Trinidad and Tobago’s economic activity is recovering supported by higher global energy prices and the rebound of the non-energy sectors.
It a fruitful conclusion drawn at the end of the country’s Article IV Consultation with the International Monetary Fund (IMF), which has assessed that economic growth is estimated to have expanded by 2.5 per cent in 2022. Inflation has increased, reaching 8.7 per cent by 2022’s year-end, driven by imported energy and food prices, partial liberalisation of domestic fuel prices in 2022, and domestic weather-related shocks.
The IMF reports that the twin-island republic’s financial sector appears well-capitalised, liquid, and profitable. Higher energy prices contributed to further improving the external position in 2022 and turning the fiscal position into a surplus in FY2022—for the first time in over a decade. Public debt has declined.
IMF assessment for 2023
According to the IMF, “the economic recovery is expected to gain broad-based momentum in 2023. Inflation is projected to slow to 4.5 per cent by2023’s year end and to continue declining with international prices. The current account surplus will narrow in line with the anticipated decline in global energy prices, reaching 6.6 per cent of GDP (gross domestic product) in 2023.”
The IMF assessment finds that the country’s international reserve coverage is expected to remain adequate at around 7.2 months of prospective total imports and is complemented by large public external buffers in the Heritage and Stabilization Fund of about 18.4 per cent of GDP. The overall fiscal balance is projected to turn into a deficit of 2.8 per cent of GDP in FY2023, reflecting lower energy revenues due to declining energy prices and domestic production, and increased capital spending.
The IMF notes that the balance of risks to its outlook on Trinidad& Tobago is tilted to the downside, which would stem from potential disruptions to domestic oil and gas production, a sharper-than-expected global slowdown affecting energy markets, and global financial instabilities.
“On the upside, there is the potential for higher-than-expected energy prices and production, including new or expanded projects, and new renewable energy projects,” the IMF says.
Managing energy revenue windfall
The multilateral lending agency is recommending that the Rowley-led government “continue prudently managing the energy revenue windfall, avoiding pro-cyclical spending, and rebuilding fiscal buffers, while providing targeted support to the most vulnerable. The fiscal stance in the FY2023 budget is appropriate.”
The IMF reports, ”capital expenditure will support the economic recovery and address critical bottlenecks (e.g., infrastructure), but it needs to be efficient and high quality. A spending contingency plan would help stabilize fiscal accounts should downside risks materialise noting that the government’s commitment to balancing the budget over the medium term is prudent and welcome.”
To support this effort, the IMF is also recommending that the administration “enhance revenue mobilisation, cut down non-priority current expenditure, and maintain debt well below the new soft debt target. Additional revenue could be generated by implementing tax reforms and strengthening the tax administration.”
The IMF advises that the government continues to gradually phase out subsidies, streamline transfers to state-owned enterprises (SOEs) and improve public spending efficiency, while preserving spending for the most vulnerable.
It also recommended growth expenditure and the protection of essential capital spending.