## 1. COVID-19: Authorities’ Policy Responses ## Source details **Canonical URL:** [1. COVID-19: Authorities’ Policy Responses](https://www.imf.org/-/media/files/publications/cr/2022/english/1ttoea2022001.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2022/english/1ttoea2022001.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2022/english/1ttoea2022001.pdf.json) --- ### Context and recent shock - Pre-pandemic: recovery from prolonged recession (2016–19); Real GDP growth expected to turn positive in 2020 as energy projects came on stream. - COVID-19, domestic energy supply shocks, and weak global demand derailed recovery: - Real GDP contracted by 7.4 percent in 2020; energy sector declined by 12.2 percent; non-energy sector fell by 4.9 percent. - Real GDP is estimated to have fallen by about 1 percent in 2021. - Headline inflation: 0.8 percent in 2020; rose to 3.9 percent by October 2021 due to international food price surge. - Unemployment increased to 5.1 percent in June-2020 (from 4.2 percent in March 2020). ### Authorities’ containment and health response (Box 1) - Early decisive measures: - Complete lockdown during March-April 2020; borders closed; economic activities restricted. - Gradual reopening began in May-June 2020; partial restrictions re-introduced in mid-2021; borders reopened mid-July 2021. - Vaccination progress: about 48 percent of total population fully vaccinated as of January 2nd, with target of 70 percent by end-2022. - Timeline highlights (selected): - 01/30/2020: Inbound travel restrictions from China - 03/30/2020: Lockdown - 05/15/2020: Gradual reopening began - 02/22/2021: Vaccination begins - 03/31/2021: First shipment of vaccines arrives - 11/24/2021: State of emergency lifted ### Fiscal policy response and fiscal developments - Targeted fiscal support in 2020–21 amounted to about 4 percent of GDP. Components included salary relief, VAT and income tax refunds, liquidity support via credit union loans, grants to hoteliers, food, rental, and income support, and import duty and VAT waivers on medical and emergency supplies. - 2020-21 Fiscal response (TT$ million; Percent of GDP): - TAX Refunds: 4,099 — 2.8 - VAT: 3,765 — 2.5 - Income Tax: 334 — 0.2 - Financial Support: 741 — 0.5 - To Caribbean Airlines (loan): 442 — 0.3 - Salary Relief Grants (2020-21): 177 — 0.1 - To Credit Unions: 100 — 0.1 - Social Protection: 390 — 0.3 - Food support program: 305 — 0.2 - Health Sector (EPE): 331 — 0.2 - SMEs (loan program): 300 — 0.2 - Total: 5,835 — 4.0 - Summary of central government fiscal operations (Percent of GDP): - Total Revenue and Grants: FY2019 27.0; FY2020 22.8; FY2021 24.9 - Energy Sector: FY2019 11.0; FY2020 7.6; FY2021 8.4 - Non-energy Sector: FY2019 16.0; FY2020 15.2; FY2021 16.5 - Total Expenditure: FY2019 30.6; FY2020 34.4; FY2021 35.0 - Interest payments: FY2019 3.1; FY2020 3.4; FY2021 3.9 - Transfers and subsidies: FY2019 16.4; FY2020 18.1; FY2021 18.8 - Overall balance: FY2019 -3.7; FY2020 -11.6; FY2021 -10.1 - Central government debt: FY2019 45.4; FY2020 59.3; FY2021 65.9 - Financing and buffers (Percent of GDP): - Net domestic financing: FY2020 2.3; FY2021 5.9 - Domestic borrowing: FY2020 7.7; FY2021 10.0 - Net external borrowing: FY2020 4.5; FY2021 -0.6 - HSF withdrawals: FY2020 4.5; FY2021 4.2 - HSF assets valued at US$5.6 billion (26 percent of GDP) at end-FY2021; sinking-fund assets at 4.1 percent of GDP at end-FY2021. ### Monetary, FX, and financial sector measures - Central Bank measures: - Reserve Requirement (RR) cut by 300 bps to 14 percent, releasing about TT$ 4.3 billion liquidity. - Policy rate reduced by 150 bps to 3.5 percent. - Prime lending rates reduced by 175 bps to 7½ percent. - Mortgage rates: suspended calculation of reference mortgage rates for 2 years from 10/01/2021. - Special FX window through the EximBank to ensure imports of food and pharmaceuticals. - Banks offered deferred payments and refinanced loans for longer terms at lower rates. - Flexibility in loan restructuring: limits increased from 1 to 2 for commercial loans (lifetime) and for mortgages (in 5-year period) without downgrading to non-performing status. - Loan moratorium measures maintained debtor rating for refinanced and deferred loans through 09/30/2021; added flexibility for one year from October 1, 2021. - Banking system indicators through end-September 2021: - Capital adequacy ratio (CAR): 17.2 percent (stable vs 17.1 percent at end-2020). - Liquid assets to total assets: 19.9 percent (vs 22.4 percent at end-2020). - NPLs: 3.2 percent in 2020; 3.3 percent at end-September 2021. - Loan-loss provisioning: 89.6 percent of impaired loans in 2020; 85.5 percent at end-September 2021. - Profitability declined moderately; credit to private sector growth dropped in 2020 and remained weak through end-September 2021 despite excess liquidity and lower interest rates. - FX and reserves: - Reserves stabilized at $6.95 billion in 2020. - Reserves expected to slightly decrease to US$6.8 billion by end-2021, notwithstanding new SDR allocation. - Authorities exploring possible use of new SDR holdings. ### Structural and policy reforms implemented or in progress - Legislation and reform progress: - New Insurance act enacted (effective January 2021). - Gambling sector law approved; expected to yield about 0.3 percent of GDP in additional taxes over the medium term. - Revenue Authority bill expected to enhance revenue mobilization; Revenue Authority Bill approved by Parliament in December 2021. - Special Economic Zones (SEZs) legislation approved (TT SEZ Bill approved January 2022). - Framework to establish a new property tax scheme being implemented; valuations started in 2021; scheduled completion 2022: Q1. - Public Procurement reform pending parliamentary approval. - Insurance sector recovered from climate-related claims; new insurance legislation strengthens supervisory regime. ### External sector and valuation - External position: - Current account balance deteriorated to 0.1 percent of GDP in 2020; EBA-Lite current account gap estimated at -3.4 percent, suggesting currency overvaluation of 11.6 percent (EBA-Lite model). - In 2021, rebound in energy prices estimated to improve current account balance to a surplus of about 11.2 percent of GDP. - FX shortages persist; CBTT FX interventions became more predictable in 2021. - Contributions to current account and trade: - Energy exports drove a significant portion of current account movements; services (net), non-energy exports, and income (net) also contribute. ### Outlook and risks - Growth projections: - Real GDP growth forecast at 5.5 percent in 2022, driven by recovery in domestic demand and energy production from new gas and oil fields. - Medium-term: energy sector projected to plateau; real output growth slows to potential of about 1 percent. - Inflation: - Inflation in 2022 projected at about 2.8 percent (source earlier cited 2.8 percent; other tables show 3.2 percent for 2022 in staff projections—see macro projections below). - Fiscal outlook: - Staff projects fiscal deficit to decline to 7.5 percent of GDP in FY2022. - Over the medium term, fiscal deficit projected to gradually narrow and reach balance by FY2027. - Gross public debt projected to gradually decline to 76.6 percent of GDP by FY2027, remaining above the government’s soft debt target of 65 percent of GDP. - Gross financing needs would remain at around 7 percent of GDP. - Financial sector risks: - Loan deferrals and restructurings may have limited immediate rise in NPLs; full asset quality effects may not yet be realized. - Excess liquidity, lower interest rates, and weak credit demand constrain private sector credit growth. ### External outlook, reserves, and projections - CA surplus projected to reach 18.6 percent of GDP in 2022 (table sequence shows current account balance (percent of GDP): ... 11.2; 18.6; 15.1; 11.8; 10.9; 10.5; 10.5). - CA surplus expected to stabilize over the medium term at average of 11.8 percent of GDP. - External buffers forecast to remain adequate—113 percent of ARA EM metric in 2027. - Reserves projected to decline over the medium term, averaging eight months of imports. - Gross official reserves (US$ millions) sequence: 8,370; 7,575; 6,929; 6,954; 6,803; 5,925; 5,762; 5,570; 5,325; 5,095; 5,025. - Reserves in months of imports sequence: 10.5; 9.9; 10.4; 10.9; 10.0; 8.8; 8.4; 8.0; 7.6; 7.3; 7.1. ### Macroeconomic projections and key statistics (selected) - Real GDP growth (percent, Est./Projections sequence): -2.7; -0.7; -0.2; -7.4; -1.0; 5.5; 2.6; 3.5; 1.1; 1.0; 1.0. - Consumer Prices (eop) (percent, sequence): 1.3; 1.0; 0.4; 0.8; 2.4; 3.2; 2.3; 2.0; 1.9; 1.9; 2.0. - Central government finances (percent of GDP, sequence for overall fiscal balance): -10.8; -5.9; -3.7; -11.6; -10.1; -7.5; -4.1; -2.2; -1.3; -0.6; 0.0. - Central government FY2022 staff projections (percent of GDP): - Total Revenue and Grants: 25.8. - Energy: 10.5. - Non-energy: 15.3. - Tax revenue: 12.8. - Non-tax revenue: 2.4. - Total Expenditure: 33.3. - Current expenditure: 31.2. - Wages and salaries: 6.0. - Goods and services: 3.6. - Interest payments: 3.4. - Transfers and subsidies: 18.2. - Capital expenditure: 2.1. - Overall balance: -7.5. - Primary balance: -4.1. - Non-energy primary balance 1/: -21.8. - Central government debt: --68.7. ### Near-term policy priorities and recommendations - Immediate priority: defeating the pandemic and firming up the recovery—including broadening the vaccine rollout. - Fiscal policy recommendations: - Continue targeted support to the most vulnerable while supporting recovery; gradually withdraw support with careful pacing. - Publish a COVID-related spending report, including beneficial ownership of entities awarded COVID-related contracts. - For 2022, keep nominal current expenditure at last year’s level while increasing capital expenditure; offset additional outlays via spending reprioritization to avoid higher deficit. - Authorities plan to collect about 0.2 percent of GDP from implementing the property tax and the newly enacted gambling tax. - Increase execution rates of capital investment within existing spending envelope. - Monetary policy recommendations: - Recent monetary easing appropriately supported the economy; CBTT encouraged to remain data-dependent and be ready to alter stance should inflationary pressures develop, capital outflows intensify, or the recovery falter. - Current TTO-US policy rate differential estimated broadly consistent with the risk-adjusted UIP. - Recent inflation increase due to higher international food prices and shipping costs expected to be transitory. ### Strengthening the fiscal framework (medium term) - Need for a medium-term fiscal consolidation plan to reduce public debt and rebuild buffers. - Under current policies, central government debt expected to remain sustainable and debt-stabilizing primary balance projected to be achieved by FY2024. - Recommendation to gradually reduce debt levels below the authorities’ soft public debt target of 65 percent of GDP over the medium term. - Recommended adjustment mix: tax reforms and expenditure rationalization; shift expenditure composition toward better-targeted social programs and productive investments; address climate change challenges. - Specific staff-recommended measures: - Improve revenue mobilization: - Comprehensive VAT reform to eliminate extensive zero-ratings and exemptions. - Establish reliable taxpayer register; audit stock of VAT refunds (estimated at 5.2 percent of GDP); improve filing, payments, and arrears management. - Rationalize subsidies on fuel, electricity, and water; introduce cash-transfer scheme to low-income and vulnerable groups. Authorities intend to liberalize fuel prices starting January 2022, and electricity and water prices following commission recommendations. - Streamline transfers to SOEs and reform T&TEC and WASA; define reform process within specific timeframe. - Enhance public spending efficiency; adopt Public Procurement Act and publish beneficial ownership information on public contracts. - Adopt a medium-term fiscal framework (MTFF) with clear objectives; establish an operational multiyear fiscal target based on the non-energy primary balance; integrate transfers in and out of the HSF with the MTFF. - Develop a sound debt management framework and integrated asset-liability management strategy. ### Modernizing monetary and exchange rate policy - Persistent FX shortages and preference for a stable exchange rate highlight need to reform FX market infrastructure. - Proliferation of special-purpose facilities at the EximBank has produced a hybrid exchange rate system prone to inefficiencies. - Staff recommends: - Regular review and modernization of FX and money markets infrastructure to replace special-purpose windows at the EximBank. - Eliminate exchange restrictions and multiple currency practices in a planned manner while providing sufficient FX for current international transactions. - Fiscal strategy to rebuild buffers will facilitate external adjustment and help prevent reserves from falling below adequacy when energy revenues decrease. - Consider future exchange rate flexibility to reduce need for fiscal tightening and create room for countercyclical monetary policy. ### Authorities’ views (summary) - Authorities broadly agreed with staff’s assessment of risks but were more sanguine about growth prospects; anticipate slightly stronger rebound in energy and non-energy sectors supported by upcoming energy projects and vaccine acceleration. - Authorities see energy sector as primary short-term driver and expect the “RoadMap for Trinidad and Tobago” to diversify the economy in the medium term. - Authorities concurred on the need to fight the pandemic and support recovery; have accelerated vaccination using mass vaccination centers. - Authorities contemplate scaling down fiscal support as vaccination progresses, while continuing support to the most vulnerable. - Authorities agreed current monetary stance appropriate and will closely monitor inflation. - Authorities indicated they have begun policies to reduce public debt and aim to achieve a primary surplus by FY2023 through revenue-enhancement and expenditure restraint. - Legislative and institutional actions: Gambling (Gaming and Betting) Control Bill passed in 2021; progress on Revenue Authority, property tax, and rationalizing transfers and subsidies while increasing capital spending. - Authorities progressing on medium-term fiscal projections and developing a debt management strategy with CARTAC TA; receptive to exploring fiscal rules with IMF TA. ### Financial stability, fintech, and supervisory reforms - FX market conditions and measures: - Three new special-purpose windows for FX established within EximBank; CBTT continues bi-monthly interventions. - De jure arrangement: floating; de facto: stabilized arrangement. - Exchange restrictions and multiple currency practices subject to Fund approval under Article VIII, Section 2(a) and Section 3. - Financial stability: - Financial system has withstood COVID and energy shocks; FSIs broadly consistent with 2020 FSAP stress-tests. - Banks’ CAR exceeds new regulatory minimum of 10 percent (Basel II). - Loan moratorium helped contain NPLs; moratoria ended on September 30, 2021; CBTT encouraged to conduct timely and forward-looking asset-quality assessments and raise provisioning if necessary. - Vulnerabilities: rise in household debt, high sovereign exposure, natural disaster risk. - Fintech and digital payments: - E-Money order launched; Fintech Innovation Hub created; building capacity in digital payments. - Recommendations: improve physical infrastructure and update supervisory/regulatory framework to manage financial-stability and cybersecurity risks. - Regulatory and supervisory reforms: - CBTT addressing 2020 FSAP recommendations; finalizing phase 2 of Basel II/III implementation; proposing comprehensive payment system; finalizing corporate governance guidelines. - Remaining priorities include upgrading regulatory framework, strengthening supervisory independence and resources, overhauling non-bank supervision (credit unions), adopting macroprudential framework, and developing a crisis management framework. ### AML/CFT, tax transparency, and correspondent banking risks - Progress: removal from FATF monitoring list in February 2020. - Authorities encouraged to: - increase entities registering beneficial ownership information; - finalize Public Procurement Act amendments; - adopt risk-based AML/CFT supervision. - Work in progress: CBTT implemented risk-based AML supervision in early 2020; working with World Bank on national AML/CFT risk assessment. - Urgent need: resolve issues related to EU blacklist and OECD Global Forum requirements on tax transparency to prevent loss of correspondent banking relationships. ### Promoting inclusive and sustainable growth; structural reforms - Given heavy dependence on fossil fuels, policies to develop renewable energy and the non-energy sector are critical. - Strategic frameworks: “Vision 2030” and “The Roadmap”. - Policy priorities: - improve competitiveness and ease of doing business; - incentivize investment; promote tourism; - explore diversification within the energy sector (e.g., renewable energy). - Structural reforms needed: reduce administrative burden; improve education and vocational training; stimulate entrepreneurship; support SMEs; enhance digital transition. - Fiscal and tax measures highlighted: clearing VAT refund arrears (noted VAT refunds estimated at 5.2 percent of GDP) is important to avoid liquidity and compliance problems. ### Climate change and environmental resilience - Natural disaster impact to date manageable: top three events damage US$29.7 million (1997 earthquake US$25 million; 2004 cyclone US$1 million; 2018 flash flood US$3.7 million). - Trinidad and Tobago emits less than 0.1 percent of global GHG but ranks third globally in emissions per capita at 12.8 tons of CO2 per capita as of end-September 2021. - Energy sector and petrochemicals account for more than thirty percent of domestic emissions. - Commitments: ratified Paris Agreement; pledged to lower GHG by 15 percent (and national objective of 30 percent by 2030 relative to 2013 baseline). - Authorities estimate total costs to meet 2030 reduction target at about US$2 billion (9 percent of GDP). - FY2022 green measures: - Liberalize fuel price by January 2022. - Suspension of custom duties, motor vehicle tax and VAT on importation of battery-powered electric vehicles for two years. - Fiscal incentives for carbon capture and storage and enhanced oil recovery to be enacted by January 2022. - Recommendations: conduct environmental risk assessment of financial sector; upgrade climate-resilient infrastructure; strengthen regulatory framework for green financing and renewable energy. ### Data adequacy and statistics - Progress: launch of National Summary Data Page (NSDP) under e-GDDS in October 2021. - Data gaps remain: reduce publication gaps for labor market and household surveys; improve capital flows reporting. - Authorities plan to create the National Statistics Institute and update census, household, and labor surveys in 2022; incorporate remote interviews. - Authorities welcome IMF TA to enhance statistics and continuing collaboration. ### Staff appraisal and policy recommendations (summary) - Immediate priorities: - accelerate vaccinations and support recovery; - continue targeted policy support to vulnerable until recovery is well underway; - publish a COVID-related spending report and prepare a contingency plan for downside risks. - Monetary and fiscal stance: - current fiscal and monetary policy stances considered appropriate; some fiscal space allows continued temporary high spending while pursuing gradual deficit reduction; - CBTT should be ready to alter monetary stance if inflationary pressures develop, capital outflows intensify, or recovery falters. - Medium-term fiscal adjustment: - adopt growth-friendly, inclusive plan mixing tax reforms and expenditure rationalization; - implement tax policy reforms and strengthen tax administration; streamline SOE transfers; improve spending efficiency; reform public procurement; publish beneficial ownership information; phase out subsidies while protecting vulnerable groups. - Fiscal framework: - adopt well-designed MTFF; consider a formal fiscal rule focused on the non-energy primary balance; develop debt management strategy; broaden coverage of fiscal data beyond central government. - FX and exchange regime: - structural changes in FX markets necessary; eliminate exchange restrictions and multiple currency practices in planned manner; modernize FX and money market infrastructure; consider greater exchange rate flexibility. - Financial sector: - monitor banks closely; advance regulatory and supervisory reforms; CBTT to conduct timely asset-quality assessments and encourage increased provisioning if necessary. - AML/CFT and tax transparency: - continue strengthening AML/CFT framework and resolve EU and OECD-related issues. - Structural reform and climate resilience: - pursue comprehensive structural reforms to promote non-energy sector and build climate-resilient economy; advance plans to reduce GHG emissions and increase renewable energy usage. - Data improvements: - reduce publication gaps and overhaul national statistics; emphasize national accounts, labor market, household survey, and capital flows; adhere to NSDP standards under IMF e-GDDS. *Source: IMF staff compilation from "1. COVID-19: Authorities’ Policy Responses".* ### 1. COVID-19: Authorities’ Policy Responses_____________________________________________________________ 7 ### 1. COVID-19: Authorities’ Policy Responses ### Context and recent shock - Before the COVID-19 pandemic, Trinidad and Tobago was recovering from a prolonged recession (2016–19) driven by energy supply and price shocks; Real GDP growth was expected to turn positive in 2020 as energy projects came on stream. - COVID-19, domestic supply shocks in the energy sector, and weak global demand derailed the recovery: - Real GDP contracted by 7.4 percent in 2020; energy sector declined by 12.2 percent; non-energy sector fell by 4.9 percent. - Real GDP is estimated to have fallen by about 1 percent in 2021, reflecting continued disruption to gas production and closure of petrochemical plants. - Headline inflation: 0.8 percent in 2020; rose to 3.9 percent by October 2021 due to international food price surge. - Unemployment increased to 5.1 percent in June-2020 (from 4.2 percent in March 2020). ### Authorities’ containment and health response (Box 1) - Early decisive measures: - Complete lockdown during March-April 2020; borders closed; economic activities restricted. - Gradual reopening began in May-June 2020; partial restrictions re-introduced in mid-2021; borders reopened mid-July 2021. - Vaccination progress: about 48 percent of total population fully vaccinated as of January 2nd, with target of 70 percent by end-2022. - Timeline highlights (selected): - 01/30/2020: Inbound travel restrictions from China - 03/30/2020: Lockdown - 05/15/2020: Gradual reopening began - 02/22/2021: Vaccination begins - 03/31/2021: First shipment of vaccines arrives - 11/24/2021: State of emergency lifted ### Fiscal policy response and fiscal developments - Targeted fiscal support in 2020–21 amounted to about 4 percent of GDP. Components included: - Salary relief to laid-off or reduced-hours workers; VAT and income tax refunds to individuals and SMEs; liquidity support via credit union loans; grants to hoteliers; food, rental, and income support to low-income groups; import duty and VAT waivers on certain medical and emergency supplies. - 2020-21 Fiscal response (TT$ million; Percent of GDP): - TAX Refunds: 4,099 — 2.8 - VAT: 3,765 — 2.5 - Income Tax: 334 — 0.2 - Financial Support: 741 — 0.5 - To Caribbean Airlines (loan): 442 — 0.3 - Salary Relief Grants (2020-21): 177 — 0.1 - To Credit Unions: 100 — 0.1 - Social Protection: 390 — 0.3 - Food support program: 305 — 0.2 - Health Sector (EPE): 331 — 0.2 - SMEs (loan program): 300 — 0.2 - Total: 5,835 — 4.0 - Summary of central government fiscal operations (Percent of GDP): - Total Revenue and Grants: FY2019 27.0; FY2020 22.8; FY2021 24.9 - Energy Sector: FY2019 11.0; FY2020 7.6; FY2021 8.4 - Non-energy Sector: FY2019 16.0; FY2020 15.2; FY2021 16.5 - Total Expenditure: FY2019 30.6; FY2020 34.4; FY2021 35.0 - Interest payments: FY2019 3.1; FY2020 3.4; FY2021 3.9 - Transfers and subsidies: FY2019 16.4; FY2020 18.1; FY2021 18.8 - Overall balance: FY2019 -3.7; FY2020 -11.6; FY2021 -10.1 - Central government debt: FY2019 45.4; FY2020 59.3; FY2021 65.9 - Financing and buffers: - Net domestic financing: FY2020 2.3; FY2021 5.9 (percent of GDP) - Domestic borrowing: FY2020 7.7; FY2021 10.0 - Net external borrowing: FY2020 4.5; FY2021 -0.6 - HSF withdrawals: FY2020 4.5; FY2021 4.2 (percent of GDP) - HSF assets valued at US$5.6 billion (26 percent of GDP) at end-FY2021; sinking-fund assets at 4.1 percent of GDP at end-FY2021. ### Monetary, FX, and financial sector measures - Central Bank actions to ensure liquidity and financial stability: - Reserve Requirement (RR) on commercial bank deposits cut by 300 bps to 14 percent, releasing about TT$ 4.3 billion liquidity. - Policy rate reduced by 150 bps to 3.5 percent. - Prime lending rates reduced by 175 bps to 7½ percent. - Mortgage rates: suspended calculation of reference mortgage rates for 2 years from 10/01/2021. - FX: Special FX window through the EximBank to ensure uninterrupted imports of food and pharmaceuticals. - Refinancing and loan deferrals: banks offered deferred payments and refinanced loans for longer terms at lower rates. - Flexibility in loan restructuring: limits to restructure loans increased from 1 to 2 for commercial loans (lifetime) and for mortgages (in 5-year period) without downgrading to non-performing status. - Loan moratorium on treatment restructured and deferred loans: maintain debtor rating for refinanced and deferred loans through 09/30/2021; added flexibility for one year from October 1, 2021. - Banking system indicators through end-September 2021: - Capital adequacy ratio (CAR): 17.2 percent (stable vs 17.1 percent at end-2020). - Liquid assets to total assets: 19.9 percent (vs 22.4 percent at end-2020). - NPLs: 3.2 percent in 2020; 3.3 percent at end-September 2021. - Loan-loss provisioning: 89.6 percent of impaired loans in 2020; 85.5 percent at end-September 2021. - Profitability declined moderately due to decreasing interest margins. - Credit to private sector growth dropped in 2020 and remained weak through end-September 2021 despite excess liquidity and lower interest rates. - FX and reserves: - Reserves stabilized at $6.95 billion in 2020. - Reserves expected to slightly decrease to US$6.8 billion by end-2021, notwithstanding new SDR allocation. - The authorities indicated they are still exploring the possible use of their new SDR holdings. ### Structural and policy reforms implemented or in progress - Legislation and reform progress: - New Insurance act enacted to strengthen regulation and supervision (enacted January 2021). - Gambling sector law approved; expected to yield about 0.3 percent of GDP in additional taxes over the medium term. - Revenue Authority bill expected to enhance revenue mobilization. - Special Economic Zones (SEZs) legislation approved. - Framework to establish a new property tax scheme being implemented, with challenges ensuring adequate property reporting and valuation. - Public Procurement reform pending parliamentary approval. - Other: Insurance sector recovered from climate-related claims; new insurance legislation strengthens supervisory regime. ### External sector and valuation - External position: - Current account balance deteriorated to 0.1 percent of GDP in 2020; current account gap estimated at -3.4 percent, suggesting currency overvaluation of 11.6 percent (EBA-Lite model). - In 2021, rebound in energy prices estimated to improve current account balance to a surplus of about 11.2 percent of GDP. - FX shortages persist; CBTT FX interventions became more predictable in 2021. - Contributions to current account and trade: - Energy exports drove a significant portion of current account movements; services (net), non-energy exports, and income (net) also contribute to balance dynamics. ### Outlook and risks - Growth projections: - The economy is projected to rebound strongly in 2022: real GDP growth forecast at 5.5 percent in 2022, driven by recovery in domestic demand and energy production from new gas and oil fields. - Assumptions: domestic pandemic spread contained at moderate levels; global activity resumes gradually. - Medium-term: energy sector projected to plateau; real output growth slows to potential of about 1 percent. - Inflation: - With contained demand pressures, inflation in 2022 projected at about 2.8 percent. - Fiscal outlook: - Staff projects fiscal deficit to decline to 7.5 percent of GDP in FY2022, reflecting higher revenue mobilization and modest spending cuts. - Over the medium term, fiscal deficit projected to gradually narrow and reach balance by FY2027. - Gross public debt projected to gradually decline to 76.6 percent of GDP by FY2027, remaining above the government’s soft debt target of 65 percent of GDP over the projection horizon. - Gross financing needs would remain at around 7 percent of GDP. - Financial sector risks: - Loan deferrals and restructurings may have limited the immediate rise in NPLs; asset quality effects of the pandemic may not yet be fully realized. - Excess liquidity, lower interest rates, and weak credit demand constrain private sector credit growth. *Source: IMF staff compilation from "1. COVID-19: Authorities’ Policy Responses".* ### 10. The current account (CA) is projected to remain in surplus. The fast recovery in the ### 10. The current account (CA) is projected to remain in surplus. The fast recovery in the ### External outlook and reserves - CA surplus projected to reach 18.6 percent of GDP in 2022. - CA surplus expected to stabilize over the medium term at average of 11.8 percent of GDP. - External buffers forecast to remain adequate—113 percent of ARA EM metric in 2027. - Reserves projected to decline over the medium term, averaging eight months of imports, as residents continue to invest abroad, and the FX intervention policy continues. - Gross official reserves (US$ millions): 8,370; 7,575; 6,929; 6,954; 6,803; 5,925; 5,762; 5,570; 5,325; 5,095; 5,025 (annual sequence in table). - In months of imports: 10.5; 9.9; 10.4; 10.9; 10.0; 8.8; 8.4; 8.0; 7.6; 7.3; 7.1 (annual sequence in table). ### Risks to the outlook - Downside risks predominate: - Evolution of the pandemic, including new virus strains and delays in global vaccination rollout, could derail the global recovery and add volatility to the energy sector. - Production and project delays in the energy sector. - Lingering effects of the recession and regional exposures to natural disasters could exacerbate financial sector risks. - Increased global greenhouse gas (GHG) mitigation efforts could reduce fossil fuel prices over the medium term. - Upside risks: - Stronger-than-projected global recovery could result in higher energy prices, improving fiscal and external positions. - Faster containment of the pandemic and implementation of key structural reforms could boost non-energy sector growth. ### Macroeconomic projections and key statistics (selected) - Real GDP growth (in percent) — Est./Projections: -2.7; -0.7; -0.2; -7.4; -1.0; 5.5; 2.6; 3.5; 1.1; 1.0; 1.0 (annual sequence). - Consumer Prices (eop) (percent): 1.3; 1.0; 0.4; 0.8; 2.4; 3.2; 2.3; 2.0; 1.9; 1.9; 2.0 (annual sequence). - Central government finances (percent of GDP): - Overall fiscal balance: -10.8; -5.9; -3.7; -11.6; -10.1; -7.5; -4.1; -2.2; -1.3; -0.6; 0.0. - Non-energy balance: -17.0; -14.3; -14.7; -19.2; -18.5; -18.0; -15.1; -13.3; -12.1; -11.3; -10.7. - Primary balance: -7.9; -3.0; -0.5; -8.2; -6.2; -4.1; 0.0; 1.9; 2.7; 3.3; 3.8. - Non-energy primary balance 1/: -18.2; -15.1; -15.1; -19.3; -19.9; -21.8; -15.7; -12.7; -10.9; -9.7; -9.0. - Central government debt 2/: 41.5; 41.8; 45.4; 59.3; 65.9; 68.7; 68.8; 67.4; 66.2; 64.9; 63.1. - Public sector debt 3/: 59.2; 58.4; 61.9; 79.6; 87.2; 88.4; 87.0; 84.0; 81.8; 79.5; 76.6. - Current account balance (percent of GDP): 6.1; 6.8; 4.3; 0.1; 11.2; 18.6; 15.1; 11.8; 10.9; 10.5; 10.5. - Central government FY2022 (percent of GDP) — IMF staff projections: - Total Revenue and Grants: 25.8. - Energy: 10.5. - Non-energy: 15.3. - Tax revenue: 12.8. - Non-tax revenue: 2.4. - Total Expenditure: 33.3. - Current expenditure: 31.2. - Wages and salaries: 6.0. - Goods and services: 3.6. - Interest payments: 3.4. - Transfers and subsidies: 18.2. - Capital expenditure: 2.1. - Overall balance: -7.5. - Primary balance: -4.1. - Non-energy primary balance 1/: -21.8. - Central government debt: --68.7. Notes in source: - 1/ In percent of non-energy GDP. For FY2022, the non-energy primary balance would be -19.8 percent of non-energy GDP once it includes the authorities’ intention to accelerate VAT refunds of 1.9 percent of non-energy GDP. - 2/ Excluding debt issued for sterilization, public bodies' debt, and borrowing from the CBTT. - 3/ Includes central government debt and guaranteed debt of non-self serviced SOEs and public bodies. ### Near-term policy priorities and recommendations - Immediate priority: defeating the pandemic and firming up the recovery—including broadening the vaccine rollout. - Fiscal policy: - Continue targeted support to the most vulnerable sectors to minimize economic and social scarring while supporting the recovery. - Gradually withdraw support with careful pacing to avoid premature tightening before the recovery is firm. - Publish a COVID-related spending report, including information on the beneficial ownership of entities awarded COVID-related contracts, to strengthen transparency. - For 2022, keep nominal current expenditure at last year’s level while increasing capital expenditure to restore growth. - If additional outlays are needed, offset through spending reprioritization to avoid a higher deficit. - Authorities plan to collect about 0.2 percent of GDP from implementing the property tax and the newly enacted gambling tax. - Increase execution rates of capital investment within the existing spending envelope. - Monetary policy: - Recent monetary easing (cuts in policy rate and reserve requirement and temporary relaxation of regulatory treatment of restructured loans) appropriately supported the economy. - CBTT encouraged to remain data-dependent and be ready to alter stance should inflationary pressures develop, capital outflows intensify, or the recovery falter. - Current TTO-US policy rate differential estimated broadly consistent with the risk-adjusted UIP. - Recent inflation increase due to higher international food prices and shipping costs expected to be transitory. ### Strengthening the fiscal framework (medium term) - Need for a medium-term fiscal consolidation plan to reduce public debt and rebuild buffers. - Under current policies, central government debt expected to remain sustainable and debt-stabilizing primary balance projected to be achieved by FY2024. - Given volatility and exhaustibility of energy income, recommendation to gradually reduce debt levels below the authorities’ soft public debt target of 65 percent of GDP over the medium term. - Recommended adjustment mix: tax reforms and expenditure rationalization, shift expenditure composition toward better-targeted social programs and productive investments, and address climate change challenges. - Specific staff-recommended measures: - Improve revenue mobilization via tax policy and administration reforms: - Comprehensive VAT reform to eliminate extensive zero-ratings and exemptions (on both imports and domestic production). - Address weaknesses in tax compliance and administration: establish reliable taxpayer register; audit stock of VAT refunds (estimated at 5.2 percent of GDP); improve filing, payments, and arrears management. - Rationalize subsidies on fuel, electricity, and water; introduce cash-transfer scheme to low-income and vulnerable groups. Authorities intend to liberalize fuel prices starting January 2022, and electricity and water prices following commission recommendations. - Streamline transfers to SOEs and other public bodies; reform T&TEC and WASA and other SOEs to enhance competition, economic efficiency, accountability, and transparency; define reform process within specific timeframe. - Enhance public spending efficiency; adopt Public Procurement Act and publish beneficial ownership information on public contracts. - Adopt a medium-term fiscal framework (MTFF) with clear objectives to strengthen credibility, avoid procyclicality, and mitigate fiscal risks, including SOE-related risks. - Establish an appropriate fiscal anchor, preferably an operational multiyear fiscal target based on the non-energy primary balance; integrate transfers in and out of the HSF with the MTFF. - Develop a sound debt management framework and integrated asset-liability management strategy to guide financing decisions and desired debt composition. ### Modernizing monetary and exchange rate policy - Persistent FX shortages and preference for a stable exchange rate highlight need to reform FX market infrastructure. - Proliferation of special-purpose facilities at the EximBank has produced a hybrid exchange rate system prone to inefficiencies. - Staff recommends: - Regular review of the current system and modernization of FX and money markets infrastructure to replace special-purpose windows at the EximBank. - Eliminate exchange restrictions and multiple currency practices in a planned manner while providing sufficient FX for current international transactions. - Fiscal strategy to rebuild buffers (¶17) will facilitate external adjustment and help prevent reserves from falling below adequacy range when energy sector revenues decrease. - Consider future exchange rate flexibility, if properly utilized, to reduce need for fiscal tightening to achieve external balance and create room for countercyclical monetary policy. ### Authorities’ views (summary) - Authorities broadly agreed with staff’s assessment of risks but were more sanguine about growth prospects; anticipate slightly stronger rebound in energy and non-energy sectors supported by upcoming energy projects and vaccine acceleration. - Authorities see energy sector as primary driver in short term and expect the “RoadMap for Trinidad and Tobago” structural reforms to diversify economy and accelerate non-energy sector activity in medium term. - Authorities concurred on the need to fight the pandemic and support economic recovery; have accelerated vaccination pace using mass vaccination centers. - Authorities contemplate scaling down fiscal support as vaccination campaign progresses, while continuing support to the most vulnerable. - Authorities agreed current monetary stance appropriate and will closely monitor inflation. - Authorities indicated they have begun policies to reduce public debt and aim to achieve a primary surplus by FY2023 through revenue-enhancement and expenditure restraint. - Recent legislative and institutional actions: Parliament passed the Gambling (Gaming and Betting) Control Bill in 2021; authorities advancing initiatives to establish the Revenue Authority and implement a property tax; rationalizing transfers and subsidies, including to SOEs, while increasing capital spending. - Authorities progressing on medium-term fiscal projections and developing a debt management strategy with CARTAC TA; receptive to exploring fiscal rules with IMF TA. *Source: IMF staff report excerpt (Trinidad and Tobago).* ### 24. The authorities recognized the persistent imbalances in the FX market and are taking ### 1ttoea2022001 - 24. The authorities recognized the persistent imbalances in the FX market and are taking ### FX market conditions and measures - Authorities recognize persistent imbalances in the FX market and are taking steps to address them. - Recent rebound in energy production and prices has allowed for some improved FX supply and authorities expect even higher FX supply from the energy sector over the medium term owing to the start-up of new energy projects. - Authorities monitor the FX market regularly and take appropriate actions when needed: - Three new special-purpose windows for FX have been established in recent years within the EximBank. - The CBTT continues to intervene on a bi-monthly basis. - Authorities welcomed staff’s TA offer to assist in modernizing the FX market infrastructure. - De jure exchange rate arrangement: floating; de facto classification: stabilized arrangement. - The current system rations individual FX demands, motivating creation of schemes to circumvent them; notwithstanding FX restrictions, market participants did not provide evidence on the existence of parallel markets. - Trinidad and Tobago maintains an exchange restriction and two multiple currency practices subject to Fund approval under Article VIII, Section 2(a) and Section 3. ### Financial stability and sector resilience - The financial system has withstood the COVID and energy shocks well. - Financial soundness indicators (FSIs) for banks and insurance sector suggest pandemic risks have been contained and are broadly consistent with the 2020 FSAP’s stress-tests. - Institutions maintained healthy capital and liquidity buffers while contending with declining asset quality and profitability. - Banks’ average CAR declined but remains adequate and exceeds the new regulatory minimum of 10 percent, set according to Basel II. - Liquidity remains adequate, but risks could arise from interconnectedness in the system. - The loan moratorium helped to contain NPLs, though loss provisioning increased. - Loan moratoria ended on September 30, 2021; CBTT is encouraged to conduct timely and forward-looking assessments of banks’ asset quality and raise provisioning, if necessary. - Financial system vulnerabilities: rise in household debt, high sovereign exposure, natural disaster risk (including climate-related shocks). ### Fintech and digital payments - Staff welcomes development of Fintech policies to improve efficiency and financial inclusion. - Authorities recently: - launched the E-Money order, - created the Fintech Innovation Hub, - are building capacity in digital payments. - Recommended supporting measures: - appropriate physical infrastructure (including mobile and internet connectivity) and promotion of inclusive access, - necessary updates to supervisory and regulatory framework to safeguard against financial-stability and cybersecurity risks. - Expected benefits: enhanced domestic financial development, fostered financial inclusion, lower intermediation costs, diversified financial products. ### Regulatory and supervisory reforms - Further progress is needed to enhance the financial system’s resilience. - CBTT began addressing the 2020 FSAP recommendations (Annex III) and is: - finalizing phase 2 of the Basel II/III implementation plan, - proposing to develop a comprehensive payment system, - finalizing corporate governance guidelines. - Remaining recommendations to address: - (i) upgrade the regulatory framework in line with best international practice; - (ii) strengthen supervisory independence, resources, and regulatory powers; - (iii) overhaul non-bank supervision (including assigning an independent supervisor with sufficient powers for credit unions); - (iv) adopt a strong macroprudential framework and prudential policies; - (v) develop a crisis management framework with a tool-set to effectively deal with distressed financial institutions without relying on government bailouts. - Authorities’ view: financial system remains resilient; some vulnerabilities exist; CBTT acknowledged loan deferral program may have masked a rise in NPLs but proactive bank provisioning and economic reopening would help mitigate deterioration in asset quality. ### AML/CFT, tax transparency, and correspondent banking risks - Progress welcomed: removal from FATF monitoring list in February 2020. - Authorities encouraged to: - increase number of entities that register beneficial ownership information, - finalize amendments to the public procurement act, - adopt risk-based AML/CFT supervision. - Work in progress: CBTT implemented a risk-based AML supervision framework in early 2020 and introduced the AML Self-Assessment Questionnaire; working with the World Bank on a national AML/CFT risk assessment. - Urgent need: expeditious resolution of issues related to the EU blacklist and the OECD’s Global Forum requirements on tax transparency and exchange of information to prevent loss of correspondent banking relationships. ### Promoting inclusive and sustainable growth; structural reforms - Given heavy dependence on fossil fuels, policies to develop renewable energy and the non-energy sector are critical. - Authorities’ strategic frameworks: “Vision 2030” and “The Roadmap” aim to support medium-term inclusive growth, reduce external imbalances, and enhance resilience. - Policy priorities to advance expeditiously: - improve competitiveness and ease of doing business; - incentivize investment; promote tourism; - explore diversification within the energy sector (e.g., renewable energy). - Comprehensive structural reforms needed to support non-energy sector: - reduce administrative burden; - improve education and vocational training to address skills mismatches and boost productivity; - stimulate entrepreneurship; - support SMEs and enhance transition to the digital economy to increase productivity, tax collection, and formality. - Fiscal and tax measures highlighted: - clearing VAT refund arrears and remain current is important as delays may affect liquidity and tax compliance. - Authorities’ initiatives and views: - continue SOE reform following 2018 Petrotrin restructuring; - modernize current Free Zone regime, introduce e-Government and digital economy, promote tourism; - establishment of new revenue authority to facilitate trade by reducing transaction costs; - comprehensive review of oil and gas taxation regime forthcoming; - commitment to reducing emissions and developing solar energy while recognizing natural gas and ammonia as cleaner carburants. ### Climate change and environmental resilience - Country prone to natural disasters (flooding and droughts). - Trinidad and Tobago signed the Paris Agreement and committed to reducing GHG emissions by 15 percent from power generation, transportation, and industrial operations. - Plans include increasing renewable energy component of power generation and implementing a fuel-switching program in the transportation sector to meet the target. - Recommendations: - conduct a comprehensive environmental risk assessment of the financial sector, - upgrade climate-resilient infrastructure, - strengthen regulatory framework for green financing and renewable energy. ### Data adequacy and statistics - Progress: launch of the National Summary Data Page (NSDP) under the e-GDDS in October 2021. - Data are adequate for surveillance but further progress needed: - reduce publication gaps for labor market and household surveys, - improve reporting of capital flows data. - Authorities plan to create the National Statistics Institute and update census, household, and labor surveys in 2022; incorporate remote interviews to address pandemic complications. - Authorities welcome IMF TA to enhance statistics and continuing collaboration. ### Staff appraisal and policy recommendations (summary) - Immediate priorities: - accelerate vaccinations and support the economic recovery, - continue targeted policy support to the most vulnerable until recovery is well underway, - publish a COVID-related spending report and prepare a contingency plan for downside risks. - Monetary and fiscal stance: - current fiscal and monetary policy stances considered appropriate; availability of some fiscal space allows continued temporary high spending while pursuing gradual deficit reduction; - CBTT should be ready to alter monetary stance if inflationary pressures develop, capital outflows intensify, or recovery falters. - Medium-term fiscal adjustment: - adopt a growth-friendly and inclusive plan mixing tax reforms and expenditure rationalization; - implement tax policy reforms and strengthen tax administration to enhance revenue mobilization; - streamline transfers to SOEs; improve public spending efficiency; reform public procurement; publish beneficial ownership information on public contracts; phase out subsidies while protecting vulnerable groups. - Fiscal framework: - adopt a well-designed medium-term fiscal framework (MTFF) to strengthen multi-year fiscal discipline and avoid procyclicality; - consider a formal fiscal rule focused on the non-energy primary balance; - develop a sound debt management strategy; - broaden coverage of complete fiscal data beyond central government. - FX and exchange regime recommendations: - structural changes in FX markets necessary to support exchange rate regime; - encouraged to eliminate exchange restrictions and multiple currency practices in a planned manner while providing sufficient FX to meet demand for all current international transactions; - modernize FX and money market infrastructure; - consider greater exchange rate flexibility to reduce need for fiscal adjustments and allow more countercyclical monetary policy. - Financial sector recommendations: - monitor banks closely and advance regulatory and supervisory reforms; - CBTT to conduct timely and forward-looking assessments of asset quality and encourage increases in provisioning if necessary. - AML/CFT and tax transparency: - continue strengthening AML/CFT framework and resolve issues related to the EU and OECD blacklists. - Structural reform and climate resilience: - pursue comprehensive structural reforms to promote the non-energy sector and build a climate-resilient economy; - advance plans to reduce GHG emissions and increase renewable energy usage; upgrade regulatory framework for green financing and renewable energy. - Data improvements: - reduce publication gaps and overhaul national statistics, emphasizing national accounts, labor market, household survey, and capital flows; - adhere to NSDP standards under the IMF’s e-GDDS. *Based on the IMF staff report text provided.* ### 49. It is recommended that the next Article IV consultation be held on the standard 12- ### 49. It is recommended that the next Article IV consultation be held on the standard 12- month cycle. ### Real Sector Developments - The pandemic has impaired a nascent recovery. - The contraction originated in the energy sector but spilled over the non-energy sector, affecting exports and private investment. - Economic slack worsened, pushed up unemployment and kept inflation low. - Despite slack, headline inflation could react to the recent surge in international food prices. - The downturn reduced labor force participation, which could affect recovery prospects. - Sources: National Authorities and IMF staff calculations. ### Energy Sector Developments - The energy sector dominates the economy and faces capacity-constraints, responding more to market price declines than to upticks. - Gas, oil, and refining suffered the most from the pandemic; the pandemic disrupted supply chains in the gas industry, affecting maintenance and production capacities. - Since May 2021, a new oil field “Ruby” began to ameliorate the declining oil production. - Petrochemicals’ production could react quickly to market prices and support the recovery. - Data note: Data for 2021 are the latest available (2021: Q1). Key energy-related figures (as presented) - Share in public revenue and Share in exports: charted by year 2015–2021 (percent). - Energy RGDP and prices: charted 2015–2021 (Constant TT$; US$ per unit). - Contributions of Energy Sector to Real GDP (Million TT$) for 2015–2021. - Natural Gas Production (mmcf/d) and Henry Hub Natural Gas Price (US$/ten thousand btu) for 2015–2021. - Crude Oil Production Daily Average (000's Barrels) and WTI Crude Oil Price (US$/bbl) for 2015–2021. - Petrochemical production and prices (US$ per ton, and constant TT$) for 2015–2021. - Sources: National Authorities and IMF staff calculations. ### Fiscal Developments - The fiscal position has deteriorated significantly due to COVID-19 as revenues declined and spending increased. - Decline in energy prices and production and the lockdown led to a decline in fiscal revenues. - There has been an increase in transfers and subsidies and capital expenditures. - The deficit has been largely financed from domestic sources and public debt is rising. - Sources: National Authorities and IMF staff calculations. Selected fiscal and public debt indicators (exact values from tables) - GDP per capita (U.S. dollars, 2020): 15,265 - Population (millions, 2020): 1.40 - Unemployment rate (Q2 2020): 5.2 - Real GDP growth (2017–2027 row): 2017 -2.7; 2018 -0.7; 2019 -0.2; 2020 -7.4; Est. 2021 -1.0; 2022 5.5; 2023 2.6; 2024 3.5; 2025 1.1; 2026 1.0; 2027 1.0 - Energy growth: 2017 -0.2; 2018 -3.4; 2019 -4.0; 2020 -12.2; Est. 2021 -1.1; 2022 12.9; 2023 4.0; 2024 5.9; 2025 0.3; 2026 0.0; 2027 0.0 - Non-energy growth: 2017 -4.0; 2018 0.8; 2019 1.9; 2020 -4.9; Est. 2021 -0.9; 2022 2.0; 2023 1.9; 2024 2.2; 2025 1.5; 2026 1.5; 2027 1.5 - CPI inflation (end-of-period): 2017 1.3; 2018 1.0; 2019 0.4; 2020 0.8; Est. 2021 2.4; 2022 3.2; 2023 2.3; 2024 2.0; 2025 1.9; 2026 1.9; 2027 2.0 - Central government primary balance (percent of GDP): 2017 -7.9; 2018 -3.0; 2019 -0.5; 2020 -8.2; Est. 2021 -6.2; 2022 -4.1; 2023 0.0; 2024 1.9; 2025 2.7; 2026 3.3; 2027 3.8 - Central government overall balance (percent of GDP): 2017 -10.8; 2018 -5.9; 2019 -3.7; 2020 -11.6; Est. 2021 -10.1; 2022 -7.5; 2023 -4.1; 2024 -2.2; 2025 -1.3; 2026 -0.6; 2027 0.0 - Budgetary revenue (percent of GDP): 2017 21.2; 2018 24.5; 2019 27.0; 2020 22.8; Est. 2021 24.9; 2022 25.8; 2023 27.5; 2024 28.2; 2025 28.3; 2026 28.2; 2027 28.3 - Energy revenue (percent of GDP): 2017 6.2; 2018 8.3; 2019 11.0; 2020 7.6; Est. 2021 8.4; 2022 10.5; 2023 11.0; 2024 11.1; 2025 10.9; 2026 10.6; 2027 10.7 - Central government debt (percent of GDP): 2017 41.5; 2018 41.8; 2019 45.4; 2020 59.3; Est. 2021 65.9; 2022 68.7; 2023 68.8; 2024 67.4; 2025 66.2; 2026 64.9; 2027 63.1 - Public sector debt (percent of GDP): 2017 59.2; 2018 58.4; 2019 61.9; 2020 79.6; Est. 2021 87.2; 2022 88.4; 2023 87.0; 2024 84.0; 2025 81.8; 2026 79.5; 2027 76.6 - Heritage and Stabilization Fund assets (percent of GDP): 2017 25.2; 2018 25.2; 2019 26.2; 2020 26.1; Est. 2021 26.2; 2022 25.3; 2023 24.6; 2024 24.0; 2025 23.8; 2026 23.8; 2027 23.8 ### Central Government Operations (Tables highlights) - Total revenue and grants (in millions of TT$): 2017 32,896; 2018 39,308; 2019 43,482; 2020 33,843; Est. 2021 36,149; 2022 39,856; 2023 45,085; 2024 48,832; 2025 50,788; 2026 52,087; 2027 53,837 - Expenditure (in millions of TT$): 2017 49,680; 2018 48,834; 2019 49,411; 2020 51,048; Est. 2021 50,784; 2022 51,478; 2023 51,764; 2024 52,617; 2025 53,049; 2026 53,264; 2027 53,873 - Non-energy balance (in millions of TT$): 2017 -26,452; 2018 -22,898; 2019 -23,653; 2020 -28,490; Est. 2021 -26,845; 2022 -27,883; 2023 -24,719; 2024 -22,969; 2025 -21,753; 2026 -20,810; 2027 -20,351 - For FY2022, note: the non-energy primary deficit would be TT$21.4 billion once it includes the authorities’ intention to accelerate VAT refunds of TT$2 billion. ### External Sector Developments - Energy prices drive the current account surplus; the financial account continues to record outflows driven by residents’ outward investment. - The COVID-19, energy price and production shocks severely affected exports, but they are forecast to recover in 2021. - Reserves will stabilize in 2021 due to the withdrawal from the HSF and the new SDR allocation. - Official external debt increased in 2020, but buffers remain large; recovery in the energy sector has kept external financing costs lower than peers. - Sources: Central Bank of Trinidad and Tobago and IMF staff calculations. Key external sector figures (exact values) - Current account balance (in millions of US$): 2017 1,409; 2018 1,626; 2019 1,020; 2020 132; Est. 2021 2,402; 2022 4,331; 2023 3,699; 2024 3,058; 2025 2,929; 2026 2,897; 2027 2,980 - Exports (in millions of US$): 2017 9,645; 2018 10,756; 2019 8,764; 2020 5,965; Est. 2021 10,472; 2022 13,036; 2023 12,243; 2024 11,761; 2025 11,644; 2026 11,635; 2027 11,786 - Gross official reserves (US$ million): 2017 8,370; 2018 7,575; 2019 6,929; 2020 6,954; Est. 2021 6,803; 2022 5,925; 2023 5,762; 2024 5,570; 2025 5,325; 2026 5,095; 2027 5,025 - Memorandum: Current account balance (percent of GDP): 2017 6.1; 2018 6.8; 2019 4.3; 2020 0.1; Est. 2021 11.2; 2022 8.6; 2023 15.1; 2024 11.8; 2025 10.9; 2026 10.5; 2027 10.5 - Crude oil price (US$/barrel), WEO simple average series: 2017 52.8; 2018 68.3; 2019 61.4; 2020 41.3; Est. 2021 69.8; 2022 75.7; 2023 70.2; 2024 67.3; 2025 65.2; 2026 63.8; 2027 63.8 - Henry Hub natural gas price (US$ per MMBtu): 2017 3.0; 2018 3.2; 2019 2.6; 2020 2.0; Est. 2021 3.9; 2022 4.2; 2023 3.6; 2024 3.3; 2025 3.1; 2026 3.1; 2027 3.1 ### Monetary and Banking Sector Developments - In March 2020, the CBTT eased the policy rate and reserve requirement to support the economy during the pandemic. - As a result, excess reserves and liquidity ratio spiked but gradually declined to pre-pandemic levels. - Private sector credit remained stable and interest rate spreads decreased. - Bank deposits rose despite unchanged interest rates; CB reserves and base money will slightly decline in 2021. - Sources: Central Bank of Trinidad and Tobago; and IMF staff calculations. Selected monetary aggregates (exact values) - Net foreign assets (TT$ millions): 2017 74,454; 2018 69,613; 2019 65,182; 2020 69,016; Est. 2021 67,531; 2022 61,908; 2023 61,120; 2024 60,142; 2025 58,807; 2026 57,572; 2027 57,429 - Liabilities to private sector (M3) (TT$ millions): 2017 106,097; 2018 107,342; 2019 110,437; 2020 118,305; Est. 2021 117,916; 2022 122,878; 2023 126,187; 2024 129,796; 2025 131,782; 2026 133,711; 2027 135,687 - Credit to private sector (TT$ millions): 2017 60,567; 2018 62,964; 2019 65,727; 2020 65,512; Est. 2021 65,323; 2022 70,820; 2023 74,634; 2024 78,904; 2025 81,318; 2026 83,699; 2027 86,173 - M3 (growth, period): 2017 -0.4; 2018 1.2; 2019 2.9; 2020 7.1; Est. 2021 -0.3; 2022 4.2; 2023 2.7; 2024 2.9; 2025 1.5; 2026 1.5; 2027 1.5 ### Financial Soundness Indicators and Banking Sector - Banks have maintained capital buffers; NPLs remain around 3.4 percent. - Since 2020, provisions have increased reflecting the loan moratorium. - Composition of income is stable though assets’ profitability declined since the pandemic. - Banks continued to maintain liquidity buffers. - Banks increased their net FX position to 13 percent of capital in 2021 (chart note). - Data notes: 1/ Data for 2021 are the latest available (September 2021). 2/ Data for 2021 are the latest available (2021: Q1). 3/ Growth rates for 2021 are annualized, based on the first 3 months. Selected FSIs (exact values) - NPLs to total gross loans: 2015 3.4; 2016 3.1; 2017 2.9; 2018 3.0; 2019 2.9; 2020 3.2; 2021 3.3 - Regulatory capital to risk-weighted assets: 2015 22.1; 2016 21.9; 2017 21.0; 2018 20.9; 2019 21.2; 2020 17.1; 2021 17.2 - Return on assets: 2015 2.6; 2016 2.7; 2017 2.5; 2018 2.7; 2019 3.2; 2020 1.4; 2021 1.8 - Return on equity: 2015 18.4; 2016 20.9; 2017 18.8; 2018 21.0; 2019 24.8; 2020 11.9; 2021 15.0 - Net open position in FX to capital: 2015 5.7; 2016 12.2; 2017 15.4; 2018 13.3; 2019 8.4; 2020 11.4; 2021 15.6 - Specific provisions-to-impaired assets: 2013–2021 series shown in Table 6; 2020 72.9; 2021 69.1 (as presented) ### Key Balance of Payments and Vulnerability Indicators - Trade balance (millions US$): 2017 3,193; 2018 4,138; 2019 2,732; 2020 969; Est. 2021 4,604; 2022 6,691; 2023 6,033; 2024 5,405; 2025 5,253; 2026 5,203; 2027 5,285 - Services and transfers (net) (millions US$): 2017 -1,784; 2018 -2,513; 2019 -1,712; 2020 -956; Est. 2021 -2,202; 2022 -2,360; 2023 -2,334; 2024 -2,346; 2025 -2,325; 2026 -2,306; 2027 -2,305 - Capital and financial account (net) (millions US$): 2017 -2,533; 2018 -2,413; 2019 -1,674; 2020 12; Est. 2021 -2,554; 2022 -5,209; 2023 -3,863; 2024 -3,250; 2025 -3,174; 2026 -3,128; 2027 -3,050 - Overall balance (millions US$): 2017 -1,122; 2018 -784; 2019 -644; 2020 25; Est. 2021 -151; 2022 -878; 2023 -163; 2024 -192; 2025 -245; 2026 -231; 2027 -70 ### Projections and Notable Technical Notes - Projections are provided through 2027 across real, fiscal, external, monetary, and financial variables (see tables). - Several table footnotes and data caveats are reported: - Fiscal years run from October 1 in the previous year to September 30 of the stated year. - Non-energy definitions and exclusions for debt statistics are specified in table notes. - WEO crude oil price is the simple average of three spot prices: Dated Brent, West Texas Intermediate, and Dubai Fateh. - Some 2021 data are latest available as of Q1 or September 2021 depending on series. *Sources: National Authorities; Central Bank of Trinidad and Tobago; Central Statistical Office; UN Human Development Report; WEO; Moody's; Standard and Poor's; IMF staff calculations, estimates, and projections.* ### Annex I. Implementation of Key Recommendations from the 2018 ### Annex I. Implementation of Key Recommendations from the 2018 Article IV Consultation ### Fiscal Policy — Implementation Status - Adopt formal fiscal targets with a clear and transparent medium-term fiscal framework. - Status: Ongoing. The authorities introduced medium-term fiscal projections for internal use. Fund TA was provided in 2018 to assist with the medium-term fiscal framework. - Complete reforms to oil and gas fiscal regime. - Status: Partially done. Royalties on oil and gas production have been standardized. - Introduce revenue reforms (Revenue Authority, gambling tax bill, and property tax). - Status: Ongoing. The Revenue Authority Bill was approved by the Parliament in December 2021. The Gambling (Gaming and Betting) Control Act was passed by Parliament in June 2021. The roll-out of the property tax is delayed due to challenges with the valuation process. - Improve tax administration and compliance. - Status: Ongoing. TADAT TA mission was conducted in 2019. TA support is being received from CARTAC to enhance tax administration. - Address VAT refund arrears. - Status: Partially done. The authorities cleared VAT refund arrears amounted to TT$3 billion through bond issuance and plan to accelerate VAT refunds to stay current thereafter. - Further reform energy subsidies. - Status: Ongoing. Fuel prices have been partially adjusted over the past two years. - Contain public spending and improve its efficiency. - Status: Ongoing. The authorities plan to rationalize SOE transfers and reform the SOEs providing water and electricity. - Adopt asset-liability management framework. - Status: Ongoing. TA from CARTAC is planned to help develop a debt management strategy. ### Monetary and Exchange Rate Policy — Implementation Status - Allow exchange rate to fluctuate with market forces. - Status: No progress. The authorities prefer to maintain the status quo on the exchange rate regime. - Clear the FX market on a sustained basis. - Status: No progress. ### Financial Sector — Implementation Status - Strengthen financial supervision and regulatory framework. - Status: Ongoing. The FSAP was completed in October 2020; Annex III summarizes implementation its key recommendations. - Strengthen AML/CFT framework. - Status: Ongoing. Trinidad and Tobago made sufficient progress in strengthening its AML/CFT framework to be removed from the FATF’s grey list, nevertheless the FATF highlighted areas that require further improvement. ### Structural Reforms — Implementation Status - Implement Public Procurement Act. - Status: Ongoing. Parliament approval is pending. - Adopt comprehensive public service reforms. - Status: Ongoing. Parliament approval is pending. - Introduce reforms to National Insurance System. - Status: No progress. ### Statistics — Implementation Status - Further improve economic statistics. - Status: Ongoing. The authorities joined the e-GDDS and launched a National Summary Data Page (NSDP). TA was recently provided to improve the estimates of GDP. However, the pandemic complicated the data collection. Updating census, household and labor survey are planned for 2022. --- ### Annex II. Risk Assessment Matrix — Major Risks, Likelihood, Expected Impact, and Policy Responses - Global resurgence of the COVID-19 pandemic. - Likelihood/Time Horizon: Medium/Short-term - Expected Impact: High - Key transmission channels: energy demand and domestic economic/health outcomes; lower energy demand would negatively impact energy sector growth and fiscal and external positions. - Policy Response: - Policy support measures—including vaccination rollout—should continue to provide support to the most vulnerable sectors and households. - Careful pacing will be essential to gradually withdraw support without disrupting the recovery and avoid premature tightening before the recovery is firmed up. - Rising core yields and risk premia due to de-anchoring of inflation expectations in the U.S. - Likelihood/Time Horizon: Medium/Short to Medium-term - Expected Impact: Medium - Key transmission channels: front-loaded tightening of financial conditions, higher risk premia, stress to balance sheets and debt service, higher bank funding costs, capital outflows, pressure on exchange rate and FX reserves. - Policy Response: - Continued monitoring market risks in the financial sector is critical to mitigate any risks that could materialize. - Rising commodity prices amid bouts of volatility. - Likelihood/Time Horizon: Medium/Short to Medium-term - Expected Impact: High - Key transmission channels: imported inflation, higher inflation expectations, stronger fiscal and external positions if energy prices rise; fiscal stance could turn procyclical if not anchored. - Policy Response: - Monetary policy may need to be tightened to contain inflation pressures. - Adopt a medium-term fiscal framework with a fiscal anchor to reduce the procyclicality of fiscal policy. - Accelerate fiscal reforms to boost non-energy revenue collections. - Implement structural reforms to support private sector development. - Intensified geopolitical tensions and security risks. - Likelihood/Time Horizon: Medium/Short to Medium-term - Expected Impact: High - Key transmission channels: global energy market shock, confidence shock triggering capital outflows, pressure on asset prices. - Policy Response: - See recommended response to rising commodity prices. - Enhanced surveillance of the financial system to identify systemic risks or liquidity pressures early on. - Monetary and prudential measures can be deployed to address capital outflows if they occur. - Higher frequency and severity of natural disasters related to climate change. - Likelihood/Time Horizon: Medium/Low Short to Medium-term - Expected Impact: Medium - Key transmission channels: damage to infrastructure, disruption to trade, fiscal costs, exposure of banking and insurance sectors, higher reinsurance premiums. - Policy Response: - Invest in mitigation measures to reduce the impact of natural disasters. - Create natural disaster-related buffers through insurance or dedicated budgeted funds to offset fiscal risks. - Undertake a comprehensive risk assessment and integrate material aspects of climate change and environmental risks into financial sector supervision. - Cyber-attacks on critical infrastructure, institutions, and financial systems. - Likelihood/Time Horizon: Medium/Short to Medium-term - Expected Impact: Medium - Key transmission channels: payment system disruption, systemic financial instability, disruption to remote work arrangements, data theft, loss of confidence. - Policy Response: - Improve spending on cyber-security. - Strengthen information security and data protection; business continuity procedures; and routine off-site tests. - Develop a methodology for mapping financial and technological networks to identify critical risk concentrations. - Uncontrolled local outbreaks of COVID-19. - Likelihood/Time Horizon: High/Short to Medium-term - Expected Impact: High - Key transmission channels: containment measures stalling domestic recovery, rising unemployment. - Policy Response: - Continue mass vaccination, within existing vaccine supply constraints. --- ### Annex III. Main Recommendations of the 2020 FSAP — Implementation Highlights ### Financial Sector Oversight — Selected Recommendations and Status - Undertake scenario solvency and cashflow-based liquidity stress tests for banks and conglomerate stress tests. (CBTT, TTSEC) - Time: NT - Status: Ongoing. CBTT rolled out the revised stress testing methodology in September 2020 for solvency and liquidity tests. CBTT conducted stress testing and shared results with banks in early 2021. Conglomerate stress tests are not currently conducted by CBTT, but a Liquidity Risk Management Guideline issued in January 2021 requires comprehensive liquidity stress testing and board-approved Liquidity Contingency Plans (“LCP”). - Strengthen independence, governance, and resources of financial supervisors, including assigning powers to issue regulation. (MoF, CBTT, TTSEC) - Time: NT - Status: Ongoing. CBTT Strategic Plan (2021–26) includes an independent review of structure and resources for supervision expected to be completed by March 2022; amendments to the Financial Institutions Act, 2008 are an objective. - Banks: Implement the new Basel II/III banking regulations; update supervisory guidance and conduct more in-depth analysis in key risk areas. (MoF, CBTT) - Time: NT - Status: Ongoing. “Financial Institutions Capital Adequacy Regulations, 2020” enacted on May 14, 2020 and are in effect. First ICAAP submissions based on CBTT ICAAP guidelines issued in November 2020 are due by end January 2022. IMF/CARTAC provided TA for Pillar II SREP reviews of ICAAPs and development of leverage and Liquidity Coverage Ratio (LCR). In August 2021, CBTT issued a Framework for the Identification of a Domestic Systemically Important Bank and deriving the higher loss absorbency requirement for industry consultation. Several supervisory guidelines issued; some (credit risk management, outsourcing, market risk management) in final stages. - Insurers: Implement modern insurance legislation and risk-based supervision. (MoF, CBTT) - Time: I - Status: Addressed. The Insurance (Amendment) Act, 2020, was proclaimed and became effective on January 1st, 2021. The accompanying regulations also took effect from January 1, 2021. - Investment Funds: Introduce regulation for investment funds, require industry-wide compliance; and implement carefully sequenced industry-wide transition to floating funds. (MoF, TTSEC, CBTT) - Time: NT/MT - Status: No progress. - Credit Unions: Adopt new legislation and regulation for supervision and assign to a fully independent supervisor with sufficient powers and resources. (MoF) - Time: NT - Status: Ongoing. A committee chaired by the Ministry of Youth Development and National Service with representatives from MoF, Central Bank, and credit union sector has been set up to develop policy proposals for establishment of an independent authority to regulate credit unions and other co-operatives. - Financial Markets Infrastructure: Enact a comprehensive National Payments Law. (MoF, CBTT) - Time: MT - Status: Ongoing. CBTT issued a Policy Proposal Document for a comprehensive Payment Systems Bill—with IMF TA—in May 2021. Feedback received; IMF working with CBTT to draft new legislation. Authorities plan to introduce legislation in 2022–23. - Financial Conglomerates: Implement consolidated risk assessment methodology for financial conglomerates with cross-sector views of all material entities. (CBTT, TTSEC) - Time: NT - Status: Ongoing. A regional technical working group at the CGBS level and sub-committees established to determine methodologies for group capital adequacy and group liquidity and information sharing among supervisors. ### Systemically Important Financial Institutions (SIFIs) - Revise deemed SIFI list, using best practice methodology, assign commensurate supervisory powers, and implement buffers. (MoF, CBTT) - Time: NT - Status: Ongoing. A Framework for the Identification of a Domestic Systemically Important Bank and Determination of the higher loss absorbency (HLA) was issued for public consultations in August 2021 and is being finalized. Best practice methodology applied to five deemed SIFIs to revise the list. ### Market Integrity and Macroprudential Policy - Market Integrity: Continue to strengthen the AML/CFT framework and address remaining FATF recommendations. (Authorities) - Time: NT - Status: Ongoing. CBTT's Risk Based AML Supervisory Framework published January 2020. Four of the Five Recommendations with 'partially compliant' ratings based on the 2016 MER are being addressed by other national competent authorities. - System wide oversight and macroprudential policy: Strengthen financial sector data, assign macroprudential powers to CBTT and implement prudential policies that encourage banks to limit sovereign exposures. (Authorities) - Time: NT - Status: No progress. CBTT indicated the issue will be examined during the review of the Financial Institutions Act, 2008. ### Financial Safety Net - Amend legislation to align resolution regime with best international practice, establish a resolution unit at CBTT, and initiate resolution planning. Strengthen emergency lending assistance, deposit insurance, and resolution funding. (MoF, CBTT, DIC) - Time: NT - Status: Ongoing. The Framework for the Recovery and Resolution of Financial Institutions was completed in September 2021. A comprehensive review of the legislative framework is underway and included in CBTT’s Strategic Plan, scheduled over the next three years. ### Financial Development and Climate Risk - Develop a financial sector development policy strategy covering DFI mandates and state-owned commercial banks. (MoF) - Time: NT - Status: No progress. - Undertake a comprehensive environmental risk assessment of the financial sector and develop a green finance strategy. (MoF) - Time: NT - Status: Ongoing. CBTT has considered climate-related risks a material threat to financial stability in its Financial Stability Reports 2019 and 2020. Physical and transition risks are considered the main sources of climate-related risks. CBTT has not yet set a strategy to embed climate-related risks into supervision or undertaken an analysis of exposures, but both issues are included in its Strategic Plan 2021/22–2025/26. CBTT joined the network for Greening the Financial System (NGFS). *Source: Annex I–III, implementation and assessments as presented in the IMF staff documents.* ### Annex IV. External Sector Assessment ### Annex IV. External Sector Assessment ### Overall Assessment - Based on the EBA-Lite model, the external position of Trinidad and Tobago in 2020 was weaker than the level implied by fundamentals and desirable policies. - The country is a net creditor with a large positive net international investment position (NIIP). - Gross international reserves are adequate under all metrics. - The external assessment model estimates a current account gap of -3.4 percent in 2020. ### Potential Policy Responses - Given the authorities’ commitment to the current de facto exchange rate arrangement: - Medium-term fiscal consolidation is needed. - Structural reforms to support the development of the non-energy sector, which would improve competitiveness, are needed. - Objectives: protect the current level of reserve buffers and increase savings for future generations. ### Foreign Assets and Liabilities: Position and Trajectory Background and recent trend - Trinidad and Tobago is a net creditor. - NIIP is estimated at US$3.4 billion (15.9 percent of GDP) at end-2020, 8 percentage points of GDP below its peak in 2015. - The decline in NIIP is primarily driven by continued decrease in gross foreign assets (GFAs), specifically debt securities under portfolio investments, while gross foreign liabilities remained constant. Assessment and outlook - Under current policies, a continued decline in international reserves is expected, which would decrease GFAs. - Effects on the NIIP depend on the nature of capital outflows; very large errors and omissions in the Financial Account of the BoP and lack of capital account data create large uncertainty about the NIIP assessment in the medium term. - Staff expect Trinidad and Tobago to continue to be a net creditor. Key position indicators (2020, percent of GDP) - NIIP: 15.9 - Gross Assets: 109.1 - Debt Assets: 57.1 - Gross Liab.: 93.2 - Debt Liab.: 75.53 Note - Debt liabilities are with the IMF and include the Special Drawing Rights (SDR) allocation. ### Current Account Background and recent developments - Current account (CA) balance surplus narrowed from 4.3 percent of GDP in 2019 to 0.1 percent of GDP in 2020. - Cause: sharp decline in energy exports due to weak energy sector performance from supply shocks and the energy price shock during the global pandemic. - Resulted in an unusual negative trade balance of 0.9 percent of GDP (vs. an average surplus of 6 percent of GDP in the previous five years). - Compression in imports of goods and services linked to the recession and sanitary restrictions helped balance the current account. - The current account balance is expected to recover to a surplus of 11.2 percent of GDP in 2021 and remain in surplus over the medium term due to recovery in the energy sector. Assessment (EBA-Lite model) - Cyclically adjusted CA: 1 percent of GDP (including adjustment for temporary pandemic effects on oil trade balance and tourism totaling 0.7 percent of GDP). - CA norm: 4.5 percent of GDP in 2020 after cyclical and multilateral consistency adjustments. - Implied CA gap: -3.4 percent of GDP. Model components and adjustments (Trinidad and Tobago: Model Estimates for 2020, in percent of GDP) - CA-Actual: 0.1 - Cyclical contributions (from model): (-) 0.6 - COVID-19 adjustor (+) 1/0.7 - Additional temporary/statistical factors (+): 0.0 - Natural disasters and conflicts (-): -0.9 - Adjusted CA: 1.0 - CA Norm (from model) 2/: 4.5 - Adjusted CA Norm: 4.5 - CA Gap: -3.4 - o/w Relative policy gap: -1.1 Note - 1/ Additional cyclical adjustment to account for the temporary impact of the pandemic on oil trade balances (0.19 percent of GDP) and tourism (0.53 percent of GDP). - 2/ Cyclically adjusted, including multilateral consistency adjustments. ### Real Exchange Rate (REER) Background - The REER depreciated by 7.2 percent between March 2020 and June 2021 due to: - 3.7 percent depreciation in the nominal effective exchange rate. - 3.5 percent decrease in the relative price index. - Despite this depreciation, the REER remains overvalued relative to levels implied by medium-term fundamentals and desirable policies. - Observation consistent with tightness in the domestic FX market and one-sided interventions by the Central Bank of Trinidad and Tobago, which have kept the nominal exchange rate vis-à-vis the US dollar stable. Assessment - The EBA-Lite CA gap implies a REER overvaluation of 11.6 percent using an elasticity of -0.3. - The EBA-Lite REER model implies a REER overvaluation of 20.4 percent. - Footnote: The magnitude difference between the two models could be partially explained by the REER model not incorporating the temporary pandemic impact on oil trade balances that the CA model does. Model REER inputs - Elasticity: -0.30 - REER Gap (in percent): 11.6 and 20.4 (two model estimates) ### Capital and Financial Accounts: Flows and Policy Measures Background - The financial account balance has been historically negative, mainly reflecting outward investment by residents in the form of portfolio and other investment. - Such capital outflows usually more than offset current account surpluses beginning in 2015. - In 2020, inflows from external sovereign borrowing (external bond issuance and from International Financial Institutions) and withdrawal from the Heritage and Stabilization Fund (HSF) helped stabilize foreign reserves. Assessment and trend - With continued capital outflows, foreign reserves have been declining steadily from a peak of US$11.5 billion in 2014 to US$6.8 billion in November 2021. ### FX Intervention and Reserve Levels Background - Trinidad and Tobago’s de facto exchange rate is classified as a stabilized arrangement. - Gross international reserves (GIRs) are large at 34.2 percent of GDP in 2020. - The FX market is reliant on FX inflows from oil and gas receipts, which have been lower than FX demand since 2014, prompting the Central Bank of Trinidad and Tobago (CBTT) to intervene. - Regular one-sided interventions represent the main source of reserve loss since 2014. Assessment and metrics - GIRs remain broadly adequate under all metrics. - GIRs stood at US$6.9 billion (12 months of imports) in December 2020. - GIRs equivalent to 275 percent of the IMF’s composite reserve adequacy (ARA) EM metric. - GIRs also exceed conventional benchmarks: 3 months of imports of goods and services, 20 percent of broad money, and short-term debt falling due within one year. Projection under current policies - Staff projects continued capital outflows larger than the anticipated recovery of the current account balance surplus over the medium term. - Result: gradual decline in reserves to 7 months of imports by 2027. - Note: lack of capital account data creates large uncertainty on the assessment. ARA metric note - Although the exchange rate is classified as a stabilized arrangement, the fixed arrangement ARA metric is applied to all exchange rate arrangements other than floating and free floating, including stabilized arrangements. - The metric: 0.30*short-term debt + 0.2*other liabilities + 0.10*broad money + 0.10*exports of goods. ### Link to Debt and Fiscal Buffers (context from adjacent analysis) - Heritage and Stabilization Fund (HSF) assets were 26 percent of GDP at September-2021 (as noted in the adjacent debt analysis). - Withdrawals from HSF and external borrowing have been used in recent years to limit debt accumulation, but persistent fiscal deficits could reduce these buffers. *Source: Annex IV. External Sector Assessment (page content).* ### 11. External debt is expected to gradually decline over the projection period but remains ### 11. External debt is expected to gradually decline over the projection period but remains vulnerable to shocks ### Baseline projections and trajectory - External debt is expected to peak at 28 percent of GDP in 2022 and gradually decline to reach 24.4 percent of GDP by 2027. - The path of external debt may be higher if the government increases reliance on external financing to help fund infrastructure projects. - Table 1 (External Debt Sustainability Framework, 2016–27) — External debt (in percent of GDP): - 2016: 18.6 - 2017: 19.5 - 2018: 19.2 - 2019: 21.7 - 2020: 26.0 - 2021: 25.5 - 2022: 28.0 - 2023: 27.2 - 2024: 26.6 - 2025: 25.6 - 2026: 25.1 - 2027: 24.4 ### Sensitivity and stress-test results - Stress tests show external debt is particularly sensitive to current account and exchange rate shocks. - Under a non-interest current account shock, external-debt-to-GDP would increase to 51 at the end of the projection period. - Under a real exchange rate depreciation shock, external-debt-to-GDP would increase to 35 at the end of the projection period. - Additional scenario outcomes from External Debt Sustainability: Bound Tests and scenario boxes (selected averages / scenario indicators preserved as presented): - Combined shock: 42 (box figure) - Real depreciation shock (30% one-time depreciation): 35 (box figure) - Non-Interest Current Account Shock: 51 (box figure) - Growth shock (box figure): 32 - Historical scenario average external debt example: 25.5, 25.6, 26.3, 24.8, 22.7, 20.4 (ten-year historical averages referenced) ### Key macroeconomic indicators and drivers (as reported in DSA excerpts) - Current account deficit, excluding interest payments (selected years, in percent of GDP): - 2016: -3.1 - 2017: 6.9 - 2018: 7.5 - 2019: 5.1 - 2020: 0.9 - 2021: -9.5 - 2022: -7.7 - 2023: -12.7 - 2024: -17.1 - 2025: -13.6 - 2026: -12.4 - 2027: -12.0 - Exports (in percent of GDP, selected years): 42.2, 47.5, 48.9, 41.2, 29.6, 51.2, 63.0, 54.8, 50.1, 47.1, 45.7, 45.0 - Imports (in percent of GDP, selected years): 43.9, 42.6, 38.6, 34.3, 30.5, 35.8, 37.9, 34.5, 33.6, 32.0, 31.3, 30.7 - Gross external financing need (in billions of US dollars, selected series): 0.9, -1.3, -1.5, -0.9, 0.5, -2.2, -4.2, -3.5, -2.9, -2.1, -2.6, -1.7 - Automatic debt dynamics contribution (selected years): 1.9, 0.6, -0.4, 1.1, 2.4, 1.2, 1.6, -0.2, 0.5, 0.3, 0.9, 4.6, 0.4 ### Risk assessment and vulnerabilities - The DSA heat map and risk assessment identify vulnerabilities in: - External financing requirements (defined as sum of current account deficit, amortization of medium- and long-term total external debt, and short-term total external debt at end of previous period). - Sensitivity to changes in the current account, exchange rate depreciation, and interest-rate shocks. - Market-perception indicators cited include EMBIG spread and gross financing needs benchmarks used for color-coded risk assessment (benchmarks cited: 200 and 600 basis points for bond spreads; 5 and 15 percent of GDP for external financing requirement; 0.5 and 1 percent for change in share of short-term debt; 15 and 45 percent for public debt held by non-residents; 20 and 60 percent for share of foreign-currency denominated debt). ### Implications - Even under the baseline decline to 24.4 percent of GDP by 2027, external debt remains vulnerable to macro-fiscal and external shocks. - Increased reliance on external financing for infrastructure could raise debt above the baseline path and amplify vulnerability to current account and exchange rate shocks. - Stress-test outcomes (external-debt-to-GDP rising to 51 and 35 under specified shocks) underscore the importance of managing external financing needs and exchange rate risk. *Source: IMF staff (excerpts from Public Sector Debt Sustainability Analysis and External Debt Sustainability Framework).* ### 4. The economic impact from natural disasters has been so far manageable. While the ### 4. The economic impact from natural disasters has been so far manageable. While the ### Economic impact of natural disasters - Estimated damage of the top three events recorded by EM-DAT: US$29.7 million. - 1997 earthquake: US$25 million. - 2004 tropical cyclone: US$1 million. - 2018 flash flood: US$3.7 million. - Despite currently manageable impacts, increases in frequency and intensity of tropical storms could escalate potential damages to infrastructure from flooding and erosion in the next decades. - Investment in resilient infrastructure is essential to withstand future natural disasters. - Example: IDB (2014) finds benefits of implementing a national building code in Trinidad and Tobago would surpass its cost by 15 times. - Resilience and adaptation investments can safeguard lives and public finances by reducing the necessity of government interventions after disasters. ### Greenhouse gas emissions and sectoral sources - Trinidad and Tobago emits less than 0.1 percent of global GHG emissions. - The country ranks third globally in emissions per capita, with 12.8 tons of CO2 per capita emitted as of end-September 2021. - The energy sector, including petrochemicals industry, remains the most polluting, amounting to more than thirty percent of total domestic emissions. - Other industrial operations and the power industry follow the energy sector in emissions contribution. ### Climate commitments, policies, and institutional measures - The country ratified the Paris agreement in 2018 and is committed to: - Lower its GHG by 15 percent (target under Paris agreement). - National objective of reduction of 30 percent by 2030 relative to a 2013 baseline. - Policy and legislative framework being developed to implement the National Climate Change Policy (NCCP), included in the National Development Strategy 2016-2030. - Policy measures for forest, land use and natural resources management are underway to mitigate greenhouse gases. - The Energy Chamber of Trinidad and Tobago is developing a feasible carbon trading scheme to reduce emissions in the industrial sector. ### Costs, financing, and fiscal implications - Authorities estimate total costs to meet the reduction target by 2030 at about US$2 billion (9 percent of GDP). - Financing expected to be met partly through domestic sources, including the country’s Green Fund, and conditional on international climate financing. - Transition risks to fiscal stance: - More than 30 percent of total revenues comes from the energy sector. - Transition to a greener economy could impose a risk to government revenues; careful planning and cross-government integration required. - Trade-off: delaying investments in low-carbon technology and human capital risks losing a window of opportunity to establish comparative advantages; allocating resources to sectors not productive in the short-term could put fiscal sustainability at risk. ### Renewable energy and energy sector transition - Trinidad and Tobago already produces all its electricity from natural gas and aims to achieve greater efficiency through combined cycle generation at all its power plants. - The sector is positioned at the edge of low carbon emissions; renewable energy is the next stage for reducing emissions further. - Government needs to identify and build the optimal energy mix with the lowest greenhouse gas emissions. ### FY2022 green measures and incentives - FY2022 budget measures include: - Liberalize fuel price by January 2022. - Suspension of custom duties, motor vehicle tax and VAT on the importation of battery-powered electric vehicles for two years. - Fiscal incentives to firms engaging in carbon capture and storage and enhanced oil recovery to be enacted by January 2022. ### Need to balance sustainable development and fiscal sustainability - Timing of structural changes is vital given dependency on fossil fuel exports and energy-sector fiscal revenues. - Essential to strike a balance between moving toward a greener economy and avoiding economic disruptions caused by an abrupt transformation. *Source: Chapter excerpt from IMF country report PDF.* ### 4. The authorities have taken actions to improve tax transparency and information ### 4. The authorities have taken actions to improve tax transparency and information ### Actions already taken - On March 5, 2020, Trinidad and Tobago passed the Tax Information Exchange Agreements Act, which allows the implementation of agreements between Trinidad and Tobago and other States to exchange of information for tax purposes. - In June 2021, and after six years of extensive consultations and debates the Gambling (Gaming and Betting) Control Bill was enacted. The bill: - creates the Gambling (Gaming and Betting) Control Commission; - will establish a licensing regime, formulate and implement policies and codes of practice, control the conduct of gaming and betting, and address the harmful effects of gambling; - seeks to prevent gambling from being a source of, associated with, or used to support crime; and protect minors and other vulnerable persons from being harmed or exploited by gambling. - The authorities have started the valuation of properties for the future roll-out of the property tax. The valuations started in 2021 and are scheduled to be completed in 2022: Q1. - The authorities obtained parliament approval of the TT Special Economic Zones (SEZ) Bill in January 2022. The legislation aims to establish a new SEZ regime, which would help create only targeted incentives and strengthen governance and transparency in managing these incentives and the entities that benefit from them. - On December 17, 2021, the government has passed the Revenue Authority Bill. ### Steps in progress or planned reforms - Reform the Free Trade Zones. - Introduce a property tax (valuations underway: started in 2021; scheduled completion 2022: Q1). - Create the revenue authority (Revenue Authority Bill passed on December 17, 2021). - Implement a new SEZ regime (TT SEZ Bill approved January 2022). ### Compliance gaps and required actions to meet international tax standards - OECD Global Forum standards on Exchange of Information on Request (EOIR) and the Automatic Exchange of Financial Account Information (AEOI): - In 2022, Trinidad and Tobago will undergo its Phase 2 peer review of its compliance with the EOIR standard, which will look at the legal framework and its effectiveness in practice, focusing on the availability of beneficial ownership information. - In 2022 the OECD Global Forum will publish the results of its effectiveness peer review of the AEOI standard for 100 jurisdictions, including Trinidad and Tobago. - The country needs to establish: - a domestic legislative framework requiring Reporting Financial Institutions to conduct the due diligence and reporting procedures (CR1); and - an international legal framework to exchange the information with all Interested Appropriate Partners (CR2). - OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS): - Passing the relevant domestic and international legal bases to commence Country-by-Country (CbC) reporting on multinationals’ foreign structures and activities is required. - Removal of the harmful tax regimes as determined by the Forum on Harmful Tax Practices is required to implement the minimum standards arising out of the BEPS Action Plan. - Joining and signing a convention on Mutual Administrative Assistance in Tax Matters: - Signing and ratifying the OECD Multilateral Convention on Mutual Administrative Assistance is needed. ### EU blacklist status and implications - Trinidad and Tobago is one of nine jurisdictions in the EU blacklist of non-cooperative jurisdictions for tax purposes. - To exit the list the country needs to: - rank as at least “largely compliant” by the OECD Global Forum on the EOIR and AEOI standards; and - sign and ratify the OECD Multilateral Convention on Mutual Administrative Assistance. - Exiting the list could also help to comply with the German Tax Haven Defense Law of 2021, which precludes German companies from having business with the jurisdictions in the EU blacklist. ### Other numeric and contextual points from the source - The Gambling (Gaming and Betting) Control Bill followed six years of extensive consultations and debates. - The OECD Global Forum will publish the results of its effectiveness peer review of the AEOI standard for 100 jurisdictions, including Trinidad and Tobago. - Trinidad and Tobago is one of nine jurisdictions on the EU blacklist; the other non-cooperative jurisdictions include American Samoa, Fiji, Guam, Palau, Panama, Samoa, US Virgin Islands, and Vanuatu. *Source: IMF staff report (Informational annex) — "4. The authorities have taken actions to improve tax transparency and information"* ### 1986. However, the government accounts for one-off sources (such as asset sales and super- ### Statement by Mr. Bevilaqua, Mr. Fuentes, and Ms. Mahabir on Trinidad and Tobago (February 9, 2022) ### Data and statistics - Trinidad and Tobago fully implemented the IMF e-GDDS framework in October 2021 by launching a National Summary Data Page (NSDP) as a one-stop publication vehicle aligned with the Table of Common Indicators Required for Surveillance. - The Central Bank of Trinidad and Tobago (CBTT) reports monetary data to STA using the SRFs since mid-2013 and became a quarterly reporter of balance sheet data for the other financial corporations (OFCs) sector following a TA mission in May 2014. - Data limitations and gaps: - Government accounts treat one-off sources (such as asset sales and super-dividends) as revenues, whereas GFSM 2014 prescribes accounting for these as financing sources. - Data on public enterprises and statutory bodies are compiled and published once a year; limited data on debt outside central government. - Annual GFS data reported to STA with lag; last annual data reported was for fiscal year FY2014, reported in November 2017. - Central government data reported include revenues, expenditures, financing, and COFOG; no debt or other balance sheet data reported. - Monthly monetary accounts currently cover the CBTT and other depository corporations (ODCs) but exclude income funds (money market-like) and mutual funds (not regulated by CBTT). - OFC coverage needs expansion to include the National Insurance Board (NIB), the Unit Trust Corporation (UTC), the Home Mortgage Bank (HMB), and credit unions. - External sector statistics: - CBTT compiles and disseminates BoP statistics (quarterly and annual) based on administrative records and surveys; enhancements made for trade in goods using direct reports from energy companies. - Errors and omissions remain large, particularly in repatriated profits under the income account; additional TA scheduled for 2022 with emphasis on repatriated earnings under capital outflows of the financial account. - CBTT prepares quarterly external debt statistics (QEDS) following the 2013 External Debt Statistics Guide; published on the World Bank’s website since July 2018. ### Economic outlook and recovery - Pre-pandemic: signs of recovery after several years of underwhelming performance. - Pandemic impact: combined with a sharp decline in international energy prices, led to temporary mothballing of several petrochemical plants, severe mobility restrictions, and major impacts on non-essential and high-contact service sectors, particularly tourism. - Fiscal and liquidity response: authorities provided targeted fiscal support of about 4 percent of GDP and ample liquidity to the banking system to preserve financial stability. - Labor market data publication delayed; alternative indicators show substantial retail closures and a sharp drop in contributions to the national insurance board. - Energy price surge and production prospects: - Exploration and potential production from the seventeen offshore deep-water blocks should help maintain energy production levels into the medium-term; plans for additional bid rounds covering onshore and shallow water blocks. - Real GDP growth expected to reach 5.5 percent in 2022, stronger than initially projected, partially offsetting the combined economic contraction in 2020-21. - Non-energy sector: activity beginning to pick up despite a surge in COVID cases since late 2021; government has refrained from reimposing quarantines and movement restrictions. - Business credit: rose by 1.3 percent (year-on-year) in October 2021 — the first increase since August 2018. ### Fiscal policy and public finances - Emergency response widened the fiscal deficit in 2020 and 2021; targeted measures continue to support health, vaccine rollout, vulnerable households, and SMEs. - Transparency: a new sub-item in the Draft Estimated for Recurrent Expenditure for FY 2021 created to enhance transparency of pandemic-related expenditures. - Fiscal trajectory: - As expenditures normalize and revenue recovers, fiscal deficit projected to continue narrowing in FY 2022 and achieve a primary surplus by FY 2023. - Heritage and Stabilization Fund (HSF): - HSF helped finance emergency response; withdrawals supplemented by Development Bank of Latin America (CAF) and domestic sources. - HSF currently valued at US$5.6 billion (26 percent of GDP); authorities committed to gradually rebuild buffers. - Debt sustainability and revenue mobilization initiatives under discussion: - Establish a revenue authority, reintroduce collection of property tax, liberalize the fuel market, reform tax and customs administration. - New Gambling Control Bill expected to increase fiscal revenue while improving transparency and compliance. - Expenditure-side measures: rationalize transfers and subsidies; progress toward formulating medium-term fiscal projections in line with IMF TA recommendations. - National statistics reform: creation of a National Statistical Institute to transform the Central Statistical Office (CSO) into an autonomous coordinator of national statistical systems; interim steps include making data more accessible via CSO website and launch of a national data summary page hosted by the CBTT in 2021. ### Monetary policy, exchange rate, and financial sector - CBTT stance: appropriately maintained accommodative monetary policy during the crisis by reducing its policy rate and primary reserve requirement; stance remains accommodative to support recovery. - Inflationary pressures: intensified during latter part of 2021, particularly from food prices; trend expected to continue into 2022. CBTT’s Monetary Policy Committee to balance support for activity with inflation control. - External reserves and FX interventions: - Authorities preserved strong international reserves and a stable exchange rate despite slowdown in energy receipts. - CBTT engaging in bi-monthly FX interventions to stabilize the FX market amid drop in energy exports; on average, such interventions represent around one-quarter of the total FX available from authorized dealers. - Authorities expect higher FX supply from the energy sector as new projects become operational. - Financial sector resilience: - Banks maintained healthy capitalization, strong liquidity buffers, and adequate profitability. - CBTT allowed forbearance measures (loan restructuring, deferred payments, rate reductions) to keep non-performing loan ratios low and preserve capital and profitability. - Financial system remains well structured and stable; CBTT collaborates regionally in supervision of selected entities. ### AML/CFT and tax cooperation - Status and actions: - Trinidad and Tobago removed from FATF’s list of countries under monitoring in 2020 but remains on the EU and Global Forum lists. - Authorities reimplementing an action plan to introduce necessary measures for delisting. - Government considering amendments to the Companies Act, Income Tax Act, Tax Information Exchange Agreement Act, and the Mutual Administrative Assistance in the Tax Matters Act following recommendations from the Global Forum Secretariat. ### Structural reforms and diversification - Authorities committed to reforms to diversify the economy and boost non-energy growth under the Roadmap to Recovery. - Business climate improvements: - Use of technology to expedite business registration and issuance of Digital CARICOM Certificates of Origin (COOs) to exporters. - Transformation of Free Zones into Special Economic (zones) recently approved in Parliament to attract dynamic industries. - SOE and fiscal reforms: - Continue SOE reform following 2018 restructuring of Petrotrin; rationalize transfers, especially for water and electricity providers. - Comprehensive review of oil and gas taxation regime planned to maintain international competitiveness of domestic hydrocarbon sector. - Climate and infrastructure: - Commitments to build a climate-resilient economy and upgrade critical infrastructure. - As a signee of the Paris Agreement, working to reduce GHG emissions and increase renewable energy in power generation. - Legislative actions underway to implement the National Climate Change Policy (NCCP) as part of the National Development Strategy 2016-2030. ### Closing remarks and policy priorities - Authorities committed to supporting recovery with prudent macroeconomic management and steadfast implementation of structural reforms. - The resurgence of international energy prices and ripple effects across the economy will bolster activity. - Authorities recognize high global uncertainty and emphasize near-term protection of vulnerable populations while strengthening fiscal sustainability and diversifying the economy. *Source: Statement by Mr. Bevilaqua, Mr. Fuentes, and Ms. Mahabir on Trinidad and Tobago, February 9, 2022.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2022/english/1ttoea2022001.pdf_