IMF Concludes Article IV Mission to Trinidad and Tobago
Press Release No. 13/98
March 28, 2013
An International Monetary Fund mission held discussions in Trinidad and Tobago during March 15-27, 2013, benefiting from open and fruitful exchanges with government and central bank officials, as well as private sector representatives, parliamentary representatives, and labor unions. The mission discussed recent economic developments and policy challenges for the short and medium terms. At the end of the visit the head of the IMF mission, Mr. Elie Canetti, issued the following statement in Port of Spain:
“Trinidad and Tobago has suffered from several years of sub-par growth, with economic performance hampered in significant part by supply constraints. In 2012, economic growth is estimated to have been only marginally positive as the country’s energy sector production was held back by maintenance operations, while non-energy output began to recover only late in the year following a sharp and extended drop in cement production that had broad spillover effects. Core inflation remained moderate despite an increase in headline inflation.
“For 2013 we project overall real gross domestic product (GDP) growth of about 1 ½ percent. We expect the energy sector to register only marginal growth due to further significant maintenance-related outages in the latter half of 2013, although there is potential for some upside with greater coordination in scheduling of maintenance operations between oil and gas producers and the downstream users. The non-energy sector should register growth of around 2½ percent, capitalizing on the momentum towards the end of 2012.
“The fiscal position realized a deficit of 1.1 percent of GDP in 2011/12 from near balance in the previous fiscal year owing to a decline in energy revenues due to output shortfalls, although there was some offset by a drop in current expenditures (as a percent of GDP). The mission projects a fiscal deficit of 2 ½ percent of GDP for the current fiscal year ending September 30, 2013.
“The external current account appears to have deteriorated slightly in 2012 but the level of reserves remained ample at US$9.2 billion at end-year (equivalent to some 10 months of imports of goods and non-factor services). The central bank’s policy of continuing to adjust the amounts auctioned into the foreign exchange market appeared to be successful in avoiding significant queuing.
“Despite accommodative monetary policy, private sector credit growth has been sluggish, with the exception of credit to the mortgage sector. However, we see no evidence of overheating in the housing sector. With credit demand still low, the central bank continues to mop up the considerable excess liquidity in the system through voluntary term deposits.
“There is continued progress on financial sector reforms. Securities legislation, passed at the end of 2012, has enhanced the powers of the Securities and Exchange Commission (SEC) to fulfill its multiple mandates of market regulation, promotion and reducing systemic risk. Other legislative reforms are in train, including a new law to modernize insurance regulation, anticipated for the near future. While challenges remain, a final resolution of the problems stemming from the 2009 failure of insurer Clico is in sight.
“In the long run, Trinidad and Tobago will continue to benefit from an ample non-renewable resource endowment and a highly-educated work force. The country’s large reserves of oil and gas have catapulted Trinidad and Tobago to the enviable position of having one of the highest levels of per capita GDP in the hemisphere. However, it is critical to take decisions now to share more equitably the fruits of that wealth across generations and to ensure that future generations can continue to benefit from a high standard of living.
“Achieving these objectives will require rethinking government spending so that choices about the level and composition of spending are put in the appropriate long-term context of the natural reduction in energy reserves. The allocation of spending should be tilted more towards investing in the country’s future capacity to create jobs and growth, and better targeted towards benefiting the most vulnerable segments of the population. This will require moving back towards a fiscal surplus over the medium-term while targeting subsidies and transfers towards the poor and ramping up development spending. There is also ample scope to reform the government’s non-energy revenue policies, both to raise more revenue and to limit distortions that impose significant efficiency costs. Finally, and critically, even as growth revives, unlocking Trinidad and Tobago’s full potential will require a wide variety of structural reforms to help the economy run more efficiently, notably, to transform the public service to become more efficient and to reduce impediments to doing business.
The authorities indicated their broad agreement with the main conclusions of the mission.
“The mission wishes to express its gratitude to the authorities for their candor and cooperation, and for their very kind hospitality.”