June 7, 2024
On May 8, 2024, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Trinidad and Tobago.[1]
For the first time in a decade, Trinidad and Tobago is undergoing a gradual and sustained economic recovery. Real Gross Domestic Product (GDP) is estimated to have further expanded by 2.1 percent in 2023, reflecting a strong performance of the non-energy sector. 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 FY2023 continued supporting the recovery and was better than budgeted, while public sector debt remained below the authorities’ soft debt target.
Economic growth is projected to gain momentum in 2024, supported by the non-energy and energy sectors, and inflation is projected to remain low. 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. International reserve coverage is expected to remain adequate at 7.5 months of prospective total imports. External public buffers in the Heritage and Stabilization Fund are large at about 20 percent of GDP. 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.
The balance of risks is tilted to the downside in the near term but there are upside risks in the medium term. In the near term, downside risks stem from external factors affecting energy markets (e.g., an abrupt global slowdown) and domestic sources such as disappointments in energy production (e.g., delays to new projects, or unexpected disruptions to current production). In the medium term, upside risks stem from new natural gas projects and the implementation of planned structural reforms which could boost growth.
Executive Board Assessment[2]
Executive Directors agreed with the thrust of the staff appraisal. They welcomed Trinidad and Tobago’s sustained economic recovery, sharp decline in inflation in 2023, and strong external position. 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. Going forward, they emphasized the need for reforms to strengthen the economic recovery, rebuild buffers, and secure a more diversified, green, resilient, and inclusive economy.
Directors highlighted that strengthening the medium-term fiscal position would help rebuild fiscal buffers and maintain public debt well below the authorities’ soft debt target. They agreed that developing a rules-based fiscal 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.
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 and 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.
Directors recognized the financial system’s resilience, while emphasizing vigilance against potential vulnerabilities. They welcomed the progress achieved and encouraged further efforts toward implementing 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 international best practices. Enhancing fintech, promoting financial inclusion, and strengthening the regulatory and supervisory guidance of e-money and cybersecurity will also be key.
Directors welcomed the authorities’ commitment to diversifying the economy, attracting investment, promoting private sector engagement, and increasing trade integration. They encouraged the authorities to further enhance the business environment, tackle insecurity, and strengthen the efficiency of trade logistics. Directors commended the authorities’ actions to advance their climate and energy transition agenda and emphasized the importance of building climate resilient infrastructure.
Directors welcomed the authorities’ efforts to improve the quality, timeliness, and coverage of macroeconomic statistics, which should be sustained.
It is expected that the next Article IV consultation with Trinidad and Tobago will be held on the standard 12-month consultation cycle.