The International Monetary Fund (IMF) is predicting that the Trinidad and Tobago economy is expected to return to “positive growth” in 2018 as the recovery continues to take hold in the non-energy sector.
In a statement following its latest Article IV Mission last Friday, the IMF recommended that the Government enact policies to focus on “completing the fiscal adjustment, while insulating the economy from future commodity price swings within a medium-term fiscal policy framework.”
It was also recommended that mechanisms be put in place to create an enabling environment for the non-energy sector as an engine of growth.
In an in-depth statement, the IMF noted the economy is “slowly recovering from a prolonged recession driven by energy supply shocks and low energy prices.”
“With signs of improvement driven by energy sector growth from the second half of 2017, the economy is expected to return to positive growth in 2018 as the recovery takes hold in the non-energy sector.”
The fund said real GDP contracted at a slower pace of 2.6 per cent in 2017, following the 6.1 per cent drop in 2016 driven by energy sector shocks. Added to that, the strong recovery in gas production in 2017 had “knock-on effects” on the downstream industry while oil production remained “largely flat, at a historically low level.”
The Fund also stated that headline inflation also fell to historic lows of 1.9 per cent last year, then dropped a further 1.1 per cent year on year in April.
They also noted that while unemployment remained at relatively low levels, the unemployment rate rose to 5.3 per cent in the second d quarter of 2017 while youth unemployment stood at an estimated 12 per cent in 2017, compared with 7.9 per cent in 2014.
And regarding the fiscal deficit, this had improved as the deficit was slightly lower than the previous seven year period.
The IMF said that it is the expectation that economic prospects improve over the medium term as energy projects come on-stream and the recovery takes hold in the non-energy sector.
“Near-term growth will likely be led by natural gas production with continued challenges in the oil sector. Gradual recovery in non-energy growth would help stabilize growth at 1.5 per cent over the medium term. The fiscal deficit is expected to narrow to an average four per cent of GDP as energy revenues rise, non-energy revenues recover, and spending falls with improved efficiency of transfers and subsidies.”
Whilst on the revenue side, the IMF stated the completion of the energy taxation and tax administration reforms remain a priority together with “ongoing reforms to enhance the fiscal regime for oil and gas to reduce tax leakages, while providing attractive terms for investment.” The IMF said the Revenue Authority would enhance revenue collection and address weaknesses in tax administration and called for a “speedy approval of RA legislation by Parliament, implementation of Tax Administration Diagnostic Assessment Tool recommendations, and acceleration of VAT refund payments owed to taxpayers.”
“Higher taxes on tobacco or sugary drinks could be considered as a contingency measure, as well as a gradual increase in the VAT rate toward the regional average (15 percent).”
The IMF noted that containing of current spending should remain a priority as transfers to public utilities “continue to represent a significant fiscal drain” and that the raising utility rates should be guided by the Regulated Industries Commission.
Lastly, the IMF said reform of the National Insurance System (NIS) was required as contributions income are no longer sufficient to meet benefits payments. The raising of the retirement age from 60 to 65, starting in 2025 was also suggested as a method of keeping the system “sustainable and reduce contingent liabilities to the government.”