Front page news over the last two weeks have been dominated by the ongoing controversy in the justice system between the Chief Justice, the Director of Public Prosecutions and the Attorney General, the crime situation, the Water and Sewage Authority and more recently, the inauguration of a new president.
Notably absent from the commentary on the justice situation or WASA was an acceptance of responsibility or accountability by the key players. Given the “noise,” the concluding statement of the International Monetary Fund’s Article IV consultation with Trinidad and Tobago issued on March 16 went almost unnoticed but for a front-page report on the need to remove foreign exchange restrictions.
Article IV of the IMF membership agreement requires every member to hold discussions with IMF technical staff on a regular basis, usually once a year. The purpose of the consultation is to assess the member country’s economic situation. This is achieved by IMF staff collecting economic and financial information and eyeballing officials on the key policies and development projects. Much has changed since the 2018 consultation, including the ramifications of the pandemic.
The statement confirmed the improved economic outturn reported by the finance minister in the 2023 budget speech. It noted the economy’s recovery in 2022 growing by an estimated 2.5 per cent and that growth will continue in 2023 at around 3.2 per cent. The current account surplus rebounded, and foreign reserves coverage remained adequate at 7.6 months of prospective total imports.
It noted that the change had come from higher energy prices and complemented the government on its efforts to consolidate the debt position which resulted in a positive fiscal position and a decline in debt to GDP ratio.
It noted that the 2022 fiscal surplus reflected a combination of higher than anticipated energy revenues, some spending cuts relative to the budget, and the reduction of the fuel subsidies. It acknowledged that the rate of inflation had increased, reaching 8.7 per cent by end-2022, driven by imported energy and food prices, as well as the decline in agricultural output due to flooding in 2022. It congratulated government on its stated intent to balance the budget in the medium term and to rationalise spending indicating that government’s fiscal stance was prudent.
In a nod to the ongoing issues in the US banking system, it noted the banking sector was profitable, well capitalised and liquid.
However, the report indicated that the economic risks were “balanced to the downside,” meaning more could go wrong than right. The statement noted that lower energy revenues due to declining prices, falling domestic energy production, increased capital spending as well as public sector wage negotiations will lead to a deficit of 2.8 per cent in 2023 and in the medium term. It also noted that it was important to provide temporary and targeted relief to alleviate the rising living costs for the most vulnerable.
The report was couched in diplomatic language with a hard edge. It referred to “windfall” revenues indicating that the recovery in energy revenues is driven by temporary, fortuitous international developments. It emphasised the need to prioritise expenditure given the expected return to deficit spending in 2023 continuing into the medium term. It stated that the National insurance system would be “depleted” by the mid 2030’s if reforms are not undertaken.
Despite its diplomatic language the IMF’s concluding statement contained many cautionary notes that need to be actioned.