📋 Tender Overview
An International Monetary Fund (IMF) staff team, led by Mr. Camilo E. Tovar, visited Port of Spain during February 26–March 8, 2024, and held discussions on the 2024 Article IV consultation with Trinidad and Tobago’s authorities. At the end of the consultation, the mission issued the following statement, which summarizes its main conclusions and recommendations.
A gradual and sustained economic recovery
For the first time in a decade, Trinidad and Tobago is undergoing a gradual and sustained economic recovery. Real Gross Domestic Product (GDP) rebounded in 2022 and is estimated to have further expanded by 2.1 percent in 2023. This reflects the strong performance of the non-energy sector, which was partially offset by a contraction in the energy sector. Inflation has declined sharply to 0.3 percent in January 2024, after peaking at 8.7 percent in December 2022, mainly due to declining food and imported goods inflation. Banks’ credit to the private sector continues to expand and the financial sector appears sound and stable. The current account is estimated to have remained in a surplus in 2023, and foreign reserves coverage is adequate at 8.3 months of prospective total imports.
The fiscal balance in FY2023 was broadly in line with the budget. The overall fiscal deficit is estimated at 1.1 percent of GDP in FY2023, 0.2 percentage points better than initially budgeted. This reflects higher non-energy revenue and lower than budgeted capital expenditure. Central government debt increased to 54.3 percent of GDP in FY2023 (from 50.7 percent of GDP in FY2022) and public debt reached 70.9 percent of GDP in FY2023 (from 67.0 percent of GDP in FY2022). Public financial buffers remained strong with total assets in the Heritage and Stabilization Fund at US$5.5 billion (19.2 percent of GDP) by end-FY2023.
Positive outlook with some uncertainties
Economic growth is projected to gain momentum in 2024. Real GDP is expected to expand by 2.4 percent in 2024, supported by the non-energy sector and new energy projects coming onstream—which will help offset the structural decline in energy production. Over the medium term, the delivery of several planned natural gas projects is expected to boost growth in the energy sector, while supporting economic activity in the non-energy sector. Inflation is projected to hover around two percent in line with international prices. The current account surplus is expected to stabilize in the medium term, exceeding 6 percent of GDP. Foreign reserve coverage is expected to remain adequate at 6.6 months of prospective total imports by 2029.
The balance of risks is tilted to the downside in the near term but to the upside in the medium term. In the near term, downside risks stem from external factors affecting energy markets (e.g., an abrupt global slowdown) and disappointments in domestic energy production (e.g., delays in new projects or unexpected disruptions in current production). In the medium term, the balance of risks is to the upside, stemming from additional new natural gas projects and the implementation of planned structural reforms, which could boost growth. Downside risks emanate from a faster-than-expected global transition to net-zero emissions, which could put pressure on the energy sector.
Maintaining fiscal discipline while strengthening the fiscal framework
The FY2024 budget envelope is appropriate to support the domestic recovery and address infrastructure needs. IMF staff estimates the fiscal deficit will widen to 2.7 percent of GDP in FY2024. This reflects lower energy revenues due to declining prices and domestic production, increased capital spending, and a higher wage bill—due to the long-standing public wage settlement with some unions. The planned capital spending would help address the country’s infrastructure needs and boost growth. IMF staff recognizes that the proclamation of the Procurement and Disposal of Public Property Act in April 2023 will enhance the legal and institutional framework for transparent and competitive public procurement. It will also help improve the efficiency and quality of public spending. Central government debt is projected to increase to 56.0 percent of GDP and public debt to 73.4 percent of GDP in FY2024, below the authorities’ soft debt target of 75 percent of GDP.
Strengthening the medium-term fiscal position would be important to rebuild buffers to respond to potential shocks. IMF staff welcomes the authorities’ efforts to enhance revenue mobilization (e.g., property tax, gambling tax, and the operationalization of the Revenue Authority). Additional revenue could be generated by adjusting the fiscal regime of the energy sector, boosting non-energy revenue, and strengthening tax compliance and administration. It is advised to continue gradually phasing out subsidies while protecting the most vulnerable, streamlining transfers to state-owned enterprises (SOEs), and improving the efficiency and quality of public spending. The pace and composition of the adjustment should continue to support growth-friendly expenditure and protect essential capital spending. These measures would help strengthen the fiscal position and maintain public debt well below the authorities’ soft debt target.
Addressing potential fiscal risks stemming from the pension system and the global energy transition would ensure long-term sustainability. In the absence of reforms, the National Insurance System’s deficit is expected to widen, depleting its reserves by the mid-2030s. IMF staff welcomes the authorities’ proposal to increase the retirement age to 65 years. The authorities are encouraged to consider other measures to ensure the pension system’s sustainability, including increasing the contribution rate. The global transition toward low-carbon economies is expected to reduce global demand for fossil fuels.
