Home' Trinidad and Tobago Guardian : July 10th 2014 Contents WASHINGTON---The International
Monetary Fund (IMF) yesterday warned
that T&T remains vulnerable to a decline
in energy prices, and called for structural
reforms to diversify the economy and
improve its growth potential.
The IMF said while it welcomed the
improved growth outlook, and noted the
strong external position and limited fiscal
vulnerabilities, it agreed, however, that the
reduction in economic slack and the need
for a durable consolidation of the fiscal posi-
tion suggest that a tightening of macro-
economic policies may be necessary in the
The Washington-based financial insti-
tution's statement came a day after Finance
Minister Larry Howai said Government's
income had exceeded its expenditures in
the first half of fiscal 2013/2014 and said
he was hopeful of continuing upward trend.
"From a fiscal point of view, we had a
surplus even though we did have some late
payments coming in," Howai told reporters
at an RBC cocktail event at the Hyatt
Regency, Port-of-Spain, on Tuesday evening.
Howai said challenges may come in the
second half of the year but "we're hopeful
though that the fiscal results would be better
than last year, and we continue to see the
trend of improvement."
The IMF said that the authorities in Port-
of-Spain should stand ready to start tight-
ening monetary policy in view of the reduced
labour market slack and high consumer
credit growth, and to prepare for the
spillovers from the normalisation of mon-
etary policy in the United States.
"Implementing this tightening, however,
could be complicated by banks' excess liq-
uidity and the weak monetary transmission
mechanism," the IMF said, suggesting that
tighter prudential regulations could be con-
The IMF, which concluded Article IV
consultation with T&T last month, noted
that the economy is embarking on a sus-
tainable growth path.
"Maintenance-related slowdowns in the
energy sector are ending, while non-energy
growth is robust, with economic slack being
used up. Headline inflation is trending down
... while core inflation remains contained
at about 2--3 per cent."
The IMF said the unemployment rate has
fallen to only 3.75 per cent "although this
masks sizable underemployment in gov-
ernment "make-work" programmes".
It said the fiscal balance is likely to improve
in fiscal year 2013/14, with the deficit falling
to only 1.5 per cent of gross domestic product
(GDP) "but largely for ad hoc reasons rather
than durable improvements in revenues or
The IMF made reference to the shortage
of foreign exchange. noting that "the foreign
exchange allocation system, although it had
generally worked well for several years, led
to fairly widespread and persistent foreign
exchange shortages, as supply and demand
imbalances grew from late 2013".
But it noted that a recent series of actions
by the Central Bank has improved the supply
of foreign exchange to the market.
The IMF said it was also encouraging
"the authorities to allow for sufficient flex-
ibility in the operation of the market to
ensure that it clears, especially given the
ample foreign reserve position".
But the IMF said that the time is drawing
near for policy tightening in T&T.
"The main external risk is from a sus-
tained decline in energy prices. The domestic
medium-term challenges are to boost long-
run growth through structural reforms and
reorienting fiscal policy, with measures to
save more of the nation's non-renewable
energy wealth, and limiting current expen-
ditures while increasing growth-enhancing
"Such policies would likely pose near-
term headwinds, but enhance competitive-
ness and boost potential growth in the non-
energy sector. However, significant reforms
are likely to be delayed by the electoral cal-
endar. A greater degree of flexibility is needed
in the foreign exchange system to avoid fur-
ther shortages," the IMF said.
ister Vasant Bharath
says the three red flags
raised by the Interna-
tional Monetary Fund
(IMF) in its latest
report on T&T were
addressed by the Gov-
Bharath said the
issue of diversifying the
economy was "not
something that was
not known to the Government," adding that the
diversification process, which the IMF raised, had
"We have already started the diversification
process into the areas of financial services, ICT,
tourism, the creative industries sector, agro-pro-
cessing, downstream industry and the maritime
sector," he said.
"We are well on our way to the diversification
of the economy and utilisation of revenue streams
from those services."
In its report, dated July 9, the IMF said a "greater
degree of flexibility is needed in the foreign exchange
system to avoid further shortages."
The minister, however, said he did not see any
problem there as the Central bank will do what is
required to ensure the matter was addressed.
The other area of concern raised by the IMF was
public service reform.
Bharath said the Public Administration Ministry
was already looking at that matter. But admitting
that there was still a lot of work to be done, Bharath
said, "The Government ought to be congratulated
for managing the economy in the manner in which
it has over the last four years."
Asked to respond to the IMF's suggestion that
"time is drawing near for policy tightening," Bharath
said that related to the situation where there was
almost full employment and a significant amount
of credit available.
According to Bharath, this can cause runaway
inflation if it was not managed properly.
"So they are looking at monetary policy to look
at tightening cash flows and flows of cash into the
economy," he added.
Bharath said in the past the Central Bank had
stepped in to mop up excess liquidity in the system.
He said the issue of the IMF imposing structural
adjustment measures on T&T does not arise, as
the country remained "extremely cash-rich at this
point in time."
The IMF had also pointed to increased growth
for the economy, Bharath said, noting that such
reports were a normal process. He said the fact
that the IMF was commenting on the economy "is
actually a good thing."
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IMF---T&T vulnerable if energy prices fall...
This group of local supporters of the Netherlands cheer while viewing the team's
World Cup semi-final against Argentina at D Vibez/Skyy View Lounge, La Romaine
,yesterday. Argentina eventually won 4-2 in a penalty shootout and will face Germany
in Sunday's final in Brazil. (See page A78 and A80) PHOTO: RISHI RAGOONATH
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