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T&T not in crisis—IMF
The International Monetary Fund (IMF), which concluded its latest mission to T&T on Tuesday, said the economy was confronting a major shock as a result of the sharp fall in energy prices but was not in crisis.
The team, headed by Elie Canetti, which conducted its annual Article IV consultation from March 3-15, is projecting a one per cent drop in gross domestic product (GDP) this year as a result of job losses and supply-side constraints in the energy sector.
“In addition, declines in energy-based revenues will constrain the Government’s ability to act as an engine of growth,” Canetti said in his report on the mission’s findings.
“Beyond 2016, new energy projects 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 IMF said T&T still has enormous strengths, including a well-educated work force and a stable political system but “taking into account the size of energy revenue windfalls, the country has under-saved and under-invested in its future.
“As a consequence, the imbalances that are now starting to build up could lead the country to uncomfortable levels of debt.”
The agency noted the “difficult but necessary steps” taken by Government since assuming office six months ago, including widening the VAT tax base, cutting fuel subsidies, reducing the number of ministries and instituting spending cuts.
It is projecting a budget deficit of 11 per cent of GDP for the 2016 fiscal year and has recommended that the projected deficits be addressed through “further fiscal consolidation, of approximately six per cent of GDP over the next few years.
The IMF noted plans for improving tax collections with the help of a unified revenue authority, increasing gaming taxes and reintroducing of the Property Tax but said there was scope to widen the VAT base and increase excise taxes, which are low by the region’s standards.
“The Government has agreed to conduct a wide-ranging expenditure review and will seek the assistance of the World Bank to rationalise and reverse the unsustainable increases in spending on transfers and subsidies over the last several years,” the report continued.
“We support the Government’s intent to conduct a national dialogue on fuel subsidies with a view to phasing them out over time and to review the CEPEP and URP Government employment schemes and the Government Assistance for Tuition Expenses (GATE) programme to make them more cost-efficient. Reducing such expenditures would also leave room for a needed reorientation towards development spending,” it added.
Noting foreign exchange shortages that have intensified since the beginning of 2015, with sharp falls in energy prices further reducing available supply, the IMF estimates a deficit on the current account of the balance of payments of more than five per cent of GDP for 2015.
The agency forecasts that the deficits will continue at a reduced level of two–three per cent of GDP and said the modest pace of depreciation should help to improve the current account.
The agency said while T&T’s financial system remained sound, some reform legislation had been lagging and structural reforms were key to unlocking the country’s growth and diversification potential.
“The Government has initiated a much needed review of GATE, which we trust will better focus the educational system. Procurement reform, a key Government priority, is needed to assure contractors of an even playing field and reduce perceptions of corruption.
“The Government has also made a strong start on the urgent need to reform the country’s statistics agency, with a view to turning it into a strong and independent National Statistical Institute,” it added.