IMF Staff Concludes 2017 Article IV Mission to Trinidad And Tobago

IMF News, August 4, 2017

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Press Release No. 17/320
Date: August 4, 2017
IMF staff team led by Mr. Elie Canetti visited Trinidad and Tobago during July 20 - August 2, 2017 to conduct the annual Article IV consultation.
Press officer: Andrew Kanyegirire; Phone: +1 202 623-7100; Email: MEDIA@IMF.org
End-of-Mission press release: preliminary findings of the mission; views expressed are those of IMF staff and do not necessarily represent the views of the IMF’s Executive Board.

Main drivers of recent challenges:
- "sharp declines in global energy prices since 2014"
- "a fall in natural gas and oil production in recent years"
- "prolonged economic stagnation, capital allowances, and challenges with tax administration" leading to weak revenue collections
Recent performance:
- "preliminary data shows that the economy contracted in the first half of the year on weak energy production and spillovers to the non-energy sector"
- "the economy may be starting to turn a corner as a result of a projected recovery in gas output, though growth may still be flat or somewhat negative for the year as a whole"
Medium-term outlook:
- "The economic improvement that is now beginning is projected to continue into the medium-term"
- Drivers of recovery: "pipeline of projects that will improve the supply of natural gas to the downstream energy sector"; "Oil output is growing due to state-owned Petrotrin’s recent exploration efforts and refinery upgrade"
- Non-energy sector: expected to rebound from energy-related spillovers and from implementation of the Public-Sector Investment Program

Current fiscal challenges:
- "still significant fiscal deficits and rising public debt levels" due to weak revenues
- One-off, non-debt creating financing options (e.g., asset sales) "will diminish over time"
IMF staff recommendations:
- "undertake a medium-term, modestly front-loaded fiscal adjustment to rebalance the public finances and put debt on a sustainable path"
- Contain current expenditure as part of additional measures needed for sustainable fiscal adjustment
- Increase capital investment "to set the stage for a lasting recovery in economic growth and for economic diversification"
- The team "welcomed ongoing fiscal policy adjustments, including the government’s efforts to reform the energy tax regime and to boost domestic revenues"
- Warning: "Delaying fiscal adjustments would only make it harder to arrest rising debt levels and restore confidence down the road"
- The authorities and the team "held fruitful discussions on a number of adjustment measures to achieve the necessary fiscal consolidation"

Reserves and inflows:
- "Although Trinidad and Tobago still holds healthy levels of international reserves, there has been a sharp drop in foreign exchange inflows as energy prices and volumes have both fallen"
Market imbalance and policy guidance:
- "This, combined with still high demand for foreign exchange, has created a notable imbalance in the foreign exchange market that has had a number of adverse consequences"
- IMF team view: "reducing and eventually eliminating the imbalance in the foreign exchange market is of paramount importance"
- Suggested policy mix to address imbalance includes:
- fiscal adjustment
- structural reforms to enhance foreign exchange earnings capacity
- "operating the foreign exchange market with a greater degree of flexibility"

Required wide-ranging reforms to enhance government functioning and support growth/diversification:
- "carrying through with envisaged procurement reforms"
- "continuing to ease the costs of doing business"
- "modernizing financial supervision"
- "continuing to push through reforms that will enhance, and speed-up the production of, the country’s economic statistics"

IMF staff statement issued in Port of Spain at the end of the July 20 - August 2, 2017 mission.