Aleem Khan

US dol­lar sup­ply un­cer­tain­ty in the lo­cal for­eign ex­change (forex) mar­ket en­cour­ages hoard­ing, the In­ter­na­tion­al Mon­e­tary Fund (IMF) warned as its mis­sion con­clud­ed an Ar­ti­cle IV Con­sul­ta­tion in Port-of-Spain. "The for­eign ex­change mar­ket has been rel­a­tive­ly tight re­cent­ly. De­spite sig­nif­i­cant dol­lar in­jec­tions from the Cen­tral Bank of T&T (CBTT), re­cent re­ports sug­gest that for­eign ex­change short­ages, while tem­po­rary, have been fair­ly wide­spread," the IMF said in a re­lease."In­creas­es in for­eign ex­change in­flows may soon help to al­le­vi­ate short­ages, al­though some un­cer­tain­ty about the avail­abil­i­ty of for­eign ex­change may be pro­vid­ing an in­cen­tive to hold larg­er than usu­al cash bal­ances in for­eign cur­ren­cy."

The mis­sion, head­ed by Wash­ing­ton-based Elie Canet­ti, said it "looks for­ward to see­ing the im­pact" of the new sys­tem of al­lo­cat­ing for­eign ex­change that com­menced April 1, but "calls on the CBTT to con­sid­er mov­ing to­wards a more flex­i­ble, mar­ket-clear­ing sys­tem should sig­nif­i­cant unan­tic­i­pat­ed short­falls re­cur."T&T is ex­pe­ri­enc­ing more ro­bust growth af­ter sev­er­al years of sub-par per­for­mance, the IMF said. With the end of main­te­nance-re­lat­ed out­ages in the en­er­gy sec­tor, the IMF projects that the econ­o­my will grow around 2.5 per cent this year af­ter around 1.5 per cent growth in 2013.The non-en­er­gy sec­tor was fair­ly buoy­ant in 2013, which the IMF an­tic­i­pates will con­tin­ue to be the case in 2014. Core in­fla­tion has been rel­a­tive­ly qui­es­cent, though it picked up to 2.7 per cent in Feb­ru­ary 2014, the IMF not­ed."The coun­try's ex­ter­nal po­si­tion re­mains healthy, with ex­ter­nal re­serves at US$10.0 bil­lion, while the Her­itage and Sta­bil­i­sa­tion Fund's as­sets con­tin­ue to grow. Se­ri­ous da­ta de­fi­cien­cies hin­der a more com­plete as­sess­ment of bal­ance of pay­ments de­vel­op­ments, but our best es­ti­mate is that the cur­rent ac­count sur­plus should con­tin­ue to be in dou­ble dig­its (as a per cent of GDP) in 2014 thanks to a strong re­bound in en­er­gy ex­ports from 2013. How­ev­er, there are signs that the growth of im­ports, no­tably au­to­mo­biles, may be pick­ing up," Canet­ti said in the re­lease.

The IMF said it projects a fis­cal deficit of about 1.5 per cent of gross do­mes­tic prod­uct (GDP) in 2013/14, clos­er to bal­ance than en­vis­aged in the bud­get state­ment. How­ev­er, this is due in part to one-off de­vel­op­ments, with­out which the deficit would be clos­er to 3.5 per cent of GDP. Look­ing ahead, the case for ex­pan­sion­ary fis­cal poli­cies to sup­port the econ­o­my is wan­ing amid sign­sthat ex­cess ca­pac­i­ty, no­tably in the labour mar­ket, is rapid­ly be­ing used up, the IMF said. Thus, the small­er bud­get deficit is wel­come.Canet­ti and his team said they see a strong case to con­tin­ue fis­cal con­sol­i­da­tion in­to the medi­um-term, but based on pol­i­cy changes that durably im­prove the struc­ture of non-en­er­gy-based rev­enues and spend­ing.The mis­sion wel­comed Gov­ern­ment's ef­forts to sig­nif­i­cant­ly re­duce or elim­i­nate ar­rears on en­er­gy sub­si­dies, VAT re­funds and to sup­pli­ers."With ex­cess liq­uid­i­ty in the bank­ing sys­tem ris­ing to $7.1 bil­lion through March 2014, mon­e­tary pol­i­cy will have to con­tin­ue con­tend­ing with a struc­tur­al liq­uid­i­ty over­hang for the fore­see­able fu­ture."In ad­di­tion, the time for with­draw­ing the ac­com­moda­tive mon­e­tary stance of the past few years may be com­ing near­er as the un­em­ploy­ment rate has fall­en mean­ing­ful­ly, cred­it to con­sumers and for re­al es­tate is grow­ing at a rel­a­tive­ly rapid pace, core in­fla­tion has risen, and in­ter­est rate dif­fer­en­tials are shift­ing in favour of US in­ter­est rates. While cred­it to busi­ness has con­tin­ued to fall, this ap­pears to be due pri­mar­i­ly to a lack of de­mand, in part giv­en firms' al­ready am­ple cash re­sources," the IMF said.

"Fis­cal pol­i­cy should be set in a long-term con­text that en­sures the coun­try's non-re­new­able en­er­gy re­serves are used as a step­ping stone to last­ing pros­per­i­ty. This re­quires in­creas­ing sav­ings from the sub­stan­tial re­sources ex­tract­ed from this sec­tor, which should be ac­com­plished by mov­ing the fis­cal po­si­tion in­to sur­plus with­in a few years."In ad­di­tion, ex­pen­di­tures should shift away from con­sum­ing the coun­try's re­sources to­wards in­vest­ing them for the fu­ture. In par­tic­u­lar, we would like to re­it­er­ate our pre­vi­ous ad­vice to quick­ly move to start end­ing fu­el sub­si­dies, con­sis­tent with the IMF's in­creas­ing em­pha­sis on this is­sue glob­al­ly."Fu­el sub­si­dies are ex­treme­ly cost­ly and in­equitable, starv­ing the gov­ern­ment of re­sources that could be bet­ter tar­get­ed to­wards pover­ty re­duc­tion, the IMF said. They al­so in­duce ex­ces­sive re­liance on au­to­mo­biles, lead­ing to pol­lu­tion and traf­fic jams that have a ma­te­ri­al­ly-ad­verse im­pact on pro­duc­tiv­i­ty.

In ad­di­tion, over­lap­ping so­cial pro­grammes should be ra­tio­nalised and bet­ter tar­get­ed to the less for­tu­nate seg­ments of so­ci­ety. Rev­enue poli­cies should be aimed at broad­en­ing tax bases to en­sure a lev­el play­ing field across ac­tiv­i­ties.

The IMF said: "The gov­ern­ment should con­tin­ue to build on re­cent suc­cess­es in im­ple­ment­ing struc­tur­al re­forms to un­lock the coun­try's full growth po­ten­tial. There has been mea­sur­able progress in eas­ing the im­ped­i­ments to do­ing busi­ness and in fi­nan­cial sec­tor re­forms, al­though more re­mains to be done in both ar­eas. Be­yond that, there are still crit­i­cal needs for stream­lin­ing the gov­ern­ment's struc­ture and im­prov­ing the ef­fi­cien­cy of the pub­lic ser­vice and the func­tion­ing of labour mar­kets."The coun­try would al­so ben­e­fit from re­forms in pro­cure­ment, cor­po­rate bank­rupt­cy and bank res­o­lu­tion."Fi­nal­ly, we wish to place the great­est stress on rem­e­dy­ing the con­tin­ued short­com­ings of the Cen­tral Sta­tis­ti­cal Of­fice (CSO) in gen­er­at­ing crit­i­cal da­ta, which ham­per ef­fec­tive pol­i­cy mak­ing and lessen trans­paren­cy. The au­thor­i­ties were in broad agree­ment with the mis­sion's as­sess­ment."