Mission Concluding Statement 

Trinidad and Tobago: Staff Concluding Statement of the 2024 Article IV Mission

March 11, 2024

Washington, DC: 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

1. 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.
2. 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

3. 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.
4. 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

5. 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.
6. 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.
7. 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. This will impact the viability of fossil fuel extraction and result in lower government revenues. To avoid disruptive policy adjustments, it is important to design a sustainable long-term fiscal strategy.
8. IMF staff welcomes the authorities’ efforts to develop a sound fiscal framework that strengthens fiscal management. In a highly uncertain global environment, a rules-based medium-term fiscal framework will enhance fiscal discipline, avoid procyclical spending, and mitigate fiscal risks. To enhance transparency and credibility, the authorities could clearly communicate how developments in central government debt remain consistent with the soft target on public debt. Moreover, it is important to broaden the fiscal data coverage of SOEs and other public bodies, which would strengthen the assessment of the government’s impact on the economy and any attendant risks. Finally, developing a sound debt management strategy would support the mitigation of macroeconomic and financial stability risks.

Maintaining consistent monetary and exchange rate policies

9. IMF staff encourages the authorities to maintain consistent policies to support the current exchange rate arrangement. The Central Bank of Trinidad and Tobago (CBTT) has kept its repo policy rate fixed at 3.5 percent since March 2020 to support the economic recovery. With the U.S. monetary policy tightening, the US-TT interest rate differentials widened. While these differentials have narrowed more recently, they incentivize potential capital outflows. Although this risk currently remains contained, the CBTT is encouraged to remain vigilant and stand ready to increase its policy rate if this risk intensifies.
10. Addressing foreign exchange (FX) shortages remains a priority. Although the CBTT’s additional FX intervention helped restore confidence and stabilize the FX market in 2023, it does not address the underlying structural FX shortfall in the market. IMF staff notes the authorities’ initiative to provide FX to small- and medium-sized enterprises (SMEs) through a new facility at the Export-Import Bank of Trinidad and Tobago (EximBank). Moving toward a more efficient and market-clearing infrastructure for allocating FX would help create a more conducive business environment for the private sector to invest and diversify the economy. The removal of all restrictions on current international transactions and greater exchange rate flexibility over the medium term would help meet the demand for FX, reduce the need for fiscal policy adjustments to restore external balance, and create room for more countercyclical monetary policy.

Toward a modern and resilient financial sector

11. The authorities need to remain vigilant to potential vulnerabilities in the financial system. While the financial system appears sound and resilient, it faces potential vulnerabilities emanating from high sovereign exposures and from interconnectedness. Closely monitoring financial sector risks is warranted, including those related to climate and cyber-security.
12. The authorities are encouraged to continue enhancing the financial regulatory and supervisory framework. IMF staff welcomes progress toward strengthening the resilience of the banking and insurance sectors in line with the recommendations of the 2020 Financial System Stability Assessment (FSAP). Going forward, the authorities are encouraged to prioritize and make progress on: (i) finalizing the implementation of Basel II/III standards; (ii) ensuring the orderly transformation of investment funds from constant to variable net asset value; (iii) enhancing the consolidated supervision of conglomerate groups; (iv) providing the CBTT with explicit macroprudential authority and tools; and (v) strengthening supervisory resource and independence in line with international best practices.
13. The authorities’ steady but cautious approach to Fintech is welcome. The authorities are leveraging on new technologies to improve the delivery of financial services, boost financial inclusion, and modernize the payment system. IMF staff welcomes the authorities' efforts, supported by IMF Technical Assistance, to strengthen the regulatory and supervisory guidance of e-money issuers, promote e-money and foster financial inclusion, and raise awareness and strengthen cybersecurity practices.
14. IMF staff commends the authorities for the progress made in strengthening financial integrity and the international tax transparency frameworks. The authorities are encouraged to continue strengthening their domestic tax administration in line with international standards of tax transparency, good global governance, and anti-money laundering and combating the financing of terrorism standards. Efforts should continue enhancing the Exchange of Information on Request, Automatic Exchange of Information, Inclusive Framework on Base Erosion and Profit Shifting, and Country-by-Country Reporting. Also, it is important to strengthen the Beneficial Ownership information framework. These actions will help comply with the European Union’s (EU) governance and the Organization for Economic Co-operation and Development Global Forum requirements and prepare the country for the 2026 Financial Action Task Force mutual evaluation.

Advancing structural reforms to address long-term challenges

15. Trinidad and Tobago needs all its engines to boost growth and secure a more diversified, green, resilient, and inclusive economy. The authorities’ efforts to foster the competitiveness of the energy sector and boost future natural gas production (e.g., the restructuring of the country’s main liquified natural gas facility) will help support economic growth and provide the financial resources needed for the transition to a low-carbon economy. However, it is important to strike a balance between leveraging the country’s maturing energy sector and providing conditions to foster growth of the non-energy sector. This will help shield the economy from global energy market volatility and green energy transition risks.
16. Advancing structural reforms is key to fostering private sector participation and promoting economic diversification. IMF staff welcomes the authorities’ commitment to diversifying the economy, attracting investment, promoting employment, and increasing trade integration. They are also commended for their efforts to leverage the digital economy to improve efficiency and inclusion. The authorities are encouraged to step up their efforts to enhance the business environment, tackle insecurity, and strengthen the efficiency of trade logistics (e.g., customs and transport infrastructure).
17. IMF staff welcomes the authorities’ continued efforts to advance their climate and energy transition agenda. Ongoing efforts to reduce greenhouse gas (GHG) emissions through various initiatives (e.g., solar energy and the road map to a green hydrogen-based economy) will help achieve the country’s target of a 15 percent reduction in emissions by 2030. This will also help increase the use of renewable energy. The authorities are encouraged to continue accelerating the country’s low-carbon transition agenda, including to promote the development of the green-energy sector and address risks raised by border carbon adjustments (e.g., the EU’s Carbon Border Adjustment Mechanism).

Enhancing the adequacy of statistics 

18. The authorities’ sustained efforts to improve the quality, timeliness, and the coverage of macroeconomic statistics are welcome. Transforming the Central Statistical Office into an independent National Statistical Institute would help strengthen the country’s institutional capacity. Additional efforts are needed to address the large errors and omissions in the balance of payments and to collect and disseminate comprehensive climate- and GHG emissions-related data, including at the industry level.

The IMF team is grateful to the authorities and the broad range of public and private sector counterparts for their warm hospitality, cooperation, and constructive discussions.