GEISHA KOW­LESSAR-ALON­ZO

geisha.kow­lessar@guardian.co.tt

The In­ter­na­tion­al Mon­e­tary Fund (IMF) says re­form­ing T&T’s pen­sion sys­tem is cru­cial to en­sur­ing its ad­e­qua­cy and sus­tain­abil­i­ty and to re­duce fis­cal vul­ner­a­bil­i­ty.

It not­ed that the Na­tion­al In­sur­ance Sys­tem (NIS) has been run­ning a deficit since FY2013.

With an age­ing pop­u­la­tion and gen­er­ous ben­e­fits, the gap be­tween ben­e­fits spend­ing and con­tri­bu­tion rev­enue, is ex­pect­ed to widen over the medi­um-term, ex­haust­ing re­serves as­sets by mid-2030s, the IMF said as it not­ed its ex­ec­u­tive board con­clud­ed 2023 Ar­ti­cle IV con­sul­ta­tion with T&T.

The IMF said how­ev­er, it wel­comed the de­ci­sion by the Gov­ern­ment to in­crease the re­tire­ment age by five years to 65 years.

This will sup­port the sus­tain­abil­i­ty of the sys­tem and pen­sion ad­e­qua­cy, the Wash­ing­ton DC-based lender of last re­sort said.

Oth­er mea­sures such as grad­u­al­ly in­creas­ing the con­tri­bu­tion rate could al­so be con­sid­ered, the in­ter­na­tion­al en­ti­ty ad­vised.

Ac­cord­ing to the IMF, ad­di­tion­al mea­sures are need­ed to put the sys­tem on a sus­tain­able path.

It said in ad­di­tion to the in­ten­tion to ef­fec­tive­ly in­crease the re­tire­ment age from 60 to 65, the re­form pack­age could in­clude the in­crease the con­tri­bu­tion rate and re­duce the old-age pen­sion ben­e­fit (eg to be re­duced by 0.5 per cent for each month for ear­ly re­tire­ment).

It is rec­om­mend­ed that the ad­just­ments be grad­ual and trans­par­ent, the IMF said.

“The re­tire­ment age could be raised: one year each year be­gin­ning on Jan­u­ary 1, 2024, un­til it reach­es 65 on Jan­u­ary 2028. Like­wise, the con­tri­bu­tion rate could be in­creased grad­u­al­ly (eg, by one per cent every two years to at least up to 16.2 per cent for pub­lic and pri­vate sec­tor em­ploy­ees).

“Go­ing for­ward, to en­sure the sys­tem re­mains sus­tain­able and para­met­ric re­forms are re­moved from po­lit­i­cal cy­cles, au­to­mat­ic ad­just­ments to the le­gal re­tire­ment age—in line with the in­crease in life ex­pectan­cy, could be con­sid­ered once the re­tire­ment age has reached 65 years,” the IMF fur­ther ex­plained.

Bring­ing down the medi­um-term fis­cal deficit and man­ag­ing po­ten­tial down­side risks re­quire fur­ther mea­sures, the IMF al­so rec­om­mend­ed.

Specif­i­cal­ly, it said ad­di­tion­al ef­forts should fo­cus on rev­enue mo­bil­i­sa­tion, cut­ting down on non-pri­or­i­ty cur­rent ex­pen­di­ture, and main­tain­ing debt lev­els well be­low the soft debt tar­get.

The IMF said the pace and com­po­si­tion of this ad­just­ment should pre­serve the spend­ing for the most vul­ner­a­ble, sup­port growth-friend­ly ex­pen­di­ture, and pro­tect es­sen­tial cap­i­tal spend­ing. In line with past ad­vice, it rec­om­mend­ed phas­ing out re­main­ing fu­el, elec­tric­i­ty, and wa­ter sub­si­dies which would pro­mote ef­fi­cient en­er­gy and oth­er util­i­ty us­age and sup­port the re­duc­tion of green­house emis­sions.

More­over, de­vel­op­ing a com­pre­hen­sive re­form pro­gramme to ad­just tar­iffs could help in­crease rev­enues, the IMF added.

On im­prov­ing rev­enue mo­bil­i­sa­tion, the IMF not­ed that while ef­forts to im­prove the re­cov­ery of tax ar­rears are wel­come, there is scope to raise rev­enue by strength­en­ing tax and cus­toms ad­min­is­tra­tion (eg through mod­erni­sa­tion and dig­i­tal­i­sa­tion).

Fur­ther, it said elim­i­nat­ing in­ef­fi­cient VAT ex­emp­tions would sup­port com­pli­ance and rev­enue mo­bil­i­sa­tion as well as ad­dress­ing weak­ness­es in tax com­pli­ance and ad­min­is­tra­tion, in line with pre­vi­ous IMF tech­ni­cal as­sis­tance (TA) rec­om­men­da­tions re­main a pri­or­i­ty— such as es­tab­lish­ing a re­li­able tax­pay­er reg­is­ter; au­dit­ing the stock of VAT re­funds (at about 4.3 per cent of GDP as of end-Feb­ru­ary 2023); and im­prov­ing fil­ing, pay­ments, and ar­rears man­age­ment.

Re­gard­ing eco­nom­ic re­cov­ery, it said T&T is ex­pect­ed to gain broad-based mo­men­tum in 2023.

In­fla­tion is pro­ject­ed to slow to 4.5 per cent by end-2023 and to con­tin­ue de­clin­ing with in­ter­na­tion­al prices.

The cur­rent ac­count sur­plus will nar­row in line with the an­tic­i­pat­ed de­cline in glob­al en­er­gy prices, reach­ing 6.6 per cent of GDP in 2023.

For T&T, it al­so not­ed that in­ter­na­tion­al re­serves cov­er­age is ex­pect­ed to re­main ad­e­quate at around 7.2 months of prospec­tive to­tal im­ports and is com­ple­ment­ed by large pub­lic ex­ter­nal buffers in the Her­itage and Sta­bil­i­sa­tion Fund of about 18.4 per cent of GDP.

The over­all fis­cal bal­ance is pro­ject­ed to turn in­to a deficit of 2.8 per cent of GDP in FY2023, re­flect­ing low­er en­er­gy rev­enues due to de­clin­ing en­er­gy prices and do­mes­tic pro­duc­tion, and in­creased cap­i­tal spend­ing.

The bal­ance of risks to the out­look is tilt­ed to the down­side. Ac­cord­ing to the IMF down­side risks stem from po­ten­tial dis­rup­tions

to do­mes­tic oil and gas pro­duc­tion; a sharp­er-than-ex­pect­ed glob­al slow­down af­fect­ing en­er­gy mar­kets, and glob­al fi­nan­cial in­sta­bil­i­ties. On the up­side, there is the po­ten­tial for high­er-than-ex­pect­ed en­er­gy prices and pro­duc­tion, in­clud­ing new or ex­pand­ed projects, and new re­new­able en­er­gy projects.

While the IMF com­mend­ed the fi­nance min­istry for its com­mit­ment to bal­anc­ing the bud­get it “rec­om­mend­ed to con­tin­ue pru­dent­ly man­ag­ing the en­er­gy rev­enue wind­fall, avoid­ing pro­cycli­cal spend­ing, and re­build­ing fis­cal buffers, while pro­vid­ing tar­get­ed sup­port to the most vul­ner­a­ble.”

In re­sponse to the re­port, Fi­nance Min­is­ter Colm Im­bert is­sued a re­lease say­ing, “We wel­come the IMF’s pol­i­cy rec­om­men­da­tions, which align with our ef­forts to en­cour­age pri­vate in­vest­ment and pro­mote in­no­va­tion.”