An International Monetary Fund staff team, led by Mr. Elie Canetti, visited
Trinidad and Tobago during July 20 - August 2, 2017 to conduct the annual
Article IV consultation.
At the end of the visit, Mr. Canetti issued the following statement in Port
of Spain:
“Trinidad and Tobago continues to face economic challenges stemming
primarily from the sharp declines in global energy prices since 2014,
combined with a fall in natural gas and oil production in recent years.
These, along with the prolonged economic stagnation, capital allowances,
and challenges with tax administration have continued to contribute to weak
revenue collections, leading to still significant fiscal deficits and
rising public debt levels.
“Although 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. The economic improvement that is
now beginning is projected to continue into the medium-term, notably given
a 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. As the energy
sector recovers, the non-energy sector is expected to rebound due to
positive energy-related spillovers, and as implementation of the
Public-Sector Investment Program picks up.
“The team welcomed ongoing fiscal policy adjustments, including the
government’s efforts to reform the energy tax regime and to boost domestic
revenues. Nonetheless, it cautioned that sustainable fiscal adjustment will
require additional measures (including containment of current expenditure)
to rebalance the public finances, especially as one-off, non-debt creating
financing options such as asset sales will diminish over time. The team
urged the authorities to undertake a medium-term, modestly front-loaded
fiscal adjustment to rebalance the public finances and put debt on a
sustainable path. Delaying fiscal adjustments would only make it harder to
arrest rising debt levels and restore confidence down the road. In
addition, the team sees the need for an increase in capital investment to
set the stage for a lasting recovery in economic growth and for economic
diversification. The authorities and the team held fruitful discussions on
a number of adjustment measures to achieve the necessary fiscal
consolidation.
“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. 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. The team
continues to believe that reducing and eventually eliminating the imbalance
in the foreign exchange market is of paramount importance, and outlined
that a range of measures will likely be necessary to do so. These include
fiscal adjustment, structural reforms to enhance the country’s foreign
exchange earnings capacity and operating the foreign exchange market with a
greater degree of flexibility.
“Wide-ranging structural reforms will be needed to enhance the functioning
of the government and increase the scope for growth and diversification.
These include carrying through with envisaged procurement reforms,
continuing to ease the costs of doing business, modernizing financial
supervision and continuing to push through reforms that will enhance, and
speed-up the production of, the country’s economic statistics.”
