WASHINGTON, D.C. – The Governor of the Central Bank of Trinidad and Tobago (CBTT), Dr. Alvin Hilaire, says Caribbean countries, have been hit particularly hard by the coronavirus (COVID-19) as many of the economies are highly dependent on tourism.
Governor of the Central Bank of Trinidad and Tobago, Dr. Alvin Hilaire (File Photo)Hilaire, addressing the Caribbean ministerial meeting with the managing director of the International Monetary Fund (IMF), Kristalina Georgieva, earlier this week, said while the regional countries are currently sorting out the appropriate timing and scale of unwinding the extraordinary COVID-19 fiscal and monetary measures that they had adopted “as a whole, the region experienced sharp contractions in economic activity last year and early this year.
He said that the contraction totally erased several years of growth and that in response to the COVID-19 shock, “our policy makers swiftly implemented a comprehensive set of unprecedented fiscal, monetary and regulatory measures to mitigate the negative fallouts on our populations.
“Across the region, governments’ fiscal actions included the provision of tax cuts, tax deferrals and grants to households and businesses as well as direct funding for health infrastructure and medical equipment and personnel.”
Hilaire said that central banks lowered their policy rates, injected substantial amounts of liquidity in the banking systems and introduced regulatory moratoria on the treatment of deferred loan payments and restructured facilities.
He said the implementation of these policy measures was essential for regional economies to weather the immediate challenges, including shoring up health systems and protecting the disadvantaged who have been disproportionately affected by the pandemic.
“At the same time, the measures have further constrained fiscal space, added to already elevated debt levels, contributed to credit rating downgrades in some cases, and increased the risks to financial stability.”
Hilaire said that the Caribbean countries are now well into the second year of the pandemic and the end of the crisis is still very uncertain.
“Despite this, generally good progress on vaccine access has provided an impetus for Caribbean economies to re-open and ultimately return to growth, although vaccine hesitancy remains a problem in achieving herd immunity.
“The tremendous uncertainty is therefore impacting how we schedule the unwinding of policy measures as there are still immediate needs to be addressed,” he said, noting for example, one particular concern is how to safely restore high quality education for the region’s young people, a key investment for sustainable future.
“Overall, we recognize that the withdrawal of COVID-19 support measures is not an easy undertaking. On the fiscal front, the policies translated into higher government expenditures at a time when government revenues contracted. Initially, most countries provided broad-based fiscal support.
“Over time, this blanket approach has given way to more targeted channeling of fiscal resources to those households and businesses most affected by the pandemic: many of these households are very poor and many of these businesses are small, service-oriented entities.”
Hilaire said that the global increase in food and energy prices and the move towards monetary tightening in some developed and emerging market economies are spilling over directly into the Caribbean, given the region’s integration into commodity and financial markets.
He said the resultant increase in domestic inflation and the potential for capital outflows are therefore putting pressure towards higher interest rates in a moment where short term economic growth prospects are still fragile.
“On the regulatory and supervisory side, since the onset of the pandemic our supervisors have been in “high alert mode.” Having relaxed some criteria for loan classification and amended the treatment of non-performing loans, there continues to be a great need for heightened monitoring of our financial institutions.”
The Central bank Governor said in this regard, increased communication between regulators and the financial institutions is required, adding “we are capturing additional data from the financial institutions in order to ascertain “true” changes in asset quality, profitability, liquidity and solvency.
“Importantly as well, regulators are striving to be flexible, standing ready to adapt to the changing environment, while maintaining the highest supervisory standards.
“We therefore recognize that withdrawing regulatory measures must be approached in a judicious manner. Fortunately for us, most of our financial institutions entered the crisis with strong capital buffers. Premature unwinding can hamper our economic recovery efforts, cause insolvency challenges and increase unemployment.
“On the other hand, keeping the measures in place for too long may result in substantial deterioration in asset quality. As a result, timing is critical, and our supervisors have shaped their approach taking into account each country’s circumstances.”
Hilaire said that Trinidad and Tobago, and other countries in the region, have received excellent technical assistance from the IMF and other institutions as they navigate through the financial stability issues highlighted by the pandemic.
“We have also significantly bolstered the collaboration among regional regulators, particularly with respect to banks and insurance companies with branches and subsidiaries across the Caribbean,” he said, taking the opportunity to reiterate the Caribbean region’s appreciation to the IMF for its strong support to the regional countries during the pandemic.
“We have benefitted from financial resources via the lending facilities (and) in this regard we look forward to the early conclusion of the programme with Suriname, timely policy advice; tailored and pragmatic technical assistance from your capable staff at headquarters and the Caribbean Technical Assistance Center (CARTAC); and more recently, the general increase in SDR allocations.”
But Hilaire said that the region’s economies are still not at pre-pandemic levels.
“Moreover, the tremendous vulnerabilities of our small nations to natural disasters, borne out by the volcanic activity in St. Vincent and the Grenadines and the earthquake in Haiti this year; climate change more generally; and the vicissitudes of international markets, are not borne out in our current access to concessional international finance.
“We believe that the IMF can play a significant role in helping to redress this gap through further direct funding or as a catalyst to drawing in resources from other sources,” Hilaire added.
