WASHINGTON, CMC – The International Monetary Fund (IMF) says Trinidad and Tobago’s economic growth is projected to gain momentum in 2024. Actual gross domestic product (GDP) will expand by 2.4 percent in 2024, supported by the non-energy sector and new energy projects coming upstream. This will help offset the structural decline in energy production.
“Over the medium term, the delivery of several planned natural gas projects is expected to boost growth in the energy sector while supporting economic activity in the non-energy sector. Inflation is projected to hover around two percent, which aligns with international prices.
The IMF said, “The current account surplus is expected to stabilize in the medium term, exceeding 6 percent of GDP. Foreign reserve coverage is expected to remain adequate at 6.6 months of prospective total imports by 2029.”
The Washington-based financial institution said Trinidad and Tobago is undergoing a “gradual and sustained economic recovery” program for the first time in a decade. The actual gross domestic product (GDP) rebounded in 2022 and is estimated to have expanded further by 2.1 percent last year.
An IMF staff delegation headed by Camilo E. Tovar has ended a ten-day visit to Port of Spain. The delegation noted that the increase in GDP “reflects the strong performance of the non-energy sector, which was partially offset by a contraction in the energy sector.
Tovar said inflation had declined sharply to 0.3 percent in January this year, after peaking at 8.7 percent in December 2022, mainly due to declining inflation in food and imported goods. Banks’ credit to the private sector continues to expand, and the financial industry appears sound and stable.
He said the current account is estimated to have remained surplus in 2023, and foreign reserves coverage is adequate at 8.3 months of prospective total imports.
The IMF said the fiscal balance in the 2023 financial year was broadly aligned with the budget. The overall fiscal deficit is estimated at 1.1 percent of GDP in the financial year 2023, which is 0.2 percentage points better than initially budgeted.
“This reflects higher non-energy revenue and lower than budgeted capital expenditure. Central government debt increased to 54.3 percent of GDP in financial year 2023, from 50.7 percent of GDP in FY2022, and public debt reached 70.9 percent of GDP in FY2023, from 67 percent of GDP in FY2022”.
The IMF said public financial buffers remained strong, with total assets in the Heritage and Stabilization Fund at US$5.5 billion, or 19.2 percent of GDP, by the end of the last financial year.
Tovar said the balance of risks is tilted to the downside in the near term but to the upside in the medium term. In the near term, downside risks stem from external factors affecting energy markets, such as an abrupt global slowdown and disappointments in domestic energy production, including delays in new projects or unexpected disruptions in current production.
“In the medium term, the balance of risks is to the upside, stemming from additional new natural gas projects and the implementation of planned structural reforms, which could boost growth. Downside risks emanate from a faster-than-expected global transition to net-zero emissions, which could pressure the energy sector.”
The IMF official said that the 2024 national budget envelope is appropriate to support the domestic recovery and address infrastructure needs.
The IMF staff estimates the fiscal deficit will widen to 2.7 percent of GDP during this financial year, saying, “This reflects 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.
“The planned capital spending would help address the country’s infrastructure needs and boost growth. IMF staff recognizes that the proclamation of the Procurement and Disposal of Public Property Act in April 2023 will enhance the legal and institutional framework for transparent and competitive public procurement.
“It will also help improve the efficiency and quality of public spending. Central government debt is projected to increase to 56.0 percent of GDP and public debt to 73.4 percent in FY2024, below the authorities’ soft debt target of 75 percent of GDP,” Tovar said.
He said strengthening the medium-term fiscal position would be essential to rebuild buffers to respond to potential shocks.
The IMF delegation said it welcomes the government’s efforts to enhance revenue mobilization through the property tax, gambling tax, and the operationalization of the Revenue Authority.
“Additional revenue could be generated by adjusting the energy sector’s fiscal regime, boosting non-energy revenue, and strengthening tax compliance and administration. It is advised to continue gradually phasing out subsidies while protecting the most vulnerable, streamlining transfers to state-owned enterprises (SOEs), and improving the efficiency and quality of public spending.”
Tovar said that the pace and composition of the adjustment should continue to support growth-friendly expenditure and protect essential capital spending. These measures would help strengthen the fiscal position and maintain public debt well below the authorities’ soft debt target.
Addressing potential fiscal risks stemming from the pension system and the global energy transition would ensure long-term sustainability, he said.
“Without reforms, the National Insurance System’s deficit is expected to widen, depleting its reserves by the mid-2030s. IMF staff welcomes the authorities’ proposal to increase the retirement age to 65.
“The authorities are encouraged to consider other measures to ensure the pension system’s sustainability, including increasing the contribution rate. The transition toward low-carbon economies is expected to reduce global demand for fossil fuels. This will impact the viability of fossil fuel extraction and result in lower government revenues. To avoid disruptive policy adjustments, it is important to design a sustainable long-term fiscal strategy,” Toovar added.
The IMF delegation also welcomed the government’s efforts to develop a sound fiscal framework that strengthens fiscal management. In a highly uncertain global environment, a rules-based medium-term fiscal framework will enhance fiscal discipline, avoid procyclical spending, and mitigate fiscal risks.
To enhance transparency and credibility, the authorities could clearly communicate how developments in central government debt remain consistent with the soft target on public debt. Moreover, broadening the fiscal data coverage of SOEs and other public bodies is essential, strengthening the assessment of the government’s impact on the economy and any attendant risks.
The IMF also encourages the authorities to maintain consistent policies to support the current exchange rate arrangement.
It said the Central Bank of Trinidad and Tobago (CBTT) has kept its repo policy rate fixed at 3.5 percent since March 2020 to support the economic recovery.
“With the US monetary policy tightening, the US-TT interest rate differentials widened. While these differentials have narrowed more recently, they incentivize potential capital outflows. Although this risk remains contained, the CBTT is encouraged to remain vigilant and stand ready to increase its policy rate if this risk intensifies.”
Tovar said addressing foreign exchange (FX) shortages remains a priority.
He said although the CBTT’s additional FX intervention helped restore confidence and stabilize the FX market in 2023, it does not address the underlying structural FX shortfall in the market.
The IMF delegation noted the initiative to provide FX to small- and medium-sized enterprises (SMEs) through a new facility at the Export-Import Bank of Trinidad and Tobago (Eximbank).
“Moving toward a more efficient and market-clearing infrastructure for allocating FX would help create a more conducive business environment for the private sector to invest and diversify the economy. The removal of all restrictions on current international transactions and greater exchange rate flexibility over the medium term would help meet the demand for FX, reduce the need for fiscal policy adjustments to restore external balance, and create room for more countercyclical monetary policy,” the IMF delegation added.
and then 