BRIDGETOWN, Barbados, January 31, 2008 – The International Monetary fund is reporting that Trinidad and Tobago’s economy has performed remarkably, with that strong performance led by the twin-island republic’s buoyant energy sector.
But the country has been warned that it needs to strengthen its fiscal policy.
In its just released assessment based on its Article IV consultation with the country in September last year, the Executive Board of the International Monetary Fund indicated that “Trinidad and Tobago’s economic performance has been remarkable in a regional context and in comparison to other energy producing economies.”
“In the last four years, output doubled in U.S. dollar terms, net foreign assets have improved by the equivalent of a year’s GDP (gross domestic product), and public debt declined considerably. By contrast, inflation rose and reliance on energy revenues increased,” the report indicated.
The energy sector in Trinidad and Tobago accounts for over 40 percent of GDP, about 90 percent of exports, and about 60 of government revenues.
The IMF pointed out that the country must protect itself against its reliance on money earned from its energy sector.
“The major challenge facing the authorities is to implement a prudent mix of macroeconomic and structural policies to enable the efficient absorption of energy revenues and to reduce the country’s vulnerability to energy shocks,” the board pointed out.
It reiterated that the sustained increase in public spending and widening non-energy fiscal deficit, with the economy operating near full capacity, could exacerbate inflation pressures and jeopardize fiscal sustainability.
Against this background, the IMF suggests a gradual tightening of fiscal policy.
“The ongoing structural fiscal initiatives will be important in this regard, as well as expenditure restraint,” it indicated, further recommending that fuel and utility subsidies be phased out, in conjunction with a strengthening of the social safety net.
According to the report, the medium-term prospects for Trinidad and Tobago are favourable.
“Growth led by activity in the oil and energy sector should remain strong, with an improving contribution from the non-oil sector. The sizeable accumulation of external reserves and the low level of external public debt will attenuate risks from a fall in oil prices. Inflation is expected to fall to 7 percent by end-2007,” it indicated.
Trinidad and Tobago has the second highest GDP per capita in Latin America and the Caribbean.