IMF Praises Trinidad's EconomicManagement
Bubbling on a national output that grewby five per cent last year, a current account surplus that increasedto five per cent of Gross Domestic Product and a swelling of theinternational reserves to US$1.4 billion the Trinidad and Tobagoeconomic management has come in for high praise from the InternationalMonetary Fund.
After a recent visit to the twin islandrepublic the IMF praised managers of the economy for the way theyhandled energy sector windfall brought on by increased exportprices for petroleum and natural gas, an example being placementof some US$69 million or one per cent of GDP in areserve account in the central bank. They also came in for kudosfor pushing ahead with privatisation plans of state assets despitethe buoyant economic conditions.
"Trinidad and Tobago's economic performanceimproved markedly toward the end of the 1990s owing to sound policies,and significant new energy-related investments. The non-energysector has also been buoyant, reflecting a pickup in exports ofmanufacturing goods, and strong demand in construction and services.Real GDP growth accelerated from three to four per cent in themiddle of the decade to five per cent a year in 1998-99, and inflationand unemployment declined," the IMF reported on 7 July.
The IMF reported that the sturdy economywas supported by favourable energy prices for this petroleum andnatural gas exporting country.
The IMF Directors found that although unemploymentremained high it experienced a slight fall last year to 12 1/2per cent.
This international organisation was fullof praise for the way liquidity of that nation's banks was monitored.It observed that despite a tightening of liquidity and interestrates in the early half of 2000 owing to government borrowing,conditions eased in the second half resulting in a two percentagepoints drop in interbank rates to some 10 per cent. Further tothat, liquidity conditions this year enabled a reduction in thereserve requirement of banks from 21 to 18 per cent, triggeringa drop in lending rates by 1 to 1 1/2 per cent.
The five per cent growth in the currentaccount surplus that is owed mainly to increased petroleum andnatural gas exports coupled along with returns from a Eurobondissue produced an increase in international reserves by Decemberlast year to US$1.4 billion, equalling 3.2 months of imports.Growth here continues as by April this year the reserves reachedUS$1.6 billion, or 3.5 months of imports.
"Directors viewed the authorities'monetary policy framework, which centers on liquidity managementand exchange rate stability, as appropriate. They took note ofthe initiatives being undertaken by the central bank to ensurean adequate supply of government paper for open market operationsand to promote a wider participation of institutions in theseoperations.
They welcomed the recent reduction in banks'reserve requirements, as an initial step in reducing the unevennessof regulations across financial institutions," the IMF said.
The Trinidad government did however comein for some criticism as the IMF reported that the energy exportswindfall shielded the economy from the true impact of weaknessesin the Value Added Tax system and a dramatic rise in public sectorspending on infrastructure and capital projects that pushed uppublic debt from 54 per cent of GDP in 1998 to 60 per cent in2000.
"Directors noted that the state enterprisesector is a drain on the budget, which needs to be addressed asa priority, both in the interest of fiscal consolidation and ofpromoting efficiency and growth. They suggested that more stringentfinancial reporting requirements for enterprises, and ensuringstrict control over their contracting of new debt, would be usefulfirst steps toward improving their performance and accountability."
The IMF Directors, who were in Trinidadin response to an invitation from that government to monitor theeconomic program of its fiscal year beginning October 1999, warnedof a need for this country to tighten even more its economic policyin event of a shortfall in energy prices.
"They considered that to ensure fiscalsoundness in the context of fluctuating energy prices, weaknessesin revenue policy and spending growth need to be tackled. Regardingrevenues they, they noted the progress in addressing the recentslow growth in non-energy revenues, but suggested that these effortsbe complemented by raising excise tax revenues, restructuringenergy sector taxation, reducing tax exemptions, and strengtheningtax administration. Regarding budgetary expenditures, Directorsemphasised the importance of containing the growth of the civilservice wage bill, while ensuring that the salaries of skilledstaff remain competitive," the organisation reported.