Mar 2013 Financial News

IMF: T&T Govt must revise spending

Mar 29, 2013

The International Monetary Fund (IMF) says it is critical that T&T’s government take decisions now to more equitably share the fruits of the country’s wealth across generations and ensure that future generations continue to benefit from a high standard of living. This was one of the major recommendations from an IMF which was in T&T March 15-27 for meetinhs with government and central bank officials, as well as private sector representatives, parliamentary representatives, and labour unions. The mission, led by Elie Canetti, discussed recent economic developments and policy challenges for the short and medium terms.

In a report filed at the end of the visit, Canetti said government must rethink its spending so that choices about its level and composition”are put in the appropriate long-term context of the natural reduction in energy reserves”. He advised: “The allocation of spending should be tilted more towards investing in the country’s future capacity to create jobs and growth, and better targeted towards benefiting the most vulnerable segments of the population. This will require moving back towards a fiscal surplus over the medium-term while targeting subsidies and transfers towards the poor and ramping up development spending. “There is also ample scope to reform the government’s non-energy revenue policies, both to raise more revenue and to limit distortions that impose significant efficiency costs. Finally, and critically, even as growth revives, unlocking Trinidad and Tobago’s full potential will require a wide variety of structural reforms to help the economy run more efficiently, notably, to transform the public service to become more efficient and to reduce impediments to doing business.”

The IMF team noted thaty T&T has suffered from several years of sub-par growth, with economic performance hampered in significant part by supply constraints. “In 2012, economic growth is estimated to have been only marginally positive as the country’s energy sector production was held back by maintenance operations, while non-energy output began to recover only late in the year following a sharp and extended drop in cement production that had broad spillover effects. Core inflation remained moderate despite an increase in headline inflation,” Canetti said. “For 2013 we project overall real gross domestic product (GDP) growth of about 1 ½ per cent. We expect the energy sector to register only marginal growth due to further significant maintenance-related outages in the latter half of 2013, although there is potential for some upside with greater coordination in scheduling of maintenance operations between oil and gas producers and the downstream users. The non-energy sector should register growth of around 2½ per cent, capitalizing on the momentum towards the end of 2012.”

He said the country’s fiscal position realized a deficit of 1.1 per cent of GDP in 2011/12 from near balance in the previous fiscal year owing to a decline in energy revenues due to output shortfalls. According to the IMF mission head, while there was some offset by a drop in current expenditures, his team projects a fiscal deficit of 2 ½ per cent of GDP for the current fiscal year ending September 30, 2013. “The external current account appears to have deteriorated slightly in 2012 but the level of reserves remained ample at US$9.2 billion at end-year (equivalent to some ten months of imports of goods and non-factor services). The Central Bank’s policy of continuing to adjust the amounts auctioned into the foreign exchange market appeared to be successful in avoiding significant queuing,” he said. “Despite accommodative monetary policy, private sector credit growth has been sluggish, with the exception of credit to the mortgage sector. However, we see no evidence of overheating in the housing sector. With credit demand still low, the central bank continues to mop up the considerable excess liquidity in the system through voluntary term deposits.

“There is continued progress on financial sector reforms. Securities legislation, passed at the end of 2012, has enhanced the powers of the Securities and Exchange Commission (SEC) to fulfill its multiple mandates of market regulation, promotion and reducing systemic risk. “Other legislative reforms are in train, including a new law to modernize insurance regulation, anticipated for the near future. While challenges remain, a final resolution of the problems stemming from the 2009 failure of insurer Clico is in sight.” Canetti added: “In the long run, T&T will continue to benefit from an ample non-renewable resource endowment and a highly-educated work force. The country’s large reserves of oil and gas have catapulted Trinidad and Tobago to the enviable position of having one of the highest levels of per capita GDP in the hemisphere.”


Source:
Trinidad Guardian
Friday March 29, 2013

http://guardian.co.tt/business/2013-03-28/imf-tt-govt-must-revise-spending