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The economy of Trinidad and Tobago has suffered a battering from the combined effects of the COVID-19 pandemic, energy production and prices shocks, the International Monetary Fund (IMF) has revealed after concluding its most recent Article IV consultation with authorities in the twin-island republic.

In a statement released this past week, the IMF noted that its Executive Board concluded its consultation on February 9.

“The combined effects of COVID-19 and energy production and price shocks took a heavy toll on Trinidad and Tobago’s economy,” read the IMF’s release on the consultation.

“Real GDP contracted by 7.4 percent in 2020 and is estimated to further contract by about one per cent in 2021.

“Inflation remained mostly subdued but the recent surge in international food and energy prices has pushed it up to 3.9 per cent by October 2021.

“With demand pressures contained, inflation in 2022 is projected at about 2.8 per cent.“

International Monetary Fund

“The fiscal position worsened significantly during FY2020-21 due to lower energy proceeds and outlays to mitigate the pandemic. The fiscal deficit widened to 11.6 per cent of GDP in FY2020 and remained elevated at 10.1 per cent of GDP in FY2021. As a result of the large deficits and the GDP contraction, central government debt increased from 45.4 per cent of GDP in FY2019 to 65.9 percent of GDP in FY2021.”

According to the IMF, a strong economic recovery is projected for 2022, with downside risks predominating.

Said the Fund: “Real GDP growth in 2022 is expected at 5.5 per cent, reinforced by the continued policy support and the anticipated recovery in oil and gas production. With demand pressures contained, inflation in 2022 is projected at about 2.8 per cent.

“The fiscal deficit is expected to decline to 7.5 per cent of GDP in FY2022, reflecting a combination of high revenue mobilisation and modest spending cuts. Central government debt will peak at 68.8 percent of GDP in FY2023 and gradually decline thereafter.

“Risks are tilted to the downside due to pandemic-related uncertainty, the country’s vulnerability to oil and gas production disruptions, and negative spillovers from global and regional shocks.”

IMF directors, coming out of the consultation, noted that Trinidad and Tobago was severely hit by the pandemic and commended the authorities’ decisive policy response to mitigate its economic and health impact.

“While a growth rebound is expected, driven by domestic demand and the recovery in energy production, the outlook is still subject to risks stemming from pandemic-related uncertainties and energy price volatility. Against this background, Directors urged the authorities to accelerate the vaccination rollout alongside supportive macroeconomic policies aimed to minimise scarring and support the recovery, while implementing structural reforms and strengthening climate resilience to promote medium-term growth.

Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies.

On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

Directors supported continued temporary and targeted spending to mitigate the effects of the pandemic.

Once the recovery has strengthened, a growth-friendly and inclusive fiscal consolidation will be needed over the medium term to place public debt on a downward trajectory.

To support the fiscal adjustment, IMF directors encouraged the T&T authorities to adopt a well-designed medium-term fiscal framework with a clear fiscal rule, which would strengthen multi-year fiscal discipline, avoid procyclicality, and mitigate risks.

The directors also also highlighted the need to improve public spending efficiency and reduce fiscal transfers to SOEs.

The directors agreed that the current accommodative monetary policy stance is appropriate.

“Going forward, monetary policy action should remain data dependent and stand ready to change if inflationary pressures materialise, capital outflows intensify, or the recovery falters,” the IMF stated.

BANKING SECTOR RESILIENT

Directors stressed the importance of modernising foreign exchange and money market infrastructure to reduce inefficiencies and imbalances and to support the exchange rate arrangement. They called on the authorities to eliminate exchange restrictions on current payments and multiple currency practices in a planned manner.

The directors welcomed the banking sector’s resilience during the pandemic and underscored that careful monitoring of financial conditions to detect any buildups of vulnerabilities remains essential and called for further strengthening of the regulatory and supervisory frameworks.

Said the IMF: “Directors commended the country’s successful exit from the Financial Action Task Force’s grey list and emphasised the need for further efforts to strengthen the AML/CFT framework, including by addressing issues related to tax transparency and exchange of information.

The directors agreed that comprehensive structural reforms are needed to promote the non-energy sector and boost potential growth.

They emphasised the importance of strengthening the economy’s resilience to climate change and welcomed the authorities’ commitment to reducing greenhouse gas emissions. The directors encouraged the authorities to continue with their efforts to bridge existing data gaps.