Abstract
Trinidad and Tobago showed strong economic performance led by the buoyant energy sector. Executive Directors welcomed the robust economic activity, and the decline in public debt and external reserves. Directors stressed the need for strong macroeconomic and structural policies to enable the efficient absorption of energy revenues. They supported the tightening of fiscal policy and commended the monetary stance that has helped to contain inflation. They urged the authorities to improve the business environment and spur investment in the non-energy sectors and also encouraged plans to strengthen financial regulations and supervision.
This supplement provides information that has become available since the circulation of the staff report on August 20, 2007.
1. Recent international financial market developments. The recent international credit turmoil has had no apparent impact on local commercial banks. The stock exchange has also not been affected and the index is up 2 percent since mid-July. The exchange rate has remained stable against the U.S. dollar and international reserves have continued to accumulate.
2. Inflation. In July, annual inflation rose slightly to 8 percent, from 7.3 percent in June. However, core inflation remained stable at 4.5 percent.
3. Monetary policy. The central bank maintained the repo rate at 8 percent in the August 24 policy meeting.
4. Fiscal policy. In FY 2006/07 the overall budget surplus is now projected at 3.7 percent of GDP, slightly weaker than the 4.1 percent of GDP indicated in the staff report.
5. The FY 2007/08 budget bill was submitted to parliament on August 20.
The budget bill envisages a small overall surplus and is predicated on conservative energy price assumptions for 2008 (oil export price of US$50 per barrel). As mandated by the Heritage and Stabilization Fund Act, the government must save at least 60 percent of the energy revenues in excess of budgeted amounts. If WEO oil price projections (US$68 per barrel) were to materialize and all excess revenues saved, as in recent years, the overall surplus would be 4.2 percent of GDP, compared to 5.2 percent projected in the staff report. The weaker result is primarily explained by higher expenditure growth than projected in the staff report.
The budget provides for an increase in old-age and disability pensions, as well as a scheduled increase in contribution rates; an increase in the minimum wage and those paid under unemployment relief programs; and increased depreciation allowances to the manufacturing sector.
Trinidad and Tobago: Summary of Central Government Operations
(In percent of GDP)
Trinidad and Tobago: Summary of Central Government Operations
(In percent of GDP)
| FY 2006/07 | FY 2007/08 | |||
|---|---|---|---|---|
| Staff Report | Rev. Proj. | Staff Report | Budget | |
| evenue | 33.4 | 33.43 | 33.1 | 33.1 |
| xpenditure | 29.3 | 29.6 | 27.9 | 28.9 |
| verall balance | 4.1 | 3.7 | 5.2 | 4.2 |
Trinidad and Tobago: Summary of Central Government Operations
(In percent of GDP)
| FY 2006/07 | FY 2007/08 | |||
|---|---|---|---|---|
| Staff Report | Rev. Proj. | Staff Report | Budget | |
| evenue | 33.4 | 33.43 | 33.1 | 33.1 |
| xpenditure | 29.3 | 29.6 | 27.9 | 28.9 |
| verall balance | 4.1 | 3.7 | 5.2 | 4.2 |
Staff Appraisal
6. The thrust of the staff appraisal remains unchanged. However, the weaker fiscal stance envisaged in the FY 2007/08 budget raises concerns as this would add further demand pressures at a time of cyclical strength, and make it more difficult to achieve the inflation objective. This underscores the need to save any revenue overperformance. Furthermore, under current trends, the needed medium term fiscal adjustment to compensate for the eventual decline in energy resources would be more difficult.