WASHINGTON, CMC -The International Monetary Fund (IMF) said Wednesday that Trinidad and Tobago is undergoing a gradual and sustained economic recovery for the first time in a decade.
In a statement following the IMF’s executive board conclusion of the country’s Article IV consultation, the Washington-based financial intuition said that the actual gross domestic product (GDP) is estimated to have further expanded by 2.1 percent in 2023, reflecting a solid performance of the non-energy sector.
It said inflation has declined sharply, mainly due to decelerating global food and imported goods prices. Banks’ credit to the private sector continues to expand, and the financial sector appears sound and stable.
“The current account is estimated to remain in a surplus in 2023, and international reserve coverage is adequate at 8.3 months of prospective total imports. The fiscal deficit in the financial year 2023 continued supporting the recovery and was better than budgeted, while public sector debt remained below the authorities’ soft debt target.”
The IMF said economic growth is projected to gain momentum in 2024, supported by the non-energy and energy sectors, and inflation is projected to remain low. It said the current account surplus will narrow mainly due to a decline in energy prices and energy exports and is estimated at 5.7 percent of GDP in 2024.
The IMF said that external public buffers in the Heritage and Stabilization Fund (HSF) are large, at about 20 percent of GDP, and that the fiscal position is projected to remain adequate, reaching a deficit of 2.7 percent of GDP in FY2024.
“This reflects lower energy revenues, increased capital spending, and a higher wage bill due to the long-standing public wage settlement with some unions. ”
In its assessment, the IMF executive directors said they agreed with the thrust of the staff appraisal and welcomed Trinidad and Tobago’s sustained economic recovery, sharp decline in inflation in 2023, and strong external position.
The directors considered that while the outlook is favorable, the balance of risks is tilted to the downside in the near term and to the upside in the medium term. In the future, they emphasized the need for reforms to strengthen the economic recovery, rebuild buffers, and secure a more diversified, green, resilient, and inclusive economy.
The directors highlighted that strengthening the medium-term fiscal position would help rebuild budgetary buffers and maintain public debt well below the authorities’ soft debt target. They agreed that developing a rules-based budgetary framework and a sound debt management strategy would help strengthen fiscal management and mitigate macro-financial risks.
“Directors underscored the need to address fiscal risks from the pension system and energy transition and commended the proclaimed Procurement Act, which should help improve the efficiency of public spending. Directors also emphasized the importance of continued efforts to mobilize revenue, particularly from the non-energy sector.”
The statement said the directors underscored the importance of maintaining sound and consistent macroeconomic policies to support the current exchange rate arrangement.
“They encouraged the authorities to remain vigilant and stand ready to increase the monetary policy rate should potential capital outflow risks intensify. Directors stressed that addressing foreign exchange (FX) shortages remains a priority and encouraged adopting a more efficient market-clearing infrastructure for allocating FX. They noted that removing all restrictions on current international transactions and greater exchange rate flexibility over the medium term would help meet the demand for FX. ”
The IMF directors also recognized the financial system’s resilience while emphasizing vigilance against potential vulnerabilities. They welcomed the progress achieved and encouraged further efforts to implement the 2020 FSAP recommendations.
“Directors commended the authorities’ progress in strengthening the financial integrity and international tax transparency frameworks and encouraged them to continue strengthening the domestic tax administration and AML/CFT frameworks in line with global best practices.
“Enhancing fintech, promoting financial inclusion, and strengthening the regulatory and supervisory guidance of e-money and cybersecurity will also be key,” the IMF directors added.
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