
Source: Jamaica Gleaner
http://www.jamaica-gleaner.com/gleaner/20081024/business/business8.html
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