IMF says economic activity in Trinidad remains weak

WASHINGTON (CMC):

The International Monetary Fund (IMF) says economic activity in Trinidad and Tobago "remains weak" and that the near-term outlook is "affected by uncertainty".

The Washington-based financial institution said after 15 years of positive growth, the oil-rich twin-island republic was hit hard in 2009 by the global financial crisis, the fall in energy prices and the collapse of a large financial conglomerate.

It said the country entered this period of crisis with large fiscal surpluses and low debt, which provided important buffers to help deal with both the external and domestic shocks.

But the IMF noted that the fiscal balance has turned negative, despite a real decline in expenditure in 2009.

"In addition, the debt-to-gross domestic product (GDP) ratio has increased significantly, in part reflecting the impact of lower energy prices on nominal GDP. Inflation has surged despite weak economic activity, reflecting weather-related increases in food prices, but has begun to fall back, and unemployment has increased sharply, to 6.7 per cent in the first quarter of 2010."

The IMF said notwithstanding the improving global conditions and the rebound in commodity prices, the twin-island republic has been hit hard by the global financial crisis.

Buffering the shock

However, the IMF commended the authorities for the "continued prudent macroeconomic policies that helped mitigate the impact of external shocks."

"They recognised that the immediate challenge is to restore confidence by providing a supportive policy mix and addressing remaining weaknesses in the financial system," the IMF said.

The IMF said the 2010-11 budget is "appropriately geared toward reinvigorating the economy", and urged the Kamla Persad Bissessar administration to accelerate its implementation.

Building tax administration

It said that once the economic recovery is well established, fiscal policy should aim towards reducing public debt and rebuilding buffers in the medium term.

"This objective could be achieved by reversing the large increases in current expenditures that occurred during the boom years, while ensuring adequate social spending and investment to promote economic diversification," the IMF said, calling also for strengthening the tax administration.

The financial institution agreed that the current accommodative stance of monetary policy is "broadly appropriate", recom-mending that in case of further delays in economic recovery and weaker inflationary pressures, the authorities consider additional interest rate reductions to signal their commitment to a supportive policy.

It welcomed the Central Bank's recent efforts to alleviate the pressures on the foreign-exchange market and encouraged the authorities to improve liquidity management.

- CMC