Press Release: Statement by an IMF Mission to Trinidad and Tobago

IMF News, July 21, 2006

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Canonical URL: Press Release: Statement by an IMF Mission to Trinidad and Tobago

Mission dates: July 10-21, 2006.
Statement issued: July 21, 2006.
Mission leaders: Ms. Caroline Atkinson, Deputy Director in the Western Hemisphere Department, and Mr. Max Alier, mission chief for Trinidad and Tobago.
Counterpart meetings and consultations included:
- Prime Minister the Honorable Patrick Manning
- Ministers Conrad Enill and Christine Sahadeo in the Ministry of Finance
- Minister of Trade and Industry Kenneth Valley
- Central Bank Governor Ewart Williams
- Chief Secretary of the Tobago House of Assembly Orville London
- Leader of the Opposition Kamla Persad-Bissessar
- Other senior officials, representatives from the private sector, and labor unions

Real output growth projected to exceed 12 percent in 2006.
Drivers of growth:
- Surging energy prices and output
- Expanding industrial capacity
- Buoyant construction activity
External and fiscal indicators:
- Current account surplus now exceeds 20 percent of GDP
- FDI inflows are high
- Fiscal surpluses driven by energy revenues
- Public debt is on a downward trend
Signs of capacity constraints and overheating:
- Economy operating near capacity
- Accelerating inflation
- Rising real estate prices
- Capacity constraints in some sectors
- Tightening labor market

Central recommendation: fiscal policy should be at the forefront in fighting demand pressures.
Role of fiscal tightening:
- Help curb inflation
- Take pressure off the labor market
Containment of public spending to reduce the non-energy deficit, which "has widened significantly in recent years."
Fiscal sustainability anchor:
- Mission's sustainability exercise: prudent to keep the non-energy deficit bounded at not more than 20 percent of non-energy GDP—or about 10 percent of total GDP over the medium term.

The mission supports the following priorities:
- (i) improving further the efficiency of the tax system;
- (ii) developing a medium-term fiscal and budgetary framework and strengthening evaluation, selection, and implementation of spending programs;
- (iii) designing well-targeted social programs so that the population at large benefits from the energy windfall; and,
- (iv) ensuring adequate checks and balances on the special purpose vehicles recently created to implement the public investment program.

Observation: sizable balances in the interim Revenue Stabilization Fund.
Authorities' plan: create a permanent Heritage Stabilization Fund (HSF) to institutionalize a long-term savings framework.
Conditions for HSF effectiveness:
- Appropriately disciplined fiscal policies
- Well designed fund structure
- Transparency in HSF management and its relation with the budget
- Adequate parliamentary oversight

Monetary policy role: important in managing price pressures amid rising energy revenues.
Authorities' actions noted:
- Central bank reducing liquidity by selling more foreign exchange
- Allowing interest rates to rise
Mission position: supports these measures and agrees further steps are needed to strengthen monetary management.

Boosting non-energy sector competitiveness requires productivity gains through structural reform.
Key reform areas:
- Address infrastructure bottlenecks
- Improve the business environment to remove impediments to economic diversification and growth in the non-energy sector
- Overhaul of the regulatory and supervisory framework of the financial sector (mission supports authorities' program underway)
Regional integration: mission welcomes progress in establishing the CARICOM Single Market and Economy (CSME).

The IMF mission thanked the government and the people of Trinidad and Tobago for their hospitality and wished them success in building a strong, prosperous, and diversified economy.

International Monetary Fund (IMF) — Press Release No. 06/162, July 21, 2006.