WASHINGTON, DC – The International Monetary Fund (IMF) says the combined effects of the COVID-19 pandemic and energy production and price shocks have taken “a heavy toll” on Trinidad and Tobago’s economy.
After concluding Article IV consultation with Trinidad and Tobago authorities, the Washington-based financial institution said that actual gross domestic product (GDP) contracted by 7.4 percent in 2020 and is estimated to further contract by about 1 percent in 2021.
“Inflation remained mostly subdued, but the recent surge in international food and energy prices has pushed it up to 3.9 percent by October 2021,” the IMF said.
“The fiscal position worsened significantly during FY2020-21 (fiscal year) due to lower energy proceeds and outlaid to mitigate the pandemic,” it added. “The fiscal deficit widened to 11.6 percent of GDP in FY2020 and remained elevated at 10.1 percent of GDP in FY2021.”
As a result of the large deficits and the GDP contraction, the IMF said the central government debt increased from 45.4 percent of GDP in FY2019 to 65.9 percent of GDP in FY2021.
The IMF, however, said a robust economic recovery is projected for 2022, with downside risks predominating.
It said real GDP growth in 2022 is expected at 5.5 percent, “reinforced by the continued policy support and the anticipated recovery in oil and gas production.”
With demand pressures contained, the IMF said inflation in 2022 is projected at about 2.8 percent.
“The fiscal deficit is expected to decline to 7.5 percent of GDP in FY2022, reflecting a combination of high revenue mobilization and modest spending cuts,” it said, adding that central government debt will peak at 68.8 percent of GDP in FY2023 and gradually decline after that.
The IMF said risks are tilted to the downside due to pandemic-related uncertainty, the country’s vulnerability to oil and gas production disruptions, and negative spillovers from global and regional shocks.
The organization said its directors noted that Trinidad and Tobago was “severely hit” by the pandemic, commending the authorities’ “decisive policy response to mitigate its economic and health impact.
“While a growth rebound is expected, driven by domestic demand and the recovery in energy production, the outlook is still subject to risks stemming from pandemic-related uncertainties and energy price volatility,” it said.
Against this background, the IMF directors urged the authorities to accelerate the vaccination rollout, alongside supportive macroeconomic policies “aimed to minimize scarring and support the recovery” while implementing structural reforms and strengthening climate resilience to promote medium-term growth.
The IMF said its directors supported continued temporary and targeted spending to mitigate the effects of the pandemic.
“Once the recovery has strengthened, a growth-friendly and inclusive fiscal consolidation will be needed over the medium term to place public debt on a downward trajectory,” it said.
To support the fiscal adjustment, the IMF directors urged the Trinidad and Tobago authorities to “adopt a well-designed medium-term fiscal framework with a clear fiscal rule, which would strengthen multi-year fiscal discipline, avoid procyclicality and mitigate risks.”
They also highlighted the need to improve public spending efficiency and reduce fiscal transfers to State-Owned Enterprises (SOEs).
The directors agreed that the current accommodative monetary policy stance is appropriate, stating that, in the future, “monetary policy action should remain data-dependent and stand ready to change if inflationary pressures materialize, capital outflows intensify or the recovery falters.”
Additionally, they stressed the importance of modernizing foreign exchange and money market infrastructure “to reduce inefficiencies and imbalances and to support the exchange rate arrangement.”
The IMF directors called on the authorities to eliminate exchange restrictions on current payments and multiple currency practices in a planned manner.
They welcomed the banking sector’s resilience during the pandemic and underscored that careful monitoring of financial conditions to detect any buildups of vulnerabilities remains “essential.”
The directors also called for further strengthening of the regulatory and supervisory frameworks.
They commended the twin-island republic’s successful exit from the Financial Action Task Force’s grey list. They emphasized the need for further efforts to strengthen the Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) framework, including addressing issues related to tax transparency and the exchange of information.
The IMF directors agreed that comprehensive structural reforms are needed to promote the non-energy sector and boost potential growth.
They emphasized the importance of strengthening the economy’s resilience to climate change and welcomed the authorities’ commitment to reducing greenhouse gas emissions.
In addition, the IMF directors urged the authorities to continue with their efforts to bridge existing data gaps.
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