Trinidad and Tobago econ­omy fac­ing oil slide shock: IMF

The Pak Banker - - COMPANIES/BOSS -

An In­ter­na­tional Mon­e­tary Fund mis­sion, headed by Mr. Elie Canetti, vis­ited Trinidad and Tobago to con­duct the an­nual Ar­ti­cle IV con­sul­ta­tion.

Mr. Canetti is­sued the fol­low­ing state­ment in Port of Spain said, Trinidad and Tobago's econ­omy is con­fronting a ma­jor shock with the sharp fall in en­ergy prices that ac­cel­er­ated through early 2016. Based on avail­able in­for­ma­tion, in­clud­ing on job losses and con­tin­ued sup­ply-side con­straints in the en­ergy sec­tor, the mis­sion projects GDP to fall 1 per­cent this year. In ad­di­tion, de­clines in en­ergy-based rev­enues will con­strain the Govern­ment's abil­ity to act as an en­gine of growth. Be­yond 2016, new en­ergy projects will mod­estly boost en­ergy pro­duc­tion, while non-en­ergy growth could start to re­cover, pro­vided there is con­fi­dence in the coun­try's abil­ity to nav­i­gate the harsher global en­vi­ron­ment. De­spite the great chal­lenges posed by the need to ad­just to en­ergy prices, Trinidad and Tobago still has enor­mous strengths, in­clud­ing a well-ed­u­cated work force and a sta­ble political sys­tem. With sub­stan­tial fi­nan­cial buf­fers and low, al­beit ris­ing lev­els of pub­lic debt, Trinidad and Tobago is not in a cri­sis. None­the­less, in re­cent years, tak­ing into ac­count the size of en­ergy rev­enue wind­falls, the coun­try has un­der-saved and un­der-in­vested in its fu­ture. As a con­se­quence, the im­bal­ances that are now start­ing to build up could lead the coun­try to un­com­fort­able lev­els of debt and ex­ter­nal fi­nan­cial cush­ions ab­sent fur­ther ac­tion.

The new Govern­ment agrees that pol­icy ad­just­ments are needed. Since as­sum­ing of­fice six months ago, the Govern­ment has al­ready taken some dif­fi­cult but nec­es­sary steps in the face of sharply lower en­ergy rev­enues, in­clud­ing widen­ing the VAT tax base, cut­ting fuel sub­si­dies, re­duc­ing the num­ber of Min­istries with a view to stream­lin­ing the civil ser­vice, and in­sti­tut­ing spend­ing cuts. De­spite th­ese mea­sures, with the fur­ther fall in en­ergy prices since the bud­get, the mis­sion projects the FY 2016 bud­get deficit at some 11 per­cent of GDP, al­though if one were to con­sider as­set sales as rev­enue rather than fi­nanc­ing, this would be equiv­a­lent to about 5 per­cent of GDP. Con­tin­ued pro­jected deficits of this size call for fur­ther fis­cal con­sol­i­da­tion, per­haps of around 6 per­cent of GDP over the next few years.

The Govern­ment has al­ready iden­ti­fied ad­di­tional mea­sures that could meet some por­tion of this, in­clud­ing im­prov­ing tax col­lec­tions (with the help of a uni­fied rev­enue au­thor­ity), in­creas­ing gam­ing taxes and rein­tro­duc­ing prop­erty tax­a­tion. We be­lieve there is fur­ther scope to widen the VAT base and in­crease some ex­cise taxes, which are low by the re­gion's stan­dards. The Govern­ment has agreed to con­duct a wide-rang­ing ex­pen­di­ture re­view, and will seek the as­sis­tance of the World Bank to ra­tio­nal­ize and re­verse the un­sus­tain­able in­creases in spend­ing on trans­fers and sub­si­dies over the last sev­eral years. IMF sup­ports the Govern­ment's in­tent to con­duct a na­tional di­a­logue on fuel sub­si­dies with a view to phas­ing them out over time, and to re­view the CEPEP and URP Govern­ment em­ploy­ment schemes and the Govern­ment As­sis­tance for Tu­ition Ex­penses (GATE) pro­gram to make them more cost-ef­fi­cient. Re­duc­ing such ex­pen­di­tures would also leave room for a needed re­ori­en­ta­tion to­wards de­vel­op­ment spend­ing. The coun­try's ex­ter­nal sit­u­a­tion has been very chal­leng­ing.

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