Trinidad and Tobago economy set for 5.5% growth

THE pandemic hit an already struggling TT economy but the Government responded well, with a surge in global energy prices now positioning TT for 5.5 per cent growth this fiscal year, according to the IMF.

On Wednesday, the oil price (Brent crude) stood at US$98 per barrel, having once reached US$139 during the start of Russia's invasion of Ukraine, while natural gas was US$4.75 MMBtu.

In a report this month, after an Article IV consultation, the IMF said TT which had several years of underwhelming performance began to recover but was then hit by the pandemic plus a sharp drop in global energy prices, the latter which "translated into several petrochemical plants being temporarily mothballed."

The Government targeted four per cent of GDP to the banking system to preserve fiscal stability. However rigorous measures to contain covid19 impeded mobility, non-essential businesses and high-contact service industries such as tourism. The pandemic's impact on employment is inconclusive due to delayed labour market data.

"However, alternative indicators imply that a significant portion of the retail sector closed their doors permanently," said the IMF, "and the number of contributions paid to the national insurance board (NIB) experienced a sharp drop."

The IMF said TT has benefited from rising global oil and gas prices, despite notable bottlenecks in local production.

"The exploration and potential production from the 17 offshore deep-water blocks should help maintain energy production levels into the medium-term."

There are also plans for other bid rounds covering onshore and shallow water blocks.

"Under these circumstances, real GDP growth is expected to reach 5.5 per cent in 2022, stronger that initially projected, partially offsetting the combined economic contraction occurred in 2020-21." The IMF also said despite covid19, non-energy activity was picking up to provide an additional boost to economic activity. This was in line with a recent Central Bank (CBTT) monetary policy announcement saying business credit rose by 1.3 per cent (year-on-year) in October 2021, the first rise since August 2018.

The statement praised the Governments "decisive emergency response" to the pandemic by help to SMEs and vulnerable households, plus the support to the health sector and vaccine roll-out.

"As expenditures normalise and revenue gradually recovers due to improved economic activity and the implementation of mobilisation measures, the fiscal deficit is projected to continue narrowing in fiscal 2022 and achieve a primary surplus by fiscal 2023." The Government's emergency response to the pandemic was largely funded by the Development Bank of Latin America (CAF) and domestic sources like the US$5.6 billion Heritage and Stabilisation Fund.

The IMF noted how the Government was trying to tame the public debt by boosting revenues and curbing spending. The former was by way of establishing a TT Revenue Authority, collecting property tax, liberalising the fuel market and reforming the tax and customs administration, even as a new Gaming Control Bill was expected to increase government revenues.

A rationalisation of transfers and subsidies will reduce expenditure, even as the statement also urge the formulation of medium-term fiscal projections. The statement looked forward national statistics be available more quickly, as the National Statistical Institute is set to replace the Central Statistical Office (CSO), and meanwhile praised the Central Bank's national data summary page.

It praised the bank's ongoing accommodative stance during the crisis. "At the onset of the pandemic, the CBTT reduced its policy rate and the primary reserve requirement rate to stimulate the economy and inject liquidity into the banking system." However, the IMF said inflationary pressures, particularly in food prices, have greatly intensified since late 2021.

"Unfortunately, this trend is expected to continue into 2022. Against this background, the CBTT’s Monetary Policy Committee will carefully balance the need to support economic activity within the mandate to control inflation."

Despite the slowdown in energy sector revenues, the authorities have preserved high foreign reserves and a stable exchange rate, both due to TT's current account surplus driven by energy exports. However the bank is now making bi-monthly forex interventions to help stabilise the forex market amid the drop in energy exports.

"On average, such interventions represent around one-quarter of the total FX available from authorized dealers." However, more forex is expected as new energy projects become operational.

"The financial system has shown resilience and remained stable during the crisis. Banks have maintained healthy capitalisation levels, strong liquidity buffers, and adequate profitability. In dealing with the pandemic, the CBTT allowed commercial banks to engage in forbearance through the restructuring of loans via deferred payments or rate reductions."

This ease-up helped borrowers avoid defaulting on their loans, while letting banks maintain capital and profitability above acceptable thresholds.

"Overall, the financial sector remains well structured and stable."

The statement said the TT authorities were firmly committed to begin reforms to diversify the economy and boost non-energy sector growth.

Bolstering fiscal sustainability and resilience are also priorities in reform efforts, the statement said.

It hinted at less state support for WASA and TTEC, fiscally.

Noting the 2018 restructuring of Petrotrin, the statement said the authorities are set to continue with reform of state-owned enterprises "by rationalising transfers, particularly for those enterprises providing water and electricity."

It also expected a comprehensive review of TT's oil and gas taxation regime so the hydrocarbon sector remains internationally competitive.

The IMF said TT, as a signee of the Paris Agreement, is committed to build a climate-resilient economy and upgrade infrastructure so as to reduce emissions and use more renewable energy in power generation.

It said the authorities were supporting the recovery by prudent macroeconomic management and steadfast structural reforms.

"In addition, the resurgence of international energy prices, and its ripple effects in the rest of the economy, will bolster economic activity in TT.

"At the same time, the authorities recognize the high level of uncertainty in the global economy and the need to prioritize the protection of the vulnerable population in the near-term while strengthening fiscal sustainability and diversifying the economy."