The year 2025 marked a period of significant economic transition, setting the stage for 2026 to become a decisive year for policy implementation and fiscal management. With a new administration taking office, the country witnessed comprehensive changes across its financial institutions, including the appointment of a new Central Bank governor and restructuring of banking boards amid persistent state ownership.
Economic indicators throughout 2025 revealed concerning trends. Central Bank Governor Larry Howai reported in September that the economy showed signs of softening, evidenced by declining retail sales, reduced cement sales, and dropping LPG production. These challenges emerged within a context of constrained fiscal space and diminished external buffers.
The first quarter recorded a 2.1% GDP contraction, while market liquidity constraints continued to hamper credit expansion. Particularly affected were automotive loans and bridging finance, with non-energy sector performance remaining consistently lackluster.
By November, the Central Bank’s monetary policy report projected a deteriorating outlook. Inflation, previously contained, was expected to rise due to disruptive US tariff policies and adverse weather conditions. The closure of state employment programs like Cepep further threatened to exacerbate labor market pressures.
While energy sector stabilization appeared promising through new gas field developments and agreements, setbacks such as the controlled shutdown of the Nutrien facility posed additional challenges. The bank characterized the overall economic situation as ‘delicate.’
The situation intensified when Moody’s Ratings revised the country’s outlook from stable to negative, citing a substantial 24% decline in liquid foreign exchange reserves (excluding gold, drawing rights, and sovereign funds including the HSF).
In response, the new UNC government presented a $59.2 billion budget strategy centered on growth through sustained public spending—including public sector compensation—and institutional strengthening, while implementing various duty increases to supplement revenues.
Finance Minister Davendranath Tancoo defended the government’s approach following Moody’s assessment, arguing the ratings agency acted prematurely and employed an overly narrow definition of foreign reserves. However, Moody’s had cited similar concerns about liquid foreign exchange reserve drawdowns in its previous downgrade under the PNM administration in June 2024.
As the government approaches its mid-year review in early 2026, the administration’s honeymoon period will conclude, mounting pressure for more assertive economic interventions and tangible results.
