## 1ttoea2024001 ## Source details **Canonical URL:** [1ttoea2024001](https://www.imf.org/-/media/files/publications/cr/2024/english/1ttoea2024001.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2024/english/1ttoea2024001.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2024/english/1ttoea2024001.pdf.json) --- ### Context and recent macro developments - Economic recovery: - Real GDP: 2.1 percent (2023); 1.5 percent (2022). - Non-energy sector growth: 4.2 percent (2023). - Energy sector contraction: -3.1 percent (2023). - Inflation and labor market: - Headline inflation: 8.7 percent (peak, December 2022); 0.3 percent (January 2024). - Core inflation: 1.0 percent (January 2024). - Unemployment: 3.2 percent (2023Q3); female unemployment 4.1 percent; youth unemployment 9.3 percent. - Fiscal and public debt (FY2023): - Overall fiscal deficit: -1.1 percent of GDP (FY2023) — 0.2 percentage points better than budgeted. - Central government debt: 54.3 percent of GDP (FY2023); 50.7 percent (FY2022). - Public sector debt: 70.9 percent of GDP (FY2023); 67.0 percent of GDP (FY2022) — below the authorities’ soft debt target of 75 percent of GDP. - Monetary and financial conditions: - CBTT policy repo rate: 3.5 percent (since March 2020). - Excess liquidity: 2.4 percent of GDP (end-2023). - Banks’ credit to private sector: 8.2 percent (y/y) (December 2023). - Banks’ capital: 16.7 percent (September 2023). - Non-performing loans (NPLs): 3.0 percent. - Specific provisioning: 77.3 percent of impaired loans. - Insurance sector: most insurers report regulatory capital ratios above 300 percent (regulatory minimum 150 percent). - External sector, FX, and reserves: - Current account surplus: 9.1 percent of GDP (2023); 17.9 percent of GDP (2022). - Gross official reserves: US$6.3 billion (end-December 2023); coverage: 8.3 months of prospective imports and 114 percent of the ARA metric. - Heritage and Stabilization Fund (HSF) assets: US$5.5 billion (19.2 percent of GDP) (end-September 2023). - About US$160 million withdrawn from HSF in December 2023 for budget support. - Resident holdings of U.S. Treasuries increased by about US$1.3 billion between mid-2022 and end-2023. - Sovereign market conditions: - Ratings: Standard and Poor’s BBB-; Moody’s Ba2 with outlook upgraded to positive in July. - Government issued US$560 million long-term international bond at about 170 bps over corresponding U.S. Treasury Bill (last September). - Sovereign spreads: averaged 113 bps in 2023. - Market comparison data as of March 8, 2024. ### Outlook and balance of risks - Growth and inflation projections: - Real GDP projected: 2.4 percent (2024). - Inflation: projected to hover around two percent. - External position: - Staff assessment: external position in 2023 stronger than level implied by fundamentals and desirable policies. - CA gap: 2.8 percent of GDP. - Medium-term CA surplus: projected to stabilize at above 6 percent of GDP. - Reserve coverage projection: 6.6 months of prospective imports and 96 percent of the ARA metric in 2029. - Balance of risks: - Near-term downside risks: commodity price volatility; abrupt global slowdown; systemic global financial instability; higher-for-longer global interest rates; geopolitical tensions; delays or disruptions in oil and gas production. - Medium-term upside risks: new natural gas projects (e.g., Dragon field); successful structural reforms. - Medium-term downside risk: faster-than-expected global transition to net-zero emissions. - Growth-at-Risk methodology: indicates vulnerability to external and energy shocks. ### Fiscal outlook, debt trajectory, and policy recommendations - Fiscal projections and signals: - Staff projects fiscal deficit: 2.7 percent of GDP (FY2024) — slightly countercyclical stance. - Medium-term: fiscal deficit expected to gradually narrow and balance by FY2027. - Central government accounts (percent of GDP; Actual FY2023 / Approved FY2024 / IMF staff proj. FY2024): - Total Revenue and Grants: 28.7 / 26.3 / 26.2 - Energy Sector: 15.1 / 12.9 / 12.9 - Corporation tax: 8.4 / 7.4 / 7.4 - Non-energy: 13.6 / 13.4 / 13.3 - Tax Revenue: 11.0 / 11.3 / 11.2 - Non-tax Revenue: 2.6 / 2.1 / 2.1 - Total Expenditure: 29.8 / 29.9 / 29.0 - Current: 27.6 / 27.7 / 27.2 - Wages and salaries1/: 4.9 / 5.6 / 5.1 - Goods and services: 3.1 / 3.5 / 3.5 - Interest payments: 2.9 / 2.7 / 2.7 - Transfers and subsidies: 16.7 / 16.0 / 16.0 - Capital expenditure and net lending: 2.2 / 2.2 / 1.8 - Capital spending: 2.2 / 3.3 / 2.8 - Net lending: 0.0 / -1.1 / -1.1 - Overall balance: -1.1 / -3.6 / -2.7 - Memorandum items: Primary balance: 1.8 / -1.0 / -0.1; Non-energy primary balance2/: -18.9 ---- 17.5; Central government debt: 54.3 --- 56.0; Public sector debt: 70.9 --- 73.4 - Debt trajectory and baseline projections: - Public debt (baseline path, percent of GDP): 54.3 (2023); 56.0 (2024); 56.2 (2025); 56.3 (2026); 54.9 (2027); 52.6 (2028); 49.8 (2029); 48.3 (2030); 47.1 (2031); 46.0 (2032); 45.0 (2033). - Staff note: debt expected to peak at 56.3 percent of GDP in FY2026 before gradually declining to 45.0 percent by FY2033. - Public debt expected to remain below the authorities’ soft debt target of 75 percent of GDP throughout the period; staff priority: maintain public debt well below 70 percent of GDP. - Medium-term fiscal risks and recommended measures: - Revenue-side recommendations: - Enhance energy sector fiscal regime for off-shore deep-water gas and marginal fields. - Operationalize the Revenue Authority and the gambling tax. - Roll out the property tax. - Comprehensive VAT reform to eliminate zero-ratings, exemptions, and selective incentives. - Strengthen tax compliance and administration: establish reliable taxpayer register; audit VAT refunds (about 3.4 percent of GDP as of end-January 2024); improve filing, payments, and arrears management. - Expenditure-side recommendations: - Phase out remaining fuel, electricity, and water subsidies; finalize tariff adjustments while strengthening and better targeting the social safety net. - Speed up reforms of SOEs and other public bodies to reduce fiscal risks and enhance corporate governance. - Improve public investment management (PIM) framework to better prioritize growth-supporting projects. - Fiscal framework, debt management, and institutions: - Adopt a rules-based Medium-Term Fiscal Framework (MTFF) and consider a formal fiscal rule and a medium-term debt anchor with operational multiyear fiscal targets. - Integrate HSF transfers with MTFF and include escape clauses. - Establish an independent fiscal council. - Develop a debt management strategy and sovereign asset-liability management framework. - Pension sustainability: - National Insurance System (NIS) deficit since FY2013; reserves expected to be exhausted by mid-2030s without reforms. - Authorities propose increasing retirement age by five years to 65 years (welcomed); staff encourages considering increasing contribution rate. ### External sector assessment and FX management - External position and NIIP: - NIIP: US$8.8 billion (31.4 percent of GDP) (2023 estimate); NIIP improved from US$2.2 billion (10.8 percent of GDP) (2020) and US$7.5 billion (24.9 percent of GDP) (2022). - Gross Assets: 106.7 percent of GDP (2023); Gross Liabilities: 75.3 percent of GDP (2023). - Current account and EBA-lite results (2023, percent of GDP): - CA-Actual: 9.1 - Adjusted CA: 6.8 - CA Norm: 4.0 - CA Gap: 2.8 - REER Gap: -9.4 (CA model) and 1.9 (REER model) - FX interventions and reserves: - CBTT interventions: bi-monthly US$50 million FX interventions; one-time US$50 million intervention in September; provided US$91.9 million to Authorized Dealers via FX Liquidity Guarantee Facility. - Gross international reserves: US$6,258 million (2023); reserve coverage: 8.3 months of prospective imports; reserves = 114 percent of ARA metric. - HSF assets: US$5.5 billion (19.2 percent of GDP) (end-FY2023). - If reserves and HSF usable liquid FX assets counted together, usable liquid FX assets would be more than 200 percent of the ARA metric. - Policy guidance: - Maintain policies supporting de facto pegged exchange rate arrangement. - Move towards more efficient, market-clearing FX infrastructure; remove restrictions on current international transactions; allow greater exchange rate flexibility over the medium term. - CBTT to remain vigilant on US-TT interest rate differentials and stand ready to increase policy rate if outflow risk intensifies. ### Financial sector resilience, regulation, and Fintech - Financial soundness and vulnerabilities: - Banking sector well capitalized: regulatory capital to risk-weighted assets 16.7 percent (2023). - Non-performing loans: 3.0 percent (2023). - Return on equity: 16.5 percent (2023). - Vulnerabilities: high sovereign exposures, interconnectedness, liquidity calls linked to group investment funds, climate and cyber-security risks. - Regulatory progress and recommendations: - Finalize Basel II/III implementation (including liquidity coverage ratio); ICAAP submissions ongoing; rollout of leverage ratio, D-SIB add-on, and capital conservation buffer. - Strengthen investment fund sector: orderly transformation from constant to variable NAV funds. - Enhance consolidated supervision of conglomerate groups. - Provide CBTT explicit macroprudential authority and tools; strengthen supervisory resources and independence. - Insurance sector: adopting IFRS 17 and Insurance Act (2018) with 2020 amendment; market conduct guideline forthcoming. - Strengthen crisis management: new Recovery Plan Guideline. - Fintech and payments: - Developments mainly in e-money and payment services; four EMIs, five PSPs, one Interbank Payment System Operator. - Regulatory actions: guidance for EMIs; entity-based regulation; internal exit policy for weak EMIs; revised transaction limits and wallet sizes; cybersecurity guidelines. - Recommendations: finalize Payments System Services Bill; evaluate crypto-asset regulation; continue CBDC feasibility work. - Financial integrity and tax transparency: - Progress on EOIR, AEOI, BEPS, CbCR, and beneficial ownership frameworks. - Authorities preparing for EOIR peer-review (2024Q2) and expect AEOI peer review in 2025. - Steps taken on BEPS Action Item 13 (CbCR), proclaiming SEZ, and abolishing Free Zones preferential tax regime. ### Energy sector, diversification, and climate transition - Energy sector role and vulnerabilities: - Energy sector remains key contributor near- and medium-term; non-energy sector now main growth driver. - Domestic energy consumption profile: - Industry: just under 50 percent. - Transport: 30 percent. - Households, businesses, agriculture: 19 percent. - Energy consumption per capita: 124 MWh (6th highest in the world); ECCU average 17 MWh. - Emission intensity: 1.6 kg CO2-equivalent per US$ (2021); country contribution to global absolute GHG emissions: 0.075 percent. - Decarbonization and CBAM exposure: - EU CBAM: affects about 5.1 percent of total exports (US$446 million) currently; could affect over 10 percent of total exports if coverage expands. - Worst-case IMF staff estimate: CBAM payments on fertilizers could exceed 40 percent of annual fertilizer exports to the EU, or about 0.8 percent of GDP (ceiling scenario). - Exports exposure (average 2018-22): methanol US$399.5 million (29.0 percent of exports to EU); anhydrous ammonia US$288.9 million (21.0 percent); LNG US$254.5 million (18.5 percent); mixtures of urea and ammonium nitrate US$152.5 million (11.1 percent). - Fertilizer production carbon intensity among highest suppliers to EU. - Opportunities and policy priorities: - Reduce domestic natural gas use in electricity via higher generation efficiency and renewables to free gas for LNG and petrochemicals. - Example impacts: electricity efficiency in 2005 was 26.6 percent; if it had remained, natural gas consumption to generate same electricity would have been 35,000 TJ higher in 2021; diversion would lower LNG exports by 11 percent and total goods exports by about 2 percent (2021 reference). - If 30 percent of electricity generated from renewables rather than natural gas, natural gas exports could increase by about 8 percent each year (relative to 2021). - Develop green hydrogen and derivative products to improve competitiveness under carbon pricing. - Policy measures: incentives for renewable investment (subsidies or carbon price); improve regulatory framework and grid integration; continue Green Manufacturing Initiative and solar projects (e.g., 92 MW BPTT and Shell solar plant). - Emissions target: 15 percent reduction in GHG emissions relative to business-as-usual baseline by 2030 (NDC target). - Fiscal measures affecting energy sector (FY2024 examples): - Supplementary Petroleum Tax (SPT): new threshold of $75 per barrel for shallow water producers (standard SPT threshold $50 per barrel). - Sustainability Incentive: increased discount on SPT rate from 20 to 25 percent for mature marine or small marine oil fields. - Capital expenditure allowances: write-off of tangible and intangible capital expenditure on drilling of exploration wells for small shallow water producers. ### Structural reforms, digitalization, and diversification - Structural priorities and initiatives: - Advance Vision 2030 initiatives: manufacturing, agriculture, SMEs, industrial parks, employment through training and apprenticeships, trade integration. - Institutional reform: amalgamate InvesTT, exportTT, and CreativeTT into Trinidad and Tobago Trade and Investment Promotion Agency (2024). - Trade and export support: trade missions, export financing via EximBank, Grant Fund Facility, R&D Facility, Steelpan Manufacturing Grant Fund Facility, Port Community System and TTBizLink upgrades, industrial parks and Special Economic Zones operationalization (2024). - Digitalization (Annex VIII) — key facts: - Mobile cellular subscriptions (2022): 130.6 per hundred people. - Fixed broadband subscriptions (2022): 24.4 per hundred people. - Internet users (2021): 76.2 percent of population. - Financial access: domestic residents with accounts (2017): 80.8 percent; 2023 TTIFC survey: households with financial accounts 76 percent. - Digital strategy pillars (2024–27 focus): - Pillar 1 — A digital knowledge-based society: TTWiFi rollout; WeLearnTT program; training and laptop distribution (2024 budget). - Pillar 2 — A digital government: government cloud and data center; interoperability framework; national e-ID; strategic cybersecurity roadmap. - Pillar 3 — A digital economy: Developer’s Hub; National E-Commerce Strategy 2024-29; One FinTech Avenue; payments modernization. - Payments and cybersecurity: - Payments ecosystem: increase e-payments, expand merchant base and POS, prioritize RTGS for large public transactions, finalize Payments System Services Bill. - Cybersecurity incidents (Central Bank, 2019-22): 147 incidents; about 57.1 percent affected the private sector. - CBTT actions: Cybersecurity Best Practices Guideline (September 2023); Simplified Due Diligence Requirements (2021); revisions to EMI transaction/wallet limits (2023). ### Data, statistics, and capacity development - Data adequacy assessment: - Overall Data Adequacy Assessment Rating: B; Median Rating across sectors: B. - Key weaknesses: large errors and omissions in Balance of Payments; quarterly lag in National Accounts; need to broaden fiscal and public debt coverage to include SOEs and public bodies; gaps in climate- and GHG-related data. - Revisions and ongoing work: - CSO revised annual (2012-21) and quarterly (2012Q1-2023Q1) nominal and real GDP; preliminary capital formation estimates released; Joint Household Budget Survey and Survey of Living Conditions due mid-2024. - NSI legislation under revision; transformation of CSO to independent NSI ongoing. - TA and capacity building (selected recent): - CARTAC: Improving GDP estimates (May 1–12, 2023); Insurance Supervision and Regulation (April 15–19, 2024). - MCM: Balance of Payments/International Investment Position TA (Feb 26–Mar 8, 2024). - FAD: Fiscal Rule Framework TA (Jan 24–Feb 6, 2024). - Recommended data actions: - Release historical quarterly GDP series from 2000 onwards; historical annual real GDP series from 1981 onwards; finalize capital formation estimates; compile GDP by expenditure and Supply and Use Tables; improve BoP reporting to reduce errors and omissions; include mutual funds in monetary accounts coverage. ### Implementation status and authorities’ views - Authorities broadly agree with the staff’s outlook and medium-term upside tilt; expect stronger growth, support from non-energy sector, and confidence in new energy projects coming onstream. - Authorities’ commitments and actions: - Fiscal: rollout of property and gambling taxes; operationalization of the Revenue Authority; adjustment of electricity and water tariffs; proclamation of Procurement and Disposal of Public Property Act (April 2023). - Structural: One FinTech Avenue, Phoenix Park Industrial Estate opened January 2024; operationalization of Special Economic Zones planned for 2024. - Social and pensions: proposal to increase retirement age to 65 years; other parametric pension adjustments under consideration. - Data and transparency: progress on EOIR/AEOI, CbCR, and beneficial ownership frameworks; preparing for EOIR peer-review (2024Q2). - Implementation status (Annex I highlights): - Many reform items listed as “Ongoing”; CBTT policy rate unchanged since March 2020; structural FX shortage persists despite interventions; VAT refund arrears remain; NSI legislation still to be enacted. *Source: IMF staff report for Trinidad and Tobago — 1ttoea2024001 (excerpts provided).* ### 1. Real Sector Developments ____________________________________________________________________ 26 ### 1. Real Sector Developments ### Context - For the first time in a decade, Trinidad and Tobago is undergoing a gradual and sustained economic recovery. - Real Gross Domestic Product (GDP) rebounded in 2022 and is estimated to have further expanded in 2023 but has yet to return to its pre-pandemic level. - The non-energy sector has become the main driver of economic growth while the mature energy sector continues to struggle. - The country’s external and fiscal positions were affected by energy price declines in 2023, compounded by weaker energy production; nevertheless, international reserve coverage remained adequate. - In FY2023 the fiscal deficit was better than budgeted and helped support the recovery, while public debt remained below the authorities’ soft debt target. - Near-term priorities identified: - Complete the recovery by ensuring the energy sector remains productive, competitive, and green. - Continue fostering private sector development to promote vertical and horizontal diversification. - Use policy space prudently and effectively while maintaining fiscal discipline and rebuilding buffers. - Medium-term priorities identified: - Accelerate transformation to a greener economy to reduce greenhouse gas (GHG) emissions while preserving and developing comparative advantages. - Sustain structural reform momentum to improve business conditions, advance the green agenda, and embrace Fintech and the digital economy, while fostering inclusion. ### Recent Developments - Real GDP: - Estimated expansion of 2.1 percent in 2023 (compared to 1.5 percent in 2022). - Non-energy sector growth: 4.2 percent in 2023. - Energy sector contraction: -3.1 percent in 2023, attributed to logistical and infrastructure challenges. - Inflation and labor market: - Headline inflation: peaked at 8.7 percent in December 2022; declined to 0.3 percent in January 2024. - Core inflation: 1.0 percent in January 2024. - Unemployment rate: decreased to 3.2 percent in 2023Q3 (peaked at 7.2 percent in 2020Q4). - Female unemployment: 4.1 percent. - Youth unemployment: 9.3 percent (peak of 21.3 percent in 2021Q1). - Fiscal outcomes FY2023: - Overall fiscal deficit: estimated at 1.1 percent of GDP in FY2023, 0.2 percentage points better than budgeted. - Central government debt: increased to 54.3 percent of GDP in FY2023 (50.7 percent in FY2022). - Public sector debt: reached 70.9 percent of GDP in FY2023 (67.0 percent of GDP in FY2022) — below the authorities’ soft debt target of 75 percent of GDP. - Monetary and financial conditions: - CBTT policy repo rate: kept at 3.5 percent since March 2020. - Excess liquidity in banking system: 2.4 percent of GDP at end-2023. - Banks’ credit to the private sector: expanded 8.2 percent (y/y) in December 2023. - Banks’ capital: 16.7 percent in September 2023. - Non-performing loans (NPLs): 3.0 percent. - Specific provisioning: 77.3 percent of impaired loans. - Insurance sector: most insurers report regulatory capital ratios above 300 percent (regulatory minimum 150 percent). - Foreign exchange and reserves: - FX market liquidity: remained tight; FX shortages increased in mid-2023 due to higher FX demand and temporary decline in energy companies’ repatriations (energy companies supply about ¾ of FX). - Resident holdings of U.S. Treasuries increased by about US$1.3 billion between mid-2022 and end-2023. - CBTT interventions: bi-monthly US$50 million FX interventions; a one-time US$50 million intervention in September; provided US$91.9 million to Authorized Dealers through the FX Liquidity Guarantee Facility. - Current account (CA) surplus: estimated at 9.1 percent of GDP in 2023 (down from 17.9 percent of GDP in 2022). - International reserves: US$6.3 billion at end-December 2023 — coverage of 8.3 months of prospective imports and 114 percent of the Assessing Reserve Adequacy (ARA) metric. - Heritage and Stabilization Fund (HSF) assets: estimated at US$5.5 billion (19.2 percent of GDP) at end-September 2023. - About US$160 million was withdrawn from the HSF in December 2023 for budget support. - Sovereign market conditions: - Ratings: Standard and Poor’s BBB- (investment grade); Moody’s Ba2 with outlook upgraded to positive in July (last July). - Government placed a US$560 million long-term international bond at about 170 bps over the corresponding U.S. Treasury Bill (last September). - Sovereign spreads over U.S. Treasuries: averaged 113 bps in 2023. - Data as of March 8, 2024 for market comparisons. ### Outlook and Risks - Growth projections: - Real GDP projected to expand by 2.4 percent in 2024. - Near-term support: non-energy sector and new energy projects coming onstream—helping offset the structural decline in energy production. - Near-term non-energy output to remain below potential due to incomplete recovery of some sub-sectors (e.g., agriculture and trade and repairs). - Over the medium term, planned natural gas projects are expected to boost the energy sector and support non-energy activity. - Inflation outlook: - Projected to hover around two percent, in line with international prices. - Upward domestic price pressures from the recent increase in the minimum wage, the new property tax, and the public sector wage negotiation settlement with some unions. - External position assessment: - Staff assesses the country’s external position in 2023 as stronger than the level implied by fundamentals and desirable policies. - The CA gap is estimated at 2.8 percent of GDP. - Over the medium term, the CA surplus is projected to stabilize at above 6 percent of GDP, supported by new energy projects. - International reserve coverage expected to remain adequate: 6.6 months of prospective imports and 96 percent of the ARA metric in 2029. - The authorities will continue to hold their allocated Special Drawing Rights (SDRs) as international reserves. - Balance of risks: - Near-term downside risks: - Commodity price volatility affecting the fiscal position. - An abrupt global slowdown. - Systemic global financial instability. - Monetary policy miscalibration in advanced economies resulting in higher-for-longer global interest rates. - Geopolitical tensions. - Potential disappointments in domestic oil and gas production from delays to new projects or disruptions to existing wells. - Growth-at-Risk methodology indicates vulnerability to external and energy shocks. - Medium-term upside risks: - New natural gas projects (e.g., Dragon field). - Successful implementation of planned structural reforms. - Medium-term downside risk: - Faster-than-expected global transition to net-zero emissions. ### Authorities’ Views - Authorities broadly agreed with staff’s economic outlook and the assessment that balance of risks is tilted upwards for the medium term. - Authorities expected stronger growth, supported by the non-energy sector, and were more confident that new energy projects would come onstream as planned. - Authorities acknowledged uncertainty surrounding the mature energy sector, volatility in global energy markets, and regional geopolitical factors, while highlighting promising oil and gas projects in the medium term. ### Policy Discussions — Maintaining Fiscal Discipline While Strengthening the Fiscal Framework - Near-term fiscal stance: - Staff projects the fiscal deficit at 2.7 percent of GDP in FY2024, consistent with a slightly countercyclical and adequate fiscal stance. - Drivers: lower energy revenues due to declining prices and domestic production, increased capital spending, and a higher wage bill (due to the long-standing public wage settlement with some unions). - Planned capital spending expected to address infrastructure needs and boost growth. - The proclamation of the Procurement and Disposal of Public Property Act in April 2023 is expected to enhance legal and institutional framework for transparent and competitive public procurement and improve efficiency and quality of public spending. - Medium-term fiscal trajectory: - Over the medium term, the fiscal deficit is expected to gradually narrow and balance by FY2027. - This trajectory is consistent with expected improvements in energy revenue. - (Text on central government debt projection is incomplete in the source and is not reproduced here.) *Source: IMF staff report — 1. Real Sector Developments.* ### 56.3 percent of GDP in FY2026 before gradually ### 56.3 percent of GDP in FY2026 before gradually ### Fiscal outlook and debt trajectory - Public debt is expected to reach 68.1 percent of GDP in FY2029, remaining below the authorities’ soft debt target of 75 percent of GDP throughout the period. - Debt ratio path cited: "56.3 percent of GDP in FY2026 before gradually declining to 49.8 percent of GDP by FY2029." - Staff estimate priority: maintain public debt well below 70 percent of GDP to withstand future shocks and safeguard sustainability. ### Central Government Accounts (In Percent of GDP) — actuals, approved budget, IMF staff projections - Total Revenue and Grants: 28.7 (Actual FY2023), 26.3 (Approved budget FY2024), 26.2 (IMF staff projections FY2024) - Energy Sector: 15.1, 12.9, 12.9 - Corporation tax: 8.4, 7.4, 7.4 - Non-energy: 13.6, 13.4, 13.3 - Tax Revenue: 11.0, 11.3, 11.2 - Non-tax Revenue: 2.6, 2.1, 2.1 - Total Expenditure: 29.8, 29.9, 29.0 - Current: 27.6, 27.7, 27.2 - Wages and salaries 1/: 4.9, 5.6, 5.1 - Goods and services: 3.1, 3.5, 3.5 - Interest payments: 2.9, 2.7, 2.7 - Transfers and subsidies: 16.7, 16.0, 16.0 - Capital expenditure and net lending: 2.2, 2.2, 1.8 - Capital spending: 2.2, 3.3, 2.8 - Net lending: 0.0, -1.1, -1.1 - Overall balance: -1.1, -3.6, -2.7 - Memorandum items: - Primary balance: 1.8, -1.0, -0.1 - Non-energy primary balance 2/: -18.9 ---- 17.5 - Central government debt: 54.3 --- 56.0 - Public sector debt: 70.9 --- 73.4 - Sources: Trinidad and Tobago's authorities and IMF staff estimates. Notes on wage costs (from footnote 1/): - Four unions accepted a 4 percent wage increase for public servants covering 2014-19, producing fiscal cost of TT$1 billion (0.5 percent of GDP) in back pay and TT$360 million (0.2 percent of GDP) in annual salaries. - Additional costs if agreement reached with remaining public service/state sector: total TT$4.75 bn (2.5 percent of GDP) in back pay and TT$730 million in annual salaries (0.4 percent of GDP). - Cost of back pay (TT$1 billion) recorded under capital expenses in line with the 2014 GFSM. ### Medium-term fiscal risks and recommended fiscal measures Findings: - Vulnerabilities: global energy price volatility, contingent liabilities from SOEs and other public bodies, and natural disasters. - SRDSA shows debt stabilizes in the medium term but risks loom; maintaining debt well below 70 percent of GDP is emphasized. On the revenue side (staff recommendations): - Enhancing the energy sector’s fiscal regime to align with objectives for off-shore deep-water gas, marginal fields on-shore and in shallow-waters to unlock investment and production. - Mobilizing additional tax revenues to offset projected decline in energy revenues by: - Operationalizing the Revenue Authority and the gambling tax. - Rolling out the property tax (welcomed). - Comprehensive VAT reform to eliminate extensive zero-ratings, exemptions, and selective tax incentives. - Addressing tax compliance and administration weaknesses per IMF TA: establish reliable taxpayer register; audit VAT refunds (about 3.4 percent of GDP as of end-January 2024); improve filing, payments, and arrears management. On the expenditure side (staff recommendations): - Phasing out remaining fuel, electricity, and water subsidies; finalize electricity and water and sewerage tariffs adjustment while strengthening and better targeting the social safety net. - Speeding up reforms of SOEs and other public bodies to transform them from budget-transfer-reliant burdens into revenue-generating assets, reduce fiscal risks, and enhance corporate governance. - Improving efficiency and quality of public investment by developing a strong public investment management (PIM) framework to better prioritize and select growth-supporting projects. ### Pension system sustainability - National Insurance System (NIS) has run a deficit since FY2013; demographic pressures and generous benefits expected to exhaust reserves by the mid-2030s. - Authorities propose increasing retirement age by five years to 65 years (welcomed by staff). - Staff encourages consideration of other measures including increasing the contribution rate. ### Climate transition, fiscal framework, and debt management - Global low-carbon transition reduces demand for fossil fuels, creating fiscal challenges and intertemporal trade-offs for resource wealth consumption and saving. - Staff recommendations to strengthen fiscal management: - Adopt a rules-based Medium-Term Fiscal Framework (MTFF) to de-link expenditures from energy revenue fluctuations, improve assessment of policy impacts, and enhance early warning signals on fiscal sustainability. Communicate how central government debt developments remain consistent with the soft public debt target and broaden fiscal data coverage of SOEs and other public bodies. - Adopt a formal fiscal rule; consider a well-calibrated medium-term debt anchor with operational multiyear fiscal targets; integrate transfers in and out of the HSF with the MTFF; include pre-determined escape clauses for unexpected events; establish an independent fiscal council to monitor implementation. - Develop a debt management strategy and sovereign asset-liability management framework to evaluate cost and risks of financing options, identify and manage financial risks, monitor sovereign balance sheet exposures, and guide financing decisions. ### Authorities’ fiscal stance and views - Authorities committed to fiscal discipline and rebuilding buffers, managing energy revenues carefully, improving public spending efficiency, protecting capital spending, and preserving support for the most vulnerable. - Emphasized need for increased capital expenditure for infrastructure, jobs, and growth. - Committed to reforms: rollout of property and gambling taxes, operationalization of the Revenue Authority, and adjustment of electricity and water tariffs. - Supportive of strengthening fiscal framework and acknowledged potential role of a fiscal anchor, cautioning against undue constraints on growth-enhancing policies; engaged with IMF TA on fiscal rules framework. ### Monetary policy and exchange rate policies - Staff encourages maintaining consistent policies to support the de facto pegged exchange rate arrangement. - CBTT repo policy rate: fixed at 3.5 percent since March 2020 to support recovery. - US-TT interest rate differential widened with U.S. tightening; differentials have narrowed more recently but incentivize potential capital outflows. - CBTT should remain vigilant and stand ready to increase policy rate if outflow risk intensifies. - Authorities report low inflation: 0.7 percent at the end of 2023 and 0.3 percent in January 2024. ### FX shortages and market functioning - CBTT additional FX intervention restored confidence and stabilized FX market in 2023 but did not address structural FX shortfall. - Authorities’ measures: EximBank facility providing FX to SMEs; exploring strategies to increase repatriation of FX earned overseas. - Staff recommends moving towards a more efficient, market-clearing infrastructure for allocating FX, removing restrictions on current international transactions, and greater exchange rate flexibility over the medium term to meet FX demand and create room for countercyclical monetary policy. ### Financial sector resilience and regulatory reforms Findings: - Financial system appears sound and resilient but faces vulnerabilities from high sovereign exposures, interconnectedness, liquidity calls linked to group investment funds, and risks related to climate and cyber-security. - CBTT stress-tests indicate banks would withstand shocks to interest rate, exchange rate, credit, and liquidity; insurance sector robust but susceptible to capital, asset quality, and sovereign risks. Staff recommendations to enhance resilience: - Finalize implementation of Basel II/III standards, including liquidity coverage ratio. - Strengthen resilience of the investment fund sector by orderly transformation from constant to variable NAV funds. - Enhance consolidated supervision of conglomerate groups. - Provide CBTT with explicit macroprudential authority and tools to contain vulnerabilities and limit sovereign and foreign currency exposures. - Strengthen supervisory resources and independence in line with international best practices. Regulatory progress noted: - Implementation of Basel II/III, ICAAP submissions ongoing, rollout of leverage ratio, D-SIB add-on, and capital conservation buffer. - Insurance sector adopting IFRS 17 and 2018 Insurance Act (with 2020 amendment); market conduct guideline forthcoming. - TTSEC strengthening regulatory framework for investment funds; new CIS By-Laws to enhance oversight. - Crisis management framework strengthened with new Recovery Plan Guideline. ### Fintech, financial integrity, and international tax transparency - Authorities' cautious approach to Fintech welcomed: developments mainly in e-money and payment services. - CBTT actions: regulatory guidance for EMIs, entity-based regulation to ring-fence e-money businesses, internal exit policy for weak EMIs, revised transaction limits and wallet sizes, strengthened IT security operations and disaster recovery tests, and cybersecurity guidelines for financial institutions. - Staff encourages finalization of the Payments System Services Bill. Financial integrity and tax transparency: - Progress in legislative, administrative, and operational actions to strengthen EOIR, AEOI, BEPS, CbCR, and beneficial ownership frameworks. - Authorities ready for EOIR peer-review scheduled for 2024Q2; requested to join MAAC; expect AEOI peer review in 2025. - Steps taken on BEPS Action Item 13 (CbCR), proclaiming SEZ, and abolishing Free Zones preferential tax regime. - Continued implementation expected to help exit EU list of non-cooperative tax jurisdictions. ### Authorities’ views on financial sector and transparency - Authorities committed to strengthening supervision and regulation, highlighted progress across banks, insurance, mutual funds, EMIs, cybersecurity, and payments modernization. - Expressed appreciation for IMF TA and readiness to continue monitoring risks and assess climate risk impacts. - Underscored improvements toward complying with international standards on tax transparency and integrity. _Italic: Source — Trinidad and Tobago authorities and IMF staff estimates as presented in the IMF Country Report content._ ### 37. Trinidad and Tobago needs all its engines to boost growth and secure a more ### Trinidad and Tobago needs all its engines to boost growth and secure a more diversified, green, resilient, and inclusive economy. ### Energy sector role and diversification needs - The energy sector will remain a key contributor to growth in the near and medium term. - It is critical to continue vertical and horizontal diversification efforts to help shield the economy from the volatility of global energy markets and the risks of the green energy transition. - Balance is needed between leveraging the maturing energy sector and providing conditions to promote the non-energy sector. ### Natural gas, LNG, and energy investments - Authorities’ efforts to foster competitiveness of the energy sector and boost future natural gas production will help support growth and provide financial resources needed to transition to a low-carbon economy. - Noteworthy developments include: - Restructuring of the country’s main liquified natural gas (LNG) facility. - Reaching agreements with key stakeholders to produce and export natural gas. - Awarding new deepwater licenses for gas exploration (Annex II). - Expected outcomes from these developments: - Boost natural gas production and LNG exports. - Improve the pricing and revenue received by the country. - Enhance the efficiency of the LNG trains and other petrochemical plants, lowering their emissions-intensity of production. - Catalyze additional energy investment and strengthen the country’s external and fiscal positions. - Reducing domestic consumption of natural gas used for electricity generation by increasing renewable electricity would help maintain supplies for LNG and petrochemicals. - In the medium term, taking advantage of growing global demand for green hydrogen will help rebalance the country’s energy matrix (Annex X). - Stakeholder note: reducing petrochemical production from full capacity to a minimum operational threshold can increase emissions per unit of product by over 10 percent. ### Economic diversification, digital economy, and labor initiatives - Authorities are advancing initiatives in line with Vision 2030 to promote economic diversification, including measures to support: - The manufacturing and agricultural sectors and SMEs. - Investment attraction (e.g., industrial parks). - Employment through training and apprenticeship programs. - Further trade integration (e.g., preferential agreements) — Annexes XI and XII. - Leveraging the digital economy aims to improve efficiency and inclusion by: - Enhancing the delivery, quality, and efficiency of government services. - Facilitating the ease of doing business. - Improving access and connectivity to the digital economy (e.g., e-business and e-commerce). - Promoting collaborative development of open-source programs and applications of interest to the Government (e.g., Developers Hub) — Annex VIII. ### Structural reforms and resilience priorities - Structural reforms aimed at removing obstacles to private sector participation remain a priority, with focus on: - Enhancing the business environment. - Tackling insecurity. - Strengthening the efficiency of trade logistics (e.g., customs and transport infrastructure). - Expected benefits: - Improved competitiveness on export markets. - More reliable and affordable imports of goods. - Clearing remaining VAT refund arrears would enhance firms’ liquidity positions. - Building resilience to climate change and natural disasters (e.g., climate-resilient infrastructure) would help sustainable growth. ### Climate, emissions intensity, and mitigation efforts - Although Trinidad and Tobago’s contribution to global absolute GHG emissions is negligible, the country’s emissions intensity is high: - 0.075 percent (country contribution to global absolute GHG emissions). - 1.6 kg CO2-equivalent per US$ in 2021 (emissions intensity). - Ongoing efforts to reduce GHG emissions include: - Efficiency programs (e.g., the Green Manufacturing Initiative). - Solar energy projects (e.g., the 92 MW BPTT and Shell solar plant). - Assessing potential for carbon capture, utilization and storage. - Plans to become a regional leader on green hydrogen. - Joining the Global Methane Pledge aiming to reduce methane emissions. - Emissions target: - A 15 percent reduction in emissions relative to a business-as-usual baseline. *Source: 1ttoea2024001 - 37.* ### 2030. The authorities are encouraged to adopt appropriate regulatory and administrative ### 1ttoea2024001 - 2030. The authorities are encouraged to adopt appropriate regulatory and administrative ### Decarbonization and transition risks - About 10 percent of Trinidad and Tobago’s total exports are at risk due to the recently announced EU’s Carbon Border Adjustment Mechanism (CBAM). - CBAM entails a charge on EU importers of certain products for the carbon emissions embedded in their imports starting in 2026. - Policy/strategic priorities recommended: - Increase the efficiency and reduce the carbon intensity of the country’s most exposed industries (e.g., ammonia and fertilizers). - Re-evaluate strategy for managing transitional risks including the emissions pathway in the next submission of the Nationally Determined Contribution (NDC) to the United Nations Framework Convention on Climate Change. - Consider a carbon pricing policy. - Adopt appropriate regulatory and administrative frameworks for overseeing and monitoring the implementation of the decarbonization strategy. ### Authorities’ views on transition and diversification - Commitments and actions: - Committed to implementing reforms to diversify the economy. - Emphasized improving the business environment, advancing new trade agreements, and adopting green manufacturing practices to support the non-energy sector. - Emphasized embracing the digital economy to promote a more efficient and inclusive economy. - Reiterated commitment to addressing climate risks and managing the green energy transition; highlighted that the country’s GHG emissions have declined over the past 15 years. - Highlighted progress in expanding renewable energy and implementing the roadmap to a green hydrogen-based economy. - Expressed concern that the use of border carbon adjustments (BCAs) should consider the unique circumstances and capabilities of small commodity-based economies. - Expressed interest in exploring a carbon pricing mechanism. ### Enhancing statistics adequacy - Assessment and gaps: - Data coverage is broadly adequate for surveillance, but efforts are needed to enhance coverage and granularity of fiscal, debt, and external statistics (Annex XIV). - Large errors and omissions in the balance of payments need to be addressed. - Macro-financial data gaps remain, following the 2020 FSAP recommendations (e.g., real estate price index). - Authorities are encouraged to collect and disseminate comprehensive climate- and GHG emissions-related data, including at the industry level. - Institutional recommendation: - Transforming the Central Statistical Office (CSO) into an independent National Statistical Institute (NSI) would help strengthen institutional capacity. - Authorities’ actions: - Work on the joint Household Budget Survey and Survey of Living Conditions expected to conclude by mid-2024. - NSI legislation is under revision. - CSO recently revised annual (2012-21) and quarterly (2012Q1-2023Q1) nominal and real GDP, with limited impact on macroeconomic ratios. ### Staff appraisal — recent performance and near-term outlook - Real sector and inflation: - In 2023, real GDP is estimated to have expanded, inflation declined sharply. - The economy is expected to continue growing and inflation to remain low in 2024. - The balance of risks is tilted to the downside in the near term but to the upside in the medium term. - FY2024 budget: - The FY2024 budget envelope is appropriate to support the economic recovery and address infrastructure needs. - Proclamation of the Procurement Act will enhance legal and institutional framework for transparent and competitive public procurement and improve efficiency and quality of public spending. ### Fiscal sustainability and public finances (findings and recommendations) - Strengthening medium-term fiscal position: - Scope to mobilize revenues by adjusting the energy sector’s fiscal regime, boosting non-energy revenue, and strengthening tax compliance and administration. - Continue gradually phasing out subsidies while protecting the most vulnerable, streamlining transfers to SOEs, and improving the efficiency and quality of public spending. - These measures would help maintain public debt well below the authorities’ soft debt target. - Pension and transition fiscal risks: - Address potential fiscal risks from the pension system and the global energy transition to ensure long-term sustainability. - Staff welcomes the authorities’ proposal to increase the retirement age to 65 years and encourages increasing the contribution rate to ensure system sustainability. - Design a sustainable long-term fiscal strategy to avoid disruptive policy adjustments due to energy transition risks. - Fiscal framework and debt management: - Develop a sound rules-based fiscal framework to strengthen fiscal management, avoid procyclical spending, and mitigate fiscal risks. - Clearly communicate how central government debt developments remain consistent with the soft target on public debt. - Implement a sound debt management strategy to mitigate macro-financial risks. ### External sector and exchange rate policy - Exchange rate and FX management: - Staff encourages maintaining sound and consistent policies to support the exchange rate arrangement. - US-TT interest rate differentials have widened and recently narrowed, creating incentives for potential capital outflows; CBTT encouraged to remain vigilant and stand ready to increase its policy rate if risk intensifies. - Addressing FX shortages remains a priority; a more efficient and market-clearing infrastructure for allocating FX would improve the business environment and support diversification. - Removal of all restrictions on current international transactions and greater exchange rate flexibility over the medium term would help meet demand for FX, reduce need for fiscal policy adjustments to restore external balance, and create room for more countercyclical monetary policy. ### Financial sector resilience and supervision - Vulnerabilities and priorities: - Financial system appears sound and resilient but faces potential vulnerabilities from high sovereign exposures and interconnectedness. - Closely monitor financial sector risks including those related to climate and cyber-security. - Regulatory and supervisory recommendations: - Finalize implementation of Basel II/III standards. - Ensure orderly transformation of the investment fund sector from constant to variable net asset value. - Enhance consolidated supervision of conglomerate groups. - Provide the CBTT with explicit macroprudential authority and tools. - Strengthen supervisory resources and independence in line with international best practices. - Fintech and financial integrity: - Authorities’ steady but cautious approach to Fintech is welcome; progress includes regulatory and supervisory guidance for e-money issuers, promotion of e-money, raising awareness, and strengthening cybersecurity practices. - Continue strengthening domestic tax administration and AML/CFT framework to comply with EU governance and the OECD Global Forum requirements and prepare for the 2026 CFATF mutual evaluation. ### Climate targets and green transition - NDC target and policy encouragement: - Authorities’ efforts to advance climate and energy transition agenda will help achieve the country’s NDC target of a 15 percent reduction in GHG emissions by 2030 and increase the use of renewable energy. - Authorities are encouraged to continue accelerating the low-carbon transition agenda, promote development of the green-energy sector, and address risks raised by BCAs. ### Key quantitative findings and projections (selected) - NDC target: - 15 percent reduction in GHG emissions by 2030. - Exports exposure: - About 10 percent of Trinidad and Tobago’s total exports are at risk from CBAM; Figure 7 also states "Over 10 percent of the country’s total exports are exposed to the EU’s Carbon Border Adjustment Mechanism (CBAM)." - Fiscal and macro figures (selected from tables and text; figures preserved exactly as presented): - Central government primary balance (2023): 1.8 (percent of fiscal year GDP). - Central government overall balance (2023): -1.1 (percent of fiscal year GDP). - Central government debt (2023): 54.3 (percent of GDP). - Public sector debt (2023): 70.9 (percent of GDP). - Heritage and Stabilization Fund assets (2023): 20.0 (in percent of fiscal year GDP listed in table header). - Current account balance (2023): 9.1 (percent of GDP). - Gross official reserves (2023): 6,258 (US$ million). - Gross official reserves (in months of prospective imports of goods and services, 2023): 8.3. - Crude oil price (FY, 2023): 84.5 (US$/barrel). - Henry Hub natural gas price (FY, 2023): 3.6 (US$ per MMBtu). - GDP per capita (US$, 2022): 19,692. - Population (millions, 2022): 1.53. - Unemployment rate (2023Q3): 3.2. - Real GDP growth (2023, table "Real GDP"): 2.1 (annual percentage change). - CPI inflation (period average, 2023): 4.6 (percent). - Bank regulatory capital to risk weighted assets (2023, Table 5): 16.7 (percent). - Non-performing loans to total gross loans (2023, Table 5): 3.0 (percent). - Return on equity (2023, Table 5): 16.5 (percent). ### Staff recommendation on consultation cycle - Staff proposes the next Article IV consultation remains on a 12-month cycle. *Source: IMF staff report for Trinidad and Tobago (excerpts provided).* ### Annex I. Implementation of Recommendations from the ### Annex I. Implementation of Recommendations from the 2023 Article IV Consultation ### Fiscal Policy - Implement a medium-term fiscal consolidation plan: - Improve revenue mobilization and compliance. - Status: Ongoing. The Trinidad and Tobago Revenue Authority (TTRA) and the full proclamation of the Gambling Control Act, including the Gambling Control Commission, are expected to become operational in 2024. Property taxes are set to begin collections in FY2024. The Notices of Assessments started to be issued on February 26, 2024 and the process is expected to be completed by June 30, 2024. - Streamline transfers to SOEs. - Status: Ongoing. Transformation of Petrotrin was successfully completed in 2018. Some of its assets and liabilities were vested in newly incorporated entities—Heritage Petroleum Company Limited, Paria Fuel Trading Company Limited, and The Guaracara Refining Company Limited. The Trinidad and Tobago Housing Development Corporation was reorganized in 2022 into four legal entities to ensure operational sustainability. Efforts continue on privatizing gas stations owned by the Trinidad and Tobago National Petroleum Marketing Company Limited. Three state entities (InvesTT, exportTT, and CreativeTT) will be amalgamated into the Trinidad and Tobago Trade and Investment Promotion Agency in 2024 to strengthen its institutional framework and mandate. - Phase out remaining fuel, electricity, and water subsidies. - Status: Ongoing. Transformation Plan for the Water and Sewerage Authority (WASA) is in progress and the authorities are at advanced stages with respect to the increase in tariffs on electricity. The Regulated Industries Commission (RIC) published its Final Determination for the electricity rate review on November 1, 2023, which is currently before the Cabinet for its consideration. - Clear VAT refund arrears. - Status: Ongoing. Cash refunds and VAT bonds were issued to help clear arrears, but outstanding VAT refunds remain. - Strengthen fiscal policy framework: - Adopt a rule-based medium-term fiscal framework, including the consideration of a fiscal anchor. - Status: Ongoing. TA from the Fiscal Affairs Department (FAD) on fiscal rules took place in January in 2024. The Ministry of Finance is reviewing the mission’s draft report. - Improve the efficiency, quality of public investment, and capacity to appraise, select, and monitor projects. - Status: Ongoing. The Procurement Act was legislated with further refinements made in 2023. - Embrace a sovereign asset-liability management strategy to guide financing decisions. - Status: Ongoing. The Monetary and Capital Markets (MCM) department provided TA in June 2023 to assist the authorities in assessing the institutional arrangement, functioning and performance of the Heritage and Stabilization Fund (HSF), and to contribute to the development of a sovereign asset and liability management framework. - Reform the National Insurance System (NIS) to ensure its adequacy and sustainability. - Status: Ongoing. The authorities plan to increase the retirement age from 60 to 65 years. Other parametric adjustments are being considered. - Broaden fiscal data coverage of SOEs and other public bodies. - Status: Ongoing. The authorities publish the fiscal operations of the statutory board and other public bodies. The digitization of manual systems for recording data received from SOEs is ongoing with modules being developed. The Cash Statement of Operations Module was completed in 2023 and work is ongoing on the Quarterly Returns Report Module. ### Monetary and Exchange Rate Policy - Increase the policy repo rate to maintain sound and consistent policies to support the current exchange rate arrangement. - Status: No progress. The CBTT has kept its policy rate fixed since March 2020 to support the economic recovery. Interest rate differentials with the U.S. monetary policy rate remain wide but have recently declined. - Reform the foreign exchange (FX) market to eliminate shortfalls. - Status: No progress. The CBTT provides FX to the market through regular and ad-hoc interventions. Still, a structural FX shortage remains. The existing EximBank windows (for manufacturers and importers of essential goods) help to generate net FX revenues. A new facility to ease FX shortages for small- and medium-sized enterprises will be established in 2024. ### Financial Sector - Strengthen the AML/CFT framework, including measures required to improve compliance with beneficial ownership requirements and resolve tax transparency and exchange of information deficiencies related to the EU and the Global Forum. - Status: Ongoing. The authorities are actively addressing these issues. They are completing the second national AML/CFT risk assessment with the assistance of the World Bank and are implementing the action plan developed in collaboration with the Global Forum (see Annex IX for details). - Strengthen regulation and supervision in line with the 2020 Financial Sector Assessment Program (FSAP). - Status: Ongoing. See Annex VII about the status of the implementation of FSAP recommendations. - Continue efforts to build expertise on central bank digital currencies (CBDCs), cybersecurity, and the regulation and supervision of Fintech. - Status: Ongoing. The authorities are actively working on these efforts, leveraging IMF TA, see Annex VIII. ### Structural Reforms - Implement structural reforms to improve the business environment and support non-energy sector growth. - Status: Ongoing. The authorities have outlined several initiatives in the FY2024 Budget Statement, including supporting the manufacturing and agriculture sectors, promoting non-energy exports diversification, addressing skill gaps, youth unemployment, financial inclusion of SMEs, and strengthening safety and security in the country. In July 2023, they launched the One FinTech Avenue, and in January 2024, the Phoenix Park Industrial Estate opened. Operationalization of the Special Economic Zones is planned for 2024. - Continue advancing the work on renewable energy projects and the new green hydrogen strategy. - Status: Ongoing. The authorities are encouraging energy-efficiency through the Green Manufacturing Initiative, developing solar energy, and launched a strategy for wind power generation. - Upgrade climate-resilient infrastructure. - Status: Ongoing. The authorities are establishing a more resilient and robust drainage system to mitigate the effects of climate change and a coastal defense system to protect against coastal flooding and shoreline erosion. ### Statistics - Further improve economic statistics and institutional capacity. - Status: Ongoing. The authorities received TA from CARTAC for improving the national accounts, and the external and balance of payments statistics. The authorities plan to increase the coverage and speed of national accounts releases. The authorities are also planning to receive TA on macroeconomic programming and analysis, and to build capacity in medium-term macro-fiscal forecasting. The Joint Household Budget Survey and Survey of Living Conditions is planned for completion in mid-2024. - Operationalize the independent National Statistical Institute. - Status: Ongoing. Efforts to create the National Statistical Institute continue. The Bill is currently with the Cabinet for approval, before laying it down in the Parliament. - Address macro-financial data gaps in line with the 2020 FSAP recommendations. - Status: No progress. *Prepared by Alexander Amundsen (WHD).* ### Annex III. External Sector Assessment ### Annex III. External Sector Assessment ### Overall Assessment - Trinidad and Tobago’s external position in 2023 was stronger than the level implied by fundamentals and desirable policies settings, based on the results of the IMF’s EBA-lite current account model. - The 2023 assessment is the same as in 2022. - The current account surplus in 2023 was smaller than in 2022, reflecting lower global oil and gas prices and domestic production, but remains large and supports an improvement in the country’s net creditor position. - International reserve coverage remains adequate under all metrics and is complemented with large external liquid assets in the Heritage and Stabilization Fund (HSF). - Large errors and omissions in the financial account constrain a more comprehensive external sector assessment. ### Policy Responses - External sustainability is not a concern in the near term, given: - large current account surplus and - strong net international investment position (NIIP). - Continue to rebuild external buffers given: - uncertain outlook for global energy markets, - weak domestic energy production in the near term, and - challenges posed by the global transition to low carbon emissions. - Required policy directions: - Fiscal prudence. - Steadfast implementation of structural reforms to promote greater private investment, sustain higher growth rates, and diversify the export base. - Adopt less carbon-intensive technologies and electricity generation to ensure a smooth transition to a greener and decarbonized economy. ### Foreign Assets and Liabilities: Position and Trajectory - Background trajectory: - NIIP bottomed at US$2.2 billion (10.8 percent of GDP) in 2020. - NIIP improved to US$7.5 billion (24.9 percent of GDP) in 2022. - NIIP estimated to have increased to around US$8.8 billion (31.4 percent of GDP) in 2023. - Improvement driven by current account surpluses, increased foreign assets, and a decline in foreign liabilities. - HSF developments: - HSF suffered US$913.5 million in losses in FY 2022 due to global equity market volatility. - HSF recovered in 2023 and was bolstered by US$345 million in deposits made by the government into the HSF during 2022. - Total net asset value of the HSF estimated at US$5.5 billion as of end-FY2023, up from US$5.1 billion at end December 2022. - Authorities withdrew about US$160 million in December 2023 for budget support. - Assessment: - NIIP is and will remain strong over the medium term, driven by projected current account surpluses. - Adequate sovereign asset and liability management framework is needed to mitigate valuation effects from increased volatility in global financial markets. - 2023 estimate (percent of GDP): - NIIP: 31.4 - Gross Assets: 106.7 - Debt Assets: 57.0 - Gross Liabilities: 75.3 - Debt Liabilities: 55.2 ### Current Account - Background: - 2023 CA surplus estimated at 9.1 percent of GDP, down from a decade high of 17.9 percent in 2022. - Decline driven by weaker exports from normalization of energy and petrochemical prices and weaker energy and petrochemical production. - Decline partially offset by lower imports due to a decline in global food and energy prices and moderation in transportation costs. - Primary income account deficit narrowed substantially due to reduced repatriation of profits by non-resident energy companies. - 2023 current account surplus reflected: - large private sector net savings estimated at 10.2 percent of GDP, - central government ran a deficit of -1.1 percent of GDP. - EBA-lite model results, 2023 (in percent of GDP): - CA-Actual: 9.1 - Cyclical contributions (from model) (-): 0.4 - Additional temporary/statistical factors (-): 2.0 - Natural disasters and conflicts (-): 0.0 - Adjusted CA: 6.8 - CA Norm (from model): 4.0 - Adjusted CA Norm: 4.0 - CA Gap: 2.8 - o/w Relative policy gap: 2.9 - Elasticity: -0.3 - REER Gap (in percent): -9.4 (CA model) and 1.9 (REER model) - Notes: - Based on the EBA-lite 3.0 methodology. - Additional adjustment to account for statistical factors due to large errors and omissions; staff expects historical revisions to the BoP could revise the 2023 CA notably via primary income flows from energy companies. - CA Norm is cyclically adjusted, including multilateral consistency adjustments. - Assessment: - Cyclically-adjusted CA estimated at 6.8 percent of GDP. - EBA-lite CA norm estimated at 4.0 percent of GDP. - CA gap of 2.8 percent of GDP implies the current account is stronger than level implied by fundamentals and desirable policies. - Relative policy gap largely reflects Trinidad and Tobago’s primary fiscal surplus in 2023. ### Real Exchange Rate - Background: - REER depreciated by 3.6 percent through December 2023 relative to December 2022. - Nominal effective exchange rate (NEER) was broadly stable over the past year. - Exchange rate vis-à-vis the U.S. dollar has been stable, supported by regular and extraordinary Central Bank interventions in the FX market. - Assessment: - EBA-Lite REER model estimates a moderate overvaluation of 1.9 percent. - Based on staff elasticity of -0.3 percent of the trade balance to the REER, the REER gap under the CA model is -0.5 percent. ### Capital and Financial Accounts: Flows and Policy Measures - Background: - Financial account recorded very large net outflows in 2022, primarily driven by direct investment (almost entirely accounted for by energy companies). - Portfolio investment and other investment also saw outflows. - Capitalization of the HSF contributed to outflows and increase in external assets. - Outflows in the first three quarters of 2023 continued, led by direct investment with an increase in assets and a decline in liabilities, driven by energy companies. - Assessment: - Direct investment inflows from new investments by energy companies expected to support the capital and financial account over the medium term. - Trinidad and Tobago expected to remain a net capital exporter with substantial portfolio and other investment outflows. ### FX Intervention and Reserves Level - Background: - Exchange rate classified as a stabilized arrangement; exchange restriction subject to Fund approval under Article VIII, Section 2(a). - Gross international reserves broadly stable between 2019-2022 at about US$6.9 billion. - Reserves declined by US$575 million in 2023 to US$6.26 billion, reflecting a weakening current account surplus and FX interventions by the CBTT. - Reserve coverage metrics: - 22.2 percent of GDP - 8.3 months of prospective imports of goods and services - FX market liquidity largely driven by energy companies supplying about three-quarters of FX earnings. - FX shortages widened in 2023 due to reduced oil and gas revenues and temporary reduced repatriation of FX revenues by energy companies (owing to refunding of VAT payments by the government). - CBTT actions to alleviate FX shortfall: - Bi-monthly US$50 million FX interventions. - One-time US$50 million intervention in September. - Provided US$91.9 million to Authorized Dealers through the FX Liquidity Guarantee Facility. - Assessment: - Gross international reserves are adequate under all metrics: - Reserves stand at 114 percent of the IMF’s composite reserve adequacy (ARA) metric. - Reserves exceed the benchmark of 6-months of prospective imports for commodity exporters, and 20 percent of broad money and short-term debt falling due within one year. - In the short term, reserves may decline further as oil and natural gas production softens. - Over the medium term, increased energy production and external borrowing expected to help keep reserves steady. - Reserve coverage is complemented with large external assets in the HSF, estimated at US$5.5 billion (19.2 percent of GDP) at end-FY2023. - If counted together with reserves, the authorities’ usable liquid FX assets would be more than 200 percent of the ARA metric. *Prepared by Peter Nagle (WHD). The external sector assessment is based on staff’s estimates.* ### Annex V. Sovereign Risk and Debt Sustainability Assessment ### Annex V. Sovereign Risk and Debt Sustainability Assessment ### Overview and key projections - Public debt (central government) increased to 54.3 percent of GDP in FY2023, up from 50.7 percent in FY2022. - Under the baseline: - Debt-to-GDP is projected to increase to 56.0 percent of GDP in FY2024. - Public debt is projected to peak at 56.3 percent of GDP in FY2026. - Public debt is projected to gradually decline to 45.0 percent by FY2033. - The FY2023 deterioration reflects a shift from a fiscal surplus of 0.3 percent of GDP in FY2022 to a deficit of 1.1 percent of GDP in FY2023, driven by lower energy revenues. - Public debt remains about 9 percentage points of GDP above its pre-COVID-19 level. ### Macroeconomic and fiscal assumptions underlying the baseline - Macroeconomic assumptions: - Real GDP growth: 2.1 percent in 2023 and 2.4 percent in 2024. - Strong growth of 2.9 percent and 2.8 percent in 2028 and 2029, respectively, as new energy projects come onstream. - Long-term growth converges toward potential of 1.3 percent. - Inflation: peaked at 8.7 percent in December 2022; declined to 0.3 percent in January 2024. - Current account surplus: 9.1 percent of GDP in 2023; projected to remain relatively stable over the medium term. - Fiscal path: - Fiscal balance: deficit expected to widen to 2.7 percent of GDP in FY2024 (from a deficit of 1.1 percent of GDP in FY2023). - Deficit expected to gradually narrow and balance by FY2027. - Primary balance projected to remain in surplus over the medium and long term. - Gross financing needs (GFNs): - GFNs expected to increase to 6.8 percent of GDP in FY2024 and peak at 9.3 percent of GDP in FY2026, driven largely by increasing debt service. - Long-term GFNs average around 4.3 percent of GDP. - About two-thirds of GFNs will be covered by medium- and long-term domestic debt, with the remaining part covered by external borrowing. - Use of one-off financing and HSF: - Authorities used “one-off” financing measures and withdrawals from the Heritage and Stabilization Fund (HSF). - In December 2023, the authorities withdrew about TT$1 billion (0.5 percent of GDP) from the HSF for budget support. - Some uncertainty exists regarding realization of “one-off” financing given legal complexities and questions about “super-dividends.” ### Debt structure and financial profile - Currency composition and maturity: - 32.9 percent of outstanding public debt is denominated in foreign currency. - Maturity structure: 27.1 percent medium-term, 61.5 percent long-term. - Short-term monetary policy instruments: - Short-term debt issued for open market monetary policy operations was equivalent to about 2.6 percent of GDP at end-FY2023 and matched by corresponding “frozen” government deposits in the domestic banking system. - Fiscal buffers: - Sovereign HSF assets estimated at 19.2 percent of GDP in FY2023. - Historical shocks and recovery: - Trinidad and Tobago experienced multiple adverse shocks over the past decade, including the 2014 collapse in global energy prices, domestic energy production disruptions, and the 2020 COVID-19 pandemic. - Real GDP declined in 2015-18 and in 2020–21, incurring a cumulative GDP loss of 21.7 percent. - Economic recovery ongoing; expected third year of continuous growth in FY2024. ### Vulnerabilities, contingent liabilities, and sovereign-bank nexus - Contingent liabilities: - Guaranteed debt of public bodies reached 16.6 percent of GDP as of end-FY2023 and is primarily denominated in domestic currency. - Central government guarantees often begin as letters of comfort and may be formalized later. - Fiscal transfers and exposure: - Central government pays interest and principal of guaranteed debt of non-self-serviced SOEs and statutory bodies through budget transfers. - Transfers to SOEs and statutory bodies amounted to about 3.2 percent of GDP as of end-FY2023. - Banking system exposure: - Exposure of domestic banks to public bodies, their reliance on government support, and a high sovereign-bank nexus can create a negative feedback loop that could amplify macroeconomic shocks and weaken debt sustainability and macroeconomic stability. ### Uncertainty, stress testing, and risk assessment - Forecast uncertainty: - Forecast errors indicate optimism in staff projections regarding the real interest rate-growth differential. - Projected fiscal adjustment and debt reduction are within normal historical ranges observed in peer countries. - Fan chart and solvency risk: - The fanchart exhibits wide dispersion in possible debt paths, reflecting volatility of energy prices and GDP. - Medium-term risks are assessed as moderate; the fanchart suggests high risks due to historical volatility, but low GFN risks reflect fiscal restraint and increasing fiscal revenues. - Overall assessment: - Trinidad and Tobago is at moderate risk of sovereign stress. - Public debt is projected to stabilize in the medium term. ### Long-term scenarios: climate, natural resources, and pensions - Climate change: - Under climate change adaptation scenario: assumed long-term primary balance impact of 0.9 percent of GDP and an increase of 0.5 percent in GDP growth related to capital spending addressing climate risks. - GFNs and public debt increase relative to the baseline but remain sustainable. - Under climate change mitigation scenario: elevated GFNs and public debt occur, but public debt would be on a downward trajectory over the 20-year horizon. - Natural resource depletion: - Decline in natural resources is likely to erode the fiscal revenue base and widen the primary deficit. - GFNs and public debt remain at a manageable level supported by sustained growth in the non-energy sector. - Pensions: - Pension expenditures under the current system would lead to larger GFNs and an upwards public debt trajectory in the long term. - Points to the need for parametric reforms to the public pension system. ### Policy implications and recommended priorities - Maintain fiscal discipline and rebuild fiscal buffers to ensure fiscal sustainability and resilience to future shocks. - Advance structural reforms to diversify the economy, including boosting gas and renewable energy production. - Address contingent liability risks from SOEs and statutory bodies, including stronger oversight and clearer guarantee frameworks. - Undertake parametric reforms to the public pension system to prevent long-term upward pressure on GFNs and public debt. - Carefully manage reliance on “one-off” financing and HSF withdrawals given legal and sustainability considerations. *Source: IMF staff.* ### 5. Debt consolidation across sectors: ### 5. Debt consolidation across sectors: ### Debt perimeter and contingent liabilities - The debt perimeter only covers the central government sector due to lack of consolidated general government and public sector data. - Contingent liabilities to the government stem from borrowing by public bodies (i.e., state-owned enterprises and statutory bodies). - As of end-FY2023, guaranteed debt, which is denominated primarily in domestic currency, reached 16.6 percent of GDP. ### Public debt structure (selected indicators and commentary) - Domestic debt stood at 36.4 percent of GDP at end-FY2023 while external debt is relatively low at 17.9 percent of GDP. - Commentary: The debt profile is dominated by medium- and long-term maturities, and a moderate foreign currency share of outstanding debt. ### Baseline scenario (Percent of GDP unless indicated otherwise) - Public debt: - 2023: 54.3 - 2024: 56.0 - 2025: 56.2 - 2026: 56.3 - 2027: 54.9 - 2028: 52.6 - 2029: 49.8 - 2030: 48.3 - 2031: 47.1 - 2032: 46.0 - 2033: 45.0 - Change in public debt: - 2023: 3.6 - 2024: 1.7 - 2025: 0.2 - 2026: 0.1 - 2027: -1.3 - 2028: -2.4 - 2029: -2.8 - 2030: -1.5 - 2031: -1.2 - 2032: -1.1 - 2033: -1.0 - Contribution of identified flows: - 2023: -1.2 - 2024: 0.7 - 2025: 0.0 - 2026: -0.1 - 2027: -1.6 - 2028: -2.6 - 2029: -3.0 - 2030: -1.8 - 2031: -1.4 - 2032: -1.3 - 2033: -1.2 - Primary deficit: - 2023: -1.8 - 2024: 0.1 - 2025: -0.8 - 2026: -1.4 - 2027: -2.7 - 2028: -3.3 - 2029: -3.6 - 2030: -3.2 - 2031: -2.8 - 2032: -2.5 - 2033: -2.3 - Noninterest revenues: - 2023: 28.7 - 2024: 26.2 - 2025: 27.7 - 2026: 27.6 - 2027: 28.8 - 2028: 29.2 - 2029: 29.4 - 2030: 29.1 - 2031: 28.8 - 2032: 28.5 - 2033: 28.4 - Noninterest expenditures: - 2023: 26.9 - 2024: 26.3 - 2025: 26.9 - 2026: 26.2 - 2027: 26.1 - 2028: 25.8 - 2029: 25.8 - 2030: 26.0 - 2031: 26.0 - 2032: 26.0 - 2033: 26.1 - Automatic debt dynamics: - 2023: 0.1 - 2024: 2.3 - 2025: 0.8 - 2026: 1.3 - 2027: 1.2 - 2028: 0.7 - 2029: 0.6 - 2030: 1.4 - 2031: 1.3 - 2032: 1.2 - 2033: 1.1 - Real interest rate and relative inflation: - 2023: 0.1 - 2024: 3.5 - 2025: 2.1 - 2026: 2.0 - 2027: 2.2 - 2028: 2.2 - 2029: 2.1 - 2030: 2.3 - 2031: 2.1 - 2032: 1.9 - 2033: 1.7 - Real interest rate: - 2023: 1.1 - 2024: 4.5 - 2025: 2.3 - 2026: 2.1 - 2027: 2.4 - 2028: 2.4 - 2029: 2.3 - 2030: 2.5 - 2031: 2.3 - 2032: 2.1 - 2033: 1.9 - Relative inflation: - 2023: -0.9 - 2024: -1.0 - 2025: -0.2 - 2026: -0.1 - 2027: -0.2 - 2028: -0.3 - 2029: -0.3 - 2030: -0.2 - 2031: -0.2 - 2032: -0.2 - 2033: -0.2 - Real growth rate: - 2023: -1.0 - 2024: -1.2 - 2025: -1.3 - 2026: -0.7 - 2027: -1.0 - 2028: -1.5 - 2029: -1.4 - 2030: n.a. - 2031: -0.9 - 2032: -0.7 - 2033: -0.7 - Contribution of residual: - 2023: 4.8 - 2024: 1.0 - 2025: 0.2 - 2026: 0.1 - 2027: 0.2 - 2028: 0.3 - 2029: 0.3 - 2030: 0.2 - 2031: 0.2 - 2032: 0.2 - 2033: 0.2 - Gross financing needs: - 2023: 3.3 - 2024: 6.8 - 2025: 5.7 - 2026: 9.3 - 2027: 5.6 - 2028: 2.9 - 2029: 3.4 - 2030: 3.6 - 2031: 5.8 - 2032: 4.7 - 2033: 5.5 - of which: debt service: - 2023: 5.2 - 2024: 6.8 - 2025: 6.5 - 2026: 10.6 - 2027: 8.4 - 2028: 6.2 - 2029: 7.0 - 2030: 6.8 - 2031: 6.8 - 2032: 7.2 - 2033: 7.8 - Local currency financing needs: - 2023: 4.6 - 2024: 4.0 - 2025: 4.8 - 2026: 5.4 - 2027: 5.7 - 2028: 4.1 - 2029: 5.2 - 2030: 3.5 - 2031: 5.2 - 2032: 5.3 - 2033: 6.0 - Foreign currency financing needs: - 2023: 0.6 - 2024: 2.8 - 2025: 1.7 - 2026: 5.2 - 2027: 2.6 - 2028: 2.1 - 2029: 1.8 - 2030: 3.3 - 2031: 3.4 - 2032: 1.9 - 2033: 1.8 - Memo: - Real GDP growth (percent) 1/: - 2023: 1.9 - 2024: 2.3 - 2025: 2.3 - 2026: 1.2 - 2027: 1.9 - 2028: 2.7 - 2029: 2.8 - 2030: 1.8 - 2031: 1.5 - 2032: 1.4 - 2033: 1.3 - Inflation (GDP deflator; percent): - 2023: -2.1 - 2024: -3.3 - 2025: 0.9 - 2026: 1.1 - 2027: 0.5 - 2028: 0.4 - 2029: 0.4 - 2030: 0.4 - 2031: 0.4 - 2032: 0.4 - 2033: 0.5 - Nominal GDP growth (percent): - 2023: -0.2 - 2024: -1.1 - 2025: 3.2 - 2026: 2.4 - 2027: 2.4 - 2028: 3.1 - 2029: 3.2 - 2030: 2.2 - 2031: 1.9 - 2032: 1.9 - 2033: 1.9 - Effective interest rate (percent): - 2023: 0.0 - 2024: 4.9 - 2025: 5.1 - 2026: 5.0 - 2027: 5.0 - 2028: 4.9 - 2029: 4.9 - 2030: 5.6 - 2031: 5.2 - 2032: 5.0 - 2033: 4.6 - Commentary on baseline: - Public debt stood at 54.3 percent of GDP in FY2023 and its projected trajectory is expected to largely follow developments of Trinidad and Tobago's energy sector. - Debt is expected to peak in FY2026 before it starts to decline again due to the expected increase of energy revenues. - GFNs would peak in FY2026 due to high debt service but then will hover around an average of 4.3 percent of GDP in the long-term. - Public debt is highly sensitive to changes in real interest rates. ### Realism of baseline assumptions and peer comparison - Commentary: Developments in energy prices and production can create volatile growth paths; Trinidad and Tobago is broadly in line with those observed in peer surveillance countries. ### Medium-term risk and analysis (selected indices and signals) - Debt fanchart module: - Fanchart width: 108.8 - Contribution (Contrib 1/): 1.6 - Final Fanchart (Percent of GDP): (value shown) 108.8 (table context) - Probability of debt not stabilizing (percent): 20.0 - Terminal debt-to-GDP x: 28.9 - Debt fanchart index (DFI): 2.4 - Risk signal: High - Gross Financing Needs (GFN) module: - Average baseline GFN (percent of GDP): 5.6 - Initial Banks' claims on the gen. govt (pct bank assets): 11.7 - Change in banks' claims in stress (pct banks' assets): 4.0 - GFN financeability index (GFI): 7.0 - Risk signal: Low - Medium-term index: - Debt fanchart index contribution: 2.4 - GFN financeability index contribution: 7.0 - Final assessment: Prob. of missed crisis, 2024-2029, if stress not predicted: 18.2 pct. - Final assessment: Prob. of false alarms, 2024-2029, if stress predicted: 21.6 pct. - Commentary: Large increase in level of debt in FY2020 and volatility of energy production and prices significantly contributed to volatility of energy revenues. Debt Fanchart Module points to a high level of risk, while the GFN Module suggests lower levels of risk. The debt level path is vulnerable to global energy price volatility and contingent liabilities from state-owned entities and other public bodies. ### Long-term risk analysis: climate, natural resources, and pensions - Climate scenarios (adaptation and mitigation): - Commentary: Climate-related expenditures are contained over the long term. Under climate adaptation, GFNs and debt will remain at a higher level, while under climate mitigation debt has a downward trajectory. The decline in natural resources will erode the fiscal revenue base and GDP growth. Consequently, GFNs and debt are at higher levels, but stable as they are supported by diversified growth in the non-energy sector. - Pension financing (selected figures and commentary): - Permanent adjustment needed in the pension system to keep pension assets positive for: - 30 years: 1.8% - 50 years: 3.7% - Until 2100: 5.3% - Commentary: Pension expenditures under the current system would lead to large gross financing needs and an upward debt trajectory in the long term. This underscores the importance of taking parametric reforms to the pension system. ### Policy implications and recommended framework (Annex VI: Building a Rules-Based Fiscal Framework) - Rationale: - Trinidad and Tobago’s economic activity, and its external and fiscal revenues are heavily dependent on oil and gas. As of 2022, the energy sector, including petrochemicals, accounted for about 36 percent of GDP, 86 percent of total exports, and 56 percent of total central government revenue. - Volatility and uncertainty of energy prices complicate fiscal management and induce boom-bust cycles. - Benefits of a formal fiscal rule: - Promote fiscal discipline, preserve fiscal sustainability, and build buffers. - Limit fiscal deficits and procyclicality by: (i) acting as a commitment device via numerical limits; and (ii) providing a signaling effect through enhanced transparency. - Empirical support: fiscal rules help countries achieve lower fiscal deficits relative to countries without such rules (Eyraud and others, 2018; Apeti and others 2023). - Conditions for effective fiscal rules: - Strong public finance management (PFM) framework. - Sustained political commitment to a medium-term fiscal goal. - Active and sound macroeconomic forecasting and analysis. - Balance between simplicity, flexibility, and enforceability of the rule. - Adequate coverage of government fiscal activities. - Well-defined escape clauses with formal enforcement and correction mechanisms. - Fiscal rule considerations specific to natural resource-rich countries: - Must account for: (i) increased volatility and uncertainty of energy prices, and (ii) exhaustibility of energy resources. - Trade-offs between long-term sustainability and intergenerational resource allocation are exacerbated by the global transition to a low carbon environment. *Source: IMF staff estimates, projections, and accompanying Annex VI (Building a Rules-Based Fiscal Framework).* ### 8. The international experience suggests there has been an increasing trend toward ### 8. The international experience suggests there has been an increasing trend toward ### Global adoption of fiscal rules — empirical findings - As of end-2021, about 105 economies have adopted at least one fiscal rule, up from 94 countries in 2015 and 9 countries in 1985. - The number of emerging market and developing economies (EMDEs) with fiscal rules has risen rapidly since the late 2000s. - The number of natural resource-rich countries with fiscal rules increased from five in 2000 to 23 by 2021, and such countries are increasingly using two rules in combination. - The number of fiscal rules in force at the national level in Latin America and the Caribbean (LAC) increased from 2 in 2000 to 25 in 2022. ### Classification of fiscal rules for natural resource-rich countries - Two broad objectives: - Rules to cope with price volatility and achieve macroeconomic stability (reduce fiscal policy procyclicality by delinking expenditure from volatile revenue). - Rules to ensure fiscal sustainability and an equitable resource intergenerational allocation (address exhaustibility of resources; determine savings and sustainable spending for current and future generations using PIH approaches). - Specific rule types (as categorized in the source): - Revenue split rules: - Set aside a certain percentage of revenues using an ad hoc criterion; - Save revenues above a certain threshold (e.g., the amount initially budgeted); - Require saving a predetermined percentage of commodity revenues. - Price smoothing rules: - Split revenues using an allocation criterion involving the calculation of a reference price; - If actual resource revenues exceed resource revenues consistent with the reference price, the difference is saved and can be used in periods of shortfall. - Structural balance rules: - Help correct both economic and commodity price cycles. - Expenditure rules: - Aim to limit government spending growth in nominal or real terms or in percent of non-resource GDP. - Non-resource primary balance target: - Target expressed in percent of non-resource GDP. - “Bird-in-hand” policy rule: - Resource revenues are saved completely and only the return accruing from accumulated financial assets (interest income) is spent. ### Policy implications and recommendations (implied by classifications) - For macroeconomic stability in commodity exporters: - Adopt rules that delink spending from volatile commodity revenues (revenue split; price smoothing; structural balance; expenditure rules). - For intergenerational equity and sustainability: - Consider PIH-based rules, including non-resource primary balance targets and “bird-in-hand” approaches, to determine sustainable savings and spending paths. _Italic: Source — 1ttoea2024001 - 8. The international experience suggests there has been an increasing trend toward_ ### Annex VIII. Digitalization in Trinidad and Tobago ### Annex VIII. Digitalization in Trinidad and Tobago ### Background - Digital penetration: - Mobile cellular subscriptions (2022): 130.6 (per hundred people) - Fixed broadband subscriptions (2022): 24.4 (per hundred people) - Internet users (2021): 76.2 (percent of population) - Comparative values shown for Latin America and the Caribbean (LAC): 108., 18.1, 7 .0 (as presented) - Overall: penetration of mobile phones (mostly 3G/4G), fixed broadband subscriptions, and internet connections exceed the LAC average; providing internet and mobile connections to vulnerable populations, particularly in remote and rural areas, remains a challenge. - Financial access and inclusion: - Domestic residents with accounts in financial institutions (2017): 80.8 percent (Trinidad and Tobago) vs 53.9 percent (LAC) - Depth of financial access: domestic financial system assets = 179.1 percent of GDP as of end-2022 - 2023 TTIFC survey: share of households with financial accounts declined to 76 percent - Drivers of decline: impact of COVID-19 on vulnerable populations, fees associated with bank accounts and points of sale (POS), and source of funds requirements - Gender note (2017 data): females had greater financial access than the average LAC male (example figures cited in source) - Payments and retail ecosystem: - Current ecosystem components: four E-money issuers (EMI), an EMI service (Endcash) provided by Republic Bank, five payment service providers (PSP), and one Interbank Payment System Operator - Trends 2020–2022: retail electronic payments (ACH transactions) increased; cheque usage declined - Debit and credit card usage increased; cash withdrawals from ATMs and over-the-counter remain small - Cheques (mainly from the public sector) still comprise over a quarter of wholesale transactions despite RTGS introduction in 2004 - GovTech and cybersecurity: - World Bank GovTech Maturity Index rating improved from “C: Some Focus” to “B: Significant Focus” - Cybersecurity incidents (Central Bank of Trinidad and Tobago, 2019-22): 147 incidents, including phishing, data breaches, website defacement, denial of service, business email compromise, ransomware, and two malicious insider events - About 57.1 percent of incidents affected the private sector - Some incidents disrupted public and private institutions and delivery of financial services; none were of a systemic nature ### Digitalization Strategy - Institutional and planning milestones: - Ministry of Digital Transformation (MDT) established in 2021 - MDT developing National Digital Transformation Plan for 2024–27 centered on three pillars - Pillar 1 — A digital knowledge-based society: - Objectives: create robust, reliable, accessible ICT infrastructure and promote digital literacy - Initiatives: - Deploying the TTWiFi (an island-wide public broadband wireless network; 24 sites already in place) - Improving digital access for underserved populations (e.g., leveraging TV White Spaces, attracting satellite service providers, creating public ICT access centers) - Digital Skills Development program "WeLearnTT"; cooperation with Youth Training and Employment Partnership program (YTEPP); acquiring learning licenses from Linux and Cisco; organizing coding camps - 2024 budget allocating resources for training and distributing laptops to students and staff across secondary schools - Pillar 2 — A digital government: - Goals: increase online public services, enhance quality, efficiency, citizen experience, and facilitate doing business - Planned actions: - Establishing the government cloud and data center - Building an interoperability framework to link public agencies, enable secure data sharing, and support citizen–public sector interactions - Creating a national e-ID to reliably identify citizens online and facilitate government-to-person payments - Developing a strategic cybersecurity roadmap and implementation plan - International cooperation: engagement with Estonia on interoperability and with India on capacity building - Pillar 3 — A digital economy: - Aim: capitalize on new technologies and double the size of digital economy to support diversification and exports - Initiatives: - Government Campus Plaza Developer’s Hub (D’Hub) — virtual collaborative space for open-source mobile and web applications - Developing National E-Commerce Strategy 2024-29 to help local businesses access domestic and foreign markets - Promoting safe adoption of financial technologies (fintech) ### Fintech, Payments Modernization, and Cybersecurity Measures - Regulatory and ecosystem support: - Joint Regulatory Innovation Hub established (CBTT, TTSEC, FIUTT) in October 2020 to guide Fintech solution providers on local regulatory requirements and registration (EMI, PSP) - Regulatory sandbox developed (authorities); IMF TA does not consider this a priority - Crypto assets and CBDC: - CBTT and TTSEC examining need for new regulation for crypto assets; Security Act 2012 does not cover these developments - IMF TA recommended evaluating costs and benefits of legal and regulatory action and targeted amendments/regulation of crypto asset activities - CBTT continuing feasibility study on adoption of a central bank digital currency following IMF TA - Ecosystem promotion: - TTIFC established the One FinTech Avenue and launched the FinTech Sprint for Financial Inclusion (in collaboration with European Union and UNCDF) - Financial inclusion and AML-related measures: - CBTT developed Simplified Due Diligence Requirements (2021) and companion guidance for basic bank accounts - Government relaxed limits on transaction and wallet sizes with EMI (amendment) order of 2023 - Cybersecurity strengthening: - CBTT, with IMF TA support, is strengthening its cybersecurity and identity management and supervision of cybersecurity of regulated financial institutions - CBTT released Cybersecurity Best Practices Guideline in September 2023 ### Consolidating the Digital Transformation — Findings and Policy Recommendations - Continue identifying financial inclusion gaps and develop roadmaps to address them - Promote digital and financial literacy to increase effective use of digital services - Modernize the payments system: - Promote e-payments and increase merchant base and POS availability - Prioritize use of RTGS for large public transactions - Finalize the Payments System Services Bill - Strengthen regulatory frameworks for new developments: - Put in place adequate regulation for crypto assets where required - Evaluate costs and benefits of legal and regulatory action on crypto asset activities (as per IMF TA) - Enhance national cybersecurity: - Continue improving the national cybersecurity framework - Ensure compliance with robust cybersecurity and risk management procedures across public and private sectors *Source: Annex VIII. Digitalization in Trinidad and Tobago (IMF).* ### 6. The industrial sector is the largest end-consumer of energy, accounting for just under ### 6. The industrial sector is the largest end-consumer of energy, accounting for just under 50 percent of domestic energy consumption. ### Energy consumption profile and key statistics - Industry: just under 50 percent of domestic energy consumption. - Transport: 30 percent of domestic energy consumption. - Households, businesses, and agriculture: 19 percent of domestic energy consumption. - Within industry: metal refining is the largest consumer of energy. - Within transport: road transport is the main source of demand. - Energy consumption per capita in Trinidad and Tobago: 124 megawatt hours (MWh) — the 6th highest in the world. - ECCU average energy consumption per capita: 17 MWh. - Trinidad and Tobago’s global share of CO2 emissions: less than 0.1 percent. - Emission intensity of GDP (2021): 1.6 kg CO2-equivalent per US$. ### Energy intensity and drivers - Trinidad and Tobago is particularly energy intensive and has higher carbon emissions per capita relative to peers. - Higher per capita energy use partly explained by a greater share of energy-intensive manufacturing. - Lower energy prices may contribute to lower energy efficiency relative to other countries. ### Optimizing domestic natural gas use — scenarios and quantified impacts - Reducing natural gas use in electricity production via higher generation efficiency or increased renewables would free gas for LNG or petrochemicals. - Energy-efficiency example: electricity generation efficiency in 2005 was 26.6 percent. - If electricity efficiency had remained at the 2005 level, natural gas consumption to generate the same electricity would have been 35,000 TJ higher in 2021. - Assuming that 35,000 TJ was diverted from LNG exports, LNG exports in 2021 would have been lower by 11 percent. - That diversion would have lowered total goods exports in 2021 by about 2 percent. - Renewable substitution scenario: - If Trinidad and Tobago generated 30 percent of electricity from renewables rather than natural gas, natural gas exports could increase by about 8 percent each year (relative to 2021 levels). ### Opportunities in green hydrogen, petrochemicals, and low-carbon products - Significant potential to rebalance the energy matrix and leverage growing demand for green hydrogen and derivative products. - Renewable-based green hydrogen can be used in petrochemical production: - Frees up additional natural gas for export. - Reduces carbon intensity of petrochemicals, improving competitiveness in markets with carbon pricing. - Green methanol noted as a potential future shipping fuel. - Development of a green hydrogen economy is part of the country’s plan and can mitigate risks from border carbon adjustment mechanisms. ### Policy recommendations and implementation considerations - Near-term priorities: - Continue efforts to reduce domestic natural gas consumption by increasing energy efficiency and accelerating renewable energy projects (example: BPTT-Shell solar project). - Promote other measures that reduce energy use, such as installation of energy efficient lightbulbs. - Incentivizing renewable investment: - Use subsidies or a carbon price. - Improve the regulatory framework, including establishing feed-in tariffs. - Grid integration: - Carefully integrate increased renewable generation given intermittency challenges. - Strategic development: - Continue the plan to develop a Trinidad and Tobago green hydrogen economy to protect against border carbon adjustment mechanisms. ### Fiscal and structural measures facilitating the transition (selected FY2024 measures) - Measures to enhance the fiscal regime for the energy sector include: - Supplementary Petroleum Tax (SPT): new threshold of $75 per barrel for shallow water producers (standard SPT threshold triggers at $50 per barrel). - The Sustainability Incentive: increased discount on the SPT rate from 20 to 25 percent for mature marine or small marine oil fields. - Capital expenditure allowances: allow write-off of tangible and intangible capital expenditure on drilling of exploration wells for small shallow water producers. - Facilitating the energy transition: - Green Manufacturing Initiative: introduces tax incentives for green manufacturing to assist local manufacturing to adopt and improve green manufacturing practice. ### Non-energy manufacturing, export dynamics, and diversification priorities - Non-energy manufacturing by end-2022: represented 13.1 percent of total non-energy GDP. - Non-energy manufacturing annual average growth rate since 2012: 2.4 percent. - By value, non-energy manufacturing contributes around 95 percent of Trinidad and Tobago’s total non-energy exports (BACI-based estimate). - Export market concentration (2021): - U.S.: 45 percent share of non-energy manufacturing exports. - Regional markets (Guyana, Jamaica, Suriname, Barbados): together absorb 24 percent of total non-energy manufacturing exports. - Product concentration (2021): top five product categories = 62 percent of total non-energy manufacturing exports: - iron and steel: 36 percent; - ship, boats, and floating structures: 12 percent; - boilers, machinery, and mechanical appliance, parts thereof: 5 percent; - beverages, spirits, and vinegar: 5 percent; - preparations of cereals, flour, starch or milk, pastry cooks' products: 4 percent. - Policy directions to boost non-energy manufacturing exports: - Reignite market access and product diversification to reduce concentration risk. - Focus on boosting intensive and extensive margins of trading partners and export products (e.g., new trade agreements). - Institutional reforms: creation of a Trade and Investment Promotion Agency expected to become operational in 2024H1 to consolidate InvesTT, CreativeTT, ExporTT, and other export/investment promotion services. - Complementary initiatives: trade missions, commercial offices and attachés in key markets, export financing windows at EximBank, Grant Fund Facility, R&D Facility, Steelpan Manufacturing Grant Fund Facility, infrastructure improvements (Port Community System, upgrading TTBizLink), expansion of industrial parks and Special Economic Zones. - Fiscal incentive: exemption from business levy charges on export sales for manufacturing companies whose gross receipts fall within the 30 percent tax bracket. ### Exposure to border carbon adjustments (BCAs) and transitional risks - Trinidad and Tobago’s global greenhouse gas contribution: 0.075 percent. - Per-capita emissions and high emission intensity expose the country to transitional risks from carbon pricing at export markets. - Ammonia and fertilizer exports face risks from BCAs introduced by advanced economies (starting with the European Union). - Taking prompt action (e.g., lowering carbon intensity, developing green hydrogen) is critical to maintain competitiveness in affected export sectors. *Source: TRINIDAD AND TOBAGO — INTERNATIONAL MONETARY FUND* ### 2. An immediate transitional risk to Trinidad and Tobago relates to the EU’s Carbon ### 2. An immediate transitional risk to Trinidad and Tobago relates to the EU’s Carbon ### CBAM design and immediate trade exposure - The EU’s Carbon Border Adjustment Mechanism (CBAM) was launched in 2023 and, after a transitional phase in 2023-2025, will become fully operational in 2026. During 2023-2025 EU importers must report emissions embedded in their imports with no payment obligations until 2026. - Once operationalized, EU importers of carbon-intensive products (including, ammonia and fertilizers) will be obliged to buy CBAM certificates at a EU carbon price for the emissions embedded in the goods they import from third countries. - CBAM currently affects about 5.1 percent of Trinidad and Tobago’s total exports (US$446 million), and could affect over 10 percent of total exports if coverage is expanded in line with EU policy objectives. - CBAM also covers iron and steel, aluminum, cement, electricity, and hydrogen; and the EU is planning to regulate methane emissions embodied in fossil fuels imports, with additional requirements by 2027 for emissions monitoring standards equivalent to those of the EU. ### Emissions intensity, competitiveness, and sectoral vulnerability - According to the European Commission’s Joint Research Center, the carbon intensity of Trinidad and Tobago’s production of fertilizers—ammonia, mixtures of urea and ammonium nitrate and urea—is one of the highest among various suppliers to the EU market. - Most emissions in these products are direct (i.e., arising during manufacturing processes), while indirect emissions (i.e., originating from electricity generation used in manufacturing) only have a marginal role. - Exposure could broaden if CBAM coverage is extended to include other petroleum products, chemicals, and methanol. The EU’s forthcoming methane rules may also affect exporters of oil and gas and related products in the mid-term. ### Estimated CBAM-related costs and scenarios - IMF staff estimate that in a worst-case scenario with no global redirection of trade (i.e., ceteris paribus) the CBAM-related payments incurred by European importers of Trinidad and Tobago’s fertilizers could exceed 40 percent of Trinidad and Tobago’s annual total fertilizer exports to the EU, or about 0.8 percent of Trinidad and Tobago’s GDP. - This extreme scenario is treated as a ceiling, because the adverse effect is likely to be mitigated in the near term by strategic behavior of global petrochemical firms that could redirect some exports to non-EU markets; some studies for other exposed countries suggest partial offsetting through redirected trade. - BCAs more generally are increasingly plausible globally: the United Kingdom announced plans to introduce its own BCA becoming operational by 2027; BCAs are being considered in Canada and the United States. ### Export exposure by product (Average 2018-22) - Methanol (methyl alcohol) — Total exports to EU (US$ Mill.): 399.5; Percent share of exports to EU: 29.0; Percent share of total exports: 4.6; Covered by EU CBAM: √ - Anhydrous ammonia — Total exports to EU (US$ Mill.): 288.9; Percent share of exports to EU: 21.0; Percent share of total exports: 3.3; Covered by EU CBAM: √ - Liquefied Natural gas — Total exports to EU (US$ Mill.): 254.5; Percent share of exports to EU: 18.5; Percent share of total exports: 2.9 - Mixtures of urea and ammonium nitrate in aqueous or ammoniacal solution — Total exports to EU (US$ Mill.): 152.5; Percent share of exports to EU: 11.1; Percent share of total exports: 1.8; Covered by EU CBAM: √ - Petroleum oils and oils obtained from bituminous minerals, crude. — Total exports to EU (US$ Mill.): 115.5; Percent share of exports to EU: 8.4; Percent share of total exports: 1.3 - Other petroleum oils and oils obtained from bituminous minerals, other than crude. — Total exports to EU (US$ Mill.): 28.1; Percent share of exports to EU: 2.0; Percent share of total exports: 0.3; May be covered by CBAM at the later stage: √ - Melamine — Total exports to EU (US$ Mill.): 21.0; Percent share of exports to EU: 1.5; Percent share of total exports: 0.2; May be covered by CBAM at the later stage: √ - Other petroleum gases and other gaseous hydrocarbons in gaseous state — Total exports to EU (US$ Mill.): 18.1; Percent share of exports to EU: 1.3; Percent share of total exports: 0.2 - Cruise ships, excursion boats and similar vessels — Total exports to EU (US$ Mill.): 16.1; Percent share of exports to EU: 1.2; Percent share of total exports: 0.2 - Natural gas in gaseous state — Total exports to EU (US$ Mill.): 12.2; Percent share of exports to EU: 0.9; Percent share of total exports: 0.1 - Butanes — Total exports to EU (US$ Mill.): 8.3; Percent share of exports to EU: 0.6; Percent share of total exports: 0.1 - Other vessels for the transport of goods and other vessels — Total exports to EU (US$ Mill.): 8.3; Percent share of exports to EU: 0.6; Percent share of total exports: 0.1 - Propane — Total exports to EU (US$ Mill.): 7.3; Percent share of exports to EU: 0.5; Percent share of total exports: 0.1 - Other ores and concentrates — Total exports to EU (US$ Mill.): 4.7; Percent share of exports to EU: 0.3; Percent share of total exports: 0.1 - Chromium trioxide — Total exports to EU (US$ Mill.): 4.7; Percent share of exports to EU: 0.3; Percent share of total exports: 0.1; May be covered by CBAM at the later stage: √ - Urea, whether or not in aqueous solution — Total exports to EU (US$ Mill.): 4.6; Percent share of exports to EU: 0.3; Percent share of total exports: 0.1; May be covered by CBAM at the later stage: √ ### Policy implications and recommended actions - Authorities and the private sector are aware of transitional risks but need to step up actions to advance decarbonization and the transition agenda. - Actions underway include: developing a vision for energy transition, realizing efficiency programs, promoting renewable energy sources, and advancing carbon capture, utilization, and storage technologies. - To strengthen global competitiveness of key industries and leadership, it is crucial to: - Enhance emissions data collection. - Further reduce carbon intensity of production. - Promote resource-efficiency to support economic diversification. - Consider re-evaluating the emissions reduction pathway supported by a possible carbon pricing mechanism. *Source: 1ttoea2024001 (IMF staff calculations and cited sources).* ### Annex XIV. Data Issues Annex ### Annex XIV. Data Issues Annex ### Data adequacy assessment (surveillance) - Trinidad and Tobago participates in the Enhanced General Data Dissemination System (e-GDDS) and publishes data on its National Summary Data Page since October 2021. - Overall Data Adequacy Assessment Rating: B - Median Rating across sectors: B - Heatmap-style sectoral ratings (as presented): - National Accounts: B - Prices: B - Government Finance Statistics: B - External Sector Statistics: B - Monetary and Financial Statistics: B - Inter-sectoral Consistency: B - Dimension-level observations included in the assessment (preserved labeling): - Coverage: A (for some cells) and B (for others) as shown in the source heatmap. - Consistency: B, C, B (sector-specific entries as in the questionnaire table). - Frequency and Timeliness: A, B, C, D (sector-specific entries as in the questionnaire table). - Granularity: top and bottom cells distinguish granularity for government operations vs public debt, and for monetary aggregates vs Financial Soundness indicators (as noted in source). - Use of data and estimates in Article IV: - IMF staff relies on official statistics. ### Key findings and rationale for staff assessment - Overall judgment: “The data provided to the Fund has some shortcomings but is broadly adequate for surveillance.” - Strengths: - Reporting of financial and monetary data is better than peers. - Main weaknesses highlighted: - Frequency and timeliness: National Accounts statistics exhibit a quarterly lag (e.g., over a quarterly lag for publication). - External sector: Large magnitude of errors and omissions in the Balance of Payments impedes accurate assessment of the external position. - Fiscal and public debt coverage: Coverage should be broadened to fully cover the non-central government sector (including SOEs and other public bodies). - Other data gaps: - Update of greenhouse gas (GHG) emissions data across sectors and collection of emissions intensities of key industries would enhance staff analyses. ### Changes since last Article IV consultation and recent data actions - The Central Statistical Office (CSO) revised: - Annual nominal and real GDP for 2012-21. - Quarterly nominal and real GDP for 2012Q1-2023Q1. - Revisions incorporated new data and techniques and addressed methodological issues, supported by TA from CARTAC. - For annual values, the revision is small, resulting in a nominal GDP deviation in 2021 of less than one percent. - Macroeconomic ratios are not materially affected. - The authorities have released: - Preliminary capital formation estimates from 2000-21. - Historical annual real GDP from 2000-12. - Historical annual nominal GDP from 1981-2011. - The DataNett Portal. - Ongoing work at the CSO: - A combined Household Budget Survey and Survey of Living Conditions is underway. - Transformation of the CSO into an independent National Statistical Institute (NSI) is ongoing. ### Corrective actions and capacity development priorities (authorities encouraged) - Statistics compilation and dissemination: - Release a historical quarterly GDP series from 2000 onwards. - Release a historical annual real GDP series from 1981 onwards. - Finalize capital formation estimates. - Compile GDP by expenditure method and Supply and Use Tables. - Complete the Household Budget Survey and Survey of Living Conditions. - Government finance and public debt statistics: - Compile fiscal data following the 2014 Government Finance Statistics Manual (GFSM) instead of the 1986 GFSM to broaden fiscal data coverage of SOEs and other public bodies. - Balance of payments and external sector: - Improve reporting of capital flows to help reduce large errors and omissions. - Monetary and financial statistics: - Improve coverage of monetary accounts to include mutual funds. - IMF support: - The Fund stands ready to continue supporting the authorities' efforts in improving the quality and reporting of their data. ### Data provision and expected timeliness (Table of Common Indicators) - Table of Common Indicators reported “As of March 27, 2024.” - Data provision summary entries (examples preserved as in source): - Exchange Rates: Date of latest observation Feb-24; Date received Feb-24; Frequency D; Frequency of reporting D; Expected Frequency D; Expected Timeliness M; Trinidad and Tobago expected timeliness 1M. - Consumer Price Index: Date of latest observation Jan-24; Date received Mar-24; Frequency M; Frequency of reporting M; Expected Frequency M; Expected Timeliness 1M; Trinidad and Tobago expected timeliness 15D. - GDP/GNP and several other indicators: dates and periodicities listed in the Table of Common Indicators (Table shown “As of March 27, 2024”). - Note on frequency/timeliness nomenclature preserved from source: (“D”) daily; (“W”) weekly or with a lag of no more than one week; (“M”) monthly or with lag of no more than one month; (“Q”) quarterly or with lag of no more than one quarter; (“A”) annual; ("I") irregular; ("NA") not available. ### Technical assistance and capacity development delivered (selected recent TA, 2010–24) - CARTAC April 15–19, 2024: Insurance Supervision and Regulation—Own Risks and Solvency Assessment. - MCM February 26–March 8, 2024: Balance of Payments/International Investment Position - Address Data Gaps. - FAD January 24–February 6, 2024: Fiscal Rule Framework. - CARTAC May 1–12, 2023: Improving Estimates of Gross Domestic Product. - CARTAC April 12–21, 2023: External sector statistics. - Additional TA entries across 2010–24 listed in the annex covering national accounts, price statistics, external sector statistics, monetary and financial statistics, public financial management, and financial sector supervision and oversight. ### Fiscal and macro context notes linked to data issues - Fiscal policy context noted in the broader report: - Authorities increased the threshold to borrow domestically and externally under the Development Loans Act to TT$75 billion from TT$65 billion. - The CSO improvements (website, datasets, data visualizations, mobile application) have “greatly improved the availability and timeliness of national statistics.” *Source: Annex XIV. Data Issues Annex — Trinidad and Tobago: Staff Report for the 2024 Article IV Consultation (as provided in the supplied content).* ### 2024. Prices in the electricity sector have been assessed and recommendations for proposed ### 1ttoea2024001 - 2024. Prices in the electricity sector have been assessed and recommendations for proposed increases have been made by the Regulated Industries Commission (RIC) and are currently being reviewed by the Finance and General Purposes Committee in Cabinet. ### Utilities pricing and property tax - Electricity price proposals under review by Cabinet’s Finance and General Purposes Committee: - Residential customers: proposed increases range from 15 per cent for low-consumption users and 64 per cent for high-consumption users. - Commercial and industrial users: proposed increases range from 37 to 126 percent. - A similar review of prices for the provision of water is expected. - Property tax implementation has started, replacing the previous Land and Building Tax Act: - In this first phase, homeowners will have to pay 2 percent of the annual rental value of their property (after a deduction of 10 percent of the value). ### Social insurance and demographics - Population aging has significantly strained the national insurance system. - Authorities are exploring measures to ensure long-term sustainability of the fund. - Consideration is being given to increasing the retirement age at which a worker can receive their full benefits, among other potential solutions. ### Monetary policy - The Central Bank of Trinidad and Tobago (CBTT) has maintained the repo rate at 3.5 percent since the onset of the Covid-19 pandemic in March 2020 to support growth and combat inflation. - Inflation developments: - Inflation has declined significantly, reaching 0.8 percent (y-o-y) as of February 2024 — the third successive month of an inflation rate below 1 percent. - Authorities view the monetary policy stance as appropriate to support growth; this contrasts with staff’s position. - The CBTT will continue to monitor domestic and international developments in deciding on its policy rate. ### International reserves and foreign exchange management - International reserves and stabilization resources: - International reserves stand at 6.9 months of import cover. - Heritage and Stabilization Fund is currently valued at over US$ 5 billion. - External sector: - The country continues to record a current account surplus driven by energy exports. - To smoothen lumpy and declining injections of foreign exchange from energy companies, the CBTT provides bi-monthly FX interventions to help stabilize the FX market. ### Financial sector soundness and regulatory developments - Banking sector: - Remains well capitalized with high liquidity levels and low exposure to foreign currency risk. - Non-performing loans remain low and contained. - Insurance sector: - Continued operationalization of elements of the Insurance Act (2018), including conversion of branches of foreign insurers into local companies and submission of the Financial Conditions Report. - Cross-border supervision and FSAP follow-up: - CBTT continues to work with other Caribbean regulators on consolidated supervision of financial groups operating throughout the Caribbean. - CBTT has continued to build on the 2020 FSAP recommendations. - Payments, fintech, and pensions: - CBTT is improving its cybersecurity framework and its ability to assess supervised entities’ cybersecurity. - Efforts to improve payment systems: licenses for several e-money issuers have been granted; consideration is being given to introducing a ‘fast payments’ framework. - Authorities intend to identify and action short-term steps to improve private pension supervision while developing medium- and long-term modernization plans for the sector. ### AML/CFT and tax transparency - Legislative and compliance progress: - Ongoing implementation of legislative amendments including the Miscellaneous Provisions Act, 2024, and The Base Erosion and Profit-Shifting Inclusive Framework (Country-by-Country) Reporting Bill, 2023. - Preparations underway to implement automatic exchange of tax information with other countries. - Policy objective: - Authorities are taking every effort to meet the requirements of the Global Forum and the EU to exit from the black/gray lists at the earliest possible time. ### Climate change, decarbonization, and trade implications - Emissions and renewable energy deployment: - Trinidad and Tobago contributes less than 0.1 percent of global carbon emissions. - The country is expanding renewables for power generation via development of a 92-megawatt solar farm, a joint venture of bp Alternative Energy Trinidad and Tobago and Shell Renewables Caribbean. - When completed, the Brechin Castle Solar Farm Project would be the largest solar plant in the Caribbean. - Wind farming is being explored; feasibility of green hydrogen production and application is being investigated to reduce emissions and maintain petrochemical competitiveness. - Many existing plants have implemented or intend to introduce mechanisms to reduce emissions. - Other emissions-reduction initiatives are focused on the transportation and manufacturing sectors. - Carbon Border Adjustment Mechanism (CBAM) implications: - CBAM development in the European Union (EU) could directly impact exports into the EU, including fertilizers like anhydrous ammonia and urea. - Authorities have joined other countries in advocating for fair treatment under World Trade Organization rules and are exploring mitigation strategies including diversion of exports away from the EU. - Challenges include providing verifiable and consistent emissions data, potentially increasing administrative burdens to meet CBAM requirements. ### Concluding remarks - Authorities expressed appreciation for technical assistance received and the tailored delivery of TA. - Authorities look forward to continuing the relationship with the current mission chief and his team. *Source: 1ttoea2024001 - 2024. Prices in the electricity sector have been assessed and recommendations for proposed increases have been made by the Regulated Industries Commission (RIC) and are currently being reviewed by the Finance and General Purposes Committee in Cabinet.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2024/english/1ttoea2024001.pdf_