1. The Trinidad and Tobago authorities thank Management and staff for their ongoing support and for the helpful policy dialogue during the recent Article IV consultations.
2. The Trinidad and Tobago economy continues to perform well and macroeconomic stability remains well entrenched. Robust GDP growth has generated record-low unemployment (5 percent), fiscal discipline has been maintained, and the external accounts remain strong, facilitating the accumulation of sizeable foreign exchange reserves. In addition, gross public debt now measures only 28 percent of GDP, compared with 60 percent in 2001. Reflecting the good performance and prospects of the TT economy, the country enjoys favorable international debt ratings of A+ and Baa1 by Standard and Poor’s, Moody’s, respectively.
3. The authorities agree with staff that the medium-term prospects for TT are favorable and that external vulnerabilities are limited. Growth, led by activity in the oil and energy sector, should remain strong, with an improving contribution from the non-oil sector. The sizeable accumulation of external reserves and the low level of external public debt will attenuate risks from a fall in oil prices. Inflation is expected to fall to 7 percent by end-2007. Core inflation has stabilized at about 4.5 percent.
4. As many other developing-country oil producers, Trinidad and Tobago aims to avail of present favorable international oil prices to accelerate development. This is being done in the context of the government’s integrated long-term plan (Vision 20/20), among whose objectives are the diversification of the economy, the enhancement of physical and human capital, and the reduction of poverty, all while paying due attention to the maintenance of macroeconomic stability and saving for future generations. The authorities concur with staff on the need to transform energy wealth into a balanced combination of external financial assets and physical and human capital, supported by a prudent mix of macroeconomic and structural policies. The authorities believe that this indeed characterizes their approach.
5. The authorities are aware that in the context of a fast-expanding macro economy and accelerated developmental thrust, inflation will continue to emerge as the major macro economic challenge. In this context the major successes recorded in containing inflation are noteworthy. Since peaking at 10 percent in October 2006, headline inflation has shown steady monthly declines (except for July 2007) as a result of an aggressive approach by the Central Bank on the monetary side, and the government on the supply side. To the end of July 2007 inflation registered 8 percent, and the government is confident that the target of 7 percent could be attained by the end of the calendar year.