Trinidad and Tobago economy facing oil slide shock: IMF
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.