The International Monetary Fund (IMF) said the Trinidad and Tobago economy is facing a “major shock” as a result of the sharp fall in energy prices, but was not in a crisis.
An IMF team headed by Ellie Canetti, which conducted its annual Article IV consultation from March 3-15 said in a statement: “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 job losses and continued supply-side constraints in the energy sector, the IMF projects gross domestic product (GDP) to fall one 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 products 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.”
The new government agrees with the IMF that policy adjustments are needed, Canetti said.
“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 value added tax (VAT) base, cutting fuel subsidies, reducing the number of ministries with a view to streamlining the Civil Service and instituting spending cuts,” the IMF noted.
Canetti statement said: The government has already identified additional measures that could meet some portion of this, including the improving tax collections (with the help of a unified revenue authority) increasing gaming taxes and reintroducing property taxes. We believe there is further scope to widen the VAT base and increase taxes, which are lower by regional standards.”
The IMF official added: “The country’s external situation has been very challenging. Against a backdrop of foreign exchange shortages that have intensified since the beginning of 2015, the recent sharp falls in energy prices are further reducing the available supply”.
On the depreciation of the T&T dollar, the IMF mission chief said; “The modest pace of depreciation should help to improve the current account. On the other hand, speculative and precautionary motives are reportedly increasing demand for foreign exchange. In the circumstances, greater flexibility in the foreign exchange market would be critical to resolving the foreign exchange shortage.”