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IMF: Low energy prices, forex remain issues for T&T

Wednesday, November 22, 2017

The International Monetary Fund (IMF) yesterday issued as part of its Article IV consultations its staff report for 2017, highlighting three pertinent issues/recommendations which it believes T&T must address.

The three issues pointed out by IMF were: restoring macroeconomic stability, managing external imbalances and supporting broad-based and inclusive growth.

The recommendations come in the context of continued low energy prices and three years of recession which have significantly widened fiscal deficits in T&T.

The Fund said: "absent consolidation, fiscal balances and public debt are projected to be on an unsustainable medium-term trajectory."

On the issue of restoring macroeconomic stability, the IMF noted: "Despite some policy actions already undertaken, sustainable fiscal adjustment requires additional measures. Given the urgency of consolidation, staff advocated high impact measures to achieve the required adjustment, with an eye towards increasing revenues and reducing current expenditures. Increasing public investment remains critical for a return to sustainable growth."

Referring to managing external imbalances, the IMF suggested that a significant exchange rate adjustment would "help restore competitiveness, external and foreign exchange market balance, help counteract the adverse impact of fiscal consolidation on growth, and allow for higher consumption and national welfare in the long run."

Regarding supporting broad-based and inclusive growth, the IMF suggested that adopting structural reforms is "critical for enhancing growth and diversification."

"These include improving the business climate, the efficiency and effectiveness of government employment programs, public sector administration, and data timeliness and quality."

In highlighting other factors which formed the context for its recommendations, the IMF said the exchange rate also played a significant role.

"The external balance assessment indicates the currency remains overvalued. Together with low prices and weak output in the energy sector, this has considerably widened the current account deficit.

"These large current account deficits have been financed by official borrowing, private capital inflows, and some reserve losses, thus starting to rapidly erode a large positive foreign asset position.

"That said, reserve losses have been limited by the rationing of foreign exchange, which, however, has led to persistent and highly distortionary shortages in the foreign exchange (f/x) market. Monetary policy has been on hold on concerns that lower interest rates would exacerbate pressures in the foreign exchange market, where shortages are already widespread."









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