IMF Article IV and BancTrust downgrade

DINESH RAMBALLY

THE International Monetary Fund (IMF) is a lender of last resort and it monitors the financial policy decisions of its member countries.

The summary is largely positive about the economic situation of TT . But one must be analytical and look at the report and its implications.

The positives in the report largely reflect an improving economic situation. As expected, the Minister of Finance quickly sought to gain political mileage from the report. But to the average citizen here is what it means.

While TT ’s economy has been on an upward trajectory in 2023 with a growth rate of 2.1 per cent, in the last seven years the economy contracted by 20 per cent. The GDP in 2023 was $154 billion while in 2014 it was $194 billion. The current economy therefore is only about 80 per cent of what it was in 2014. Hence the average man on the street is correct in wondering why he is not actively feeling the positives mentioned in the report.

The critical question that remains, however, is how is this growth going to be sustained with a declining energy sector. We must also be realistic and admit that the non-energy sector is not able to meet the shortfall as a result of the declining energy sector. Another problem here is with the definition of the non-energy sector, which includes the petrochemical sector. This therefore gives a skewed statistic which should be carefully scrutinised.

One would also recall the Minister of Finance’s recent statement on the success of the NIF2 bond. What he is neglecting to say is that this is adding to the debt stock of the country. Additionally, one would recall the recent bill to increase the borrowing limit of the Government. Why would you want to increase your borrowing limit? Obviously to meet budgetary shortfalls.

The recent reduction in the property tax from three per cent to two per cent was no favour to the citizenry. It was actually a blunder in the implementation. The valuation process lacked consistency and a transparent methodology. In other words, the validity of the valuation methodology is highly questionable.

To overcome this blunder, the Minister of Finance quickly tried to reduce the rate by one per cent. Why is the Government so keen on this tax? It is simple: the Government now has to rely more heavily on tax revenues as its diversification efforts have failed miserably and consistently over the years.

But on another note, it took so many years for the Government to reach the 50 per cent threshold to implement the property tax, what happens to the other 50 per cent? Will it have a growing debt that would be retroactive with interest and penalties that could result in the seizure of property if unable to pay?

So the high praise from the IMF for the implementation of the Revenue Authority, property tax, reduction of the electricity subsidy, reduction in fuel subsidy means that the burden is now being placed on the citizens to pay for the Government’s years of economic mismanagement.

The same IMF expects that 2024 will see a deficit in revenue. This is in concurrence with the downgrade by BancTrust, a UK-based investment bank. Additionally, they expect a weakened foreign exchange position and a lower current account surplus due to lower gas prices.

While the Finance Minister was quick to rubbish the report, the fact remains that BancTrust is correct. It may not be what the Minister of Finance wanted to hear, but if he is in such disagreement with the downgrade he should address the concerns mentioned.

Our foreign reserves have been on the decline, our debt stock is climbing, our energy sector is declining, our crime rate is soaring and there might be some measure of capital flight due to the difference in interest rates here and in the US.

Why doesn’t the Government address these longer-term issues to give us a better outlook instead of just focusing on the IMF shortterm report?

Dinesh Rambally is the MP for Chaguanas West