Trinidad and Tobago: Staff Report for the 2016 Article IV Consultation—Informational Annex
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International Monetary Fund. Western Hemisphere Dept.
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This paper discusses economic developments, outlook, and risks in Trinidad and Tobago. The economic output of Trinidad and Tobago has continued to shrink. Ongoing maintenance and further declines in gas and oil production are estimated to have driven energy output 4.7 percent lower (year over year) as of September 2015. The longstanding current account surplus turned into a 5.4 percent of GDP deficit in 2015. The significant terms-of-trade shock implies that the real effective exchange rate has become more overvalued. Risks to growth are tilted to the downside, and much will depend on the authorities' ability to navigate the transition to the lower energy price environment.

Abstract

This paper discusses economic developments, outlook, and risks in Trinidad and Tobago. The economic output of Trinidad and Tobago has continued to shrink. Ongoing maintenance and further declines in gas and oil production are estimated to have driven energy output 4.7 percent lower (year over year) as of September 2015. The longstanding current account surplus turned into a 5.4 percent of GDP deficit in 2015. The significant terms-of-trade shock implies that the real effective exchange rate has become more overvalued. Risks to growth are tilted to the downside, and much will depend on the authorities' ability to navigate the transition to the lower energy price environment.

Fund Relations

(As of March 31, 2016)

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Outstanding Purchases and Loans: None

Latest Financial Arrangements:

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Projected Payments to Fund:1/

(SDR Million; based on existing use of resources and present holdings of SDRs):

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When a member has overdue financial obligations outstanding for more than three months, the amount of such arrears will be shown in this section.

Exchange Arrangements

Trinidad and Tobago has accepted the obligations of Article VIII, Sections 2, 3, and 4. Its exchange system, a de jure float, is classified as a stabilized arrangement under the Fund’s revised methodology.

Trinidad and Tobago maintains an exchange restriction and two multiple currency practices subject to the Fund’s approval under Article VIII, Section 2(a) and Section 3. The exchange restriction arises from the authorities’ restriction of the exchange rate (i.e., by restricting the maximum market buy and sell rates, and prohibiting foreign exchange (FX) transactions beyond the maximum rates), while not providing enough FX (i.e., through the CBTT ‘s FX interventions) to meet all demand for current transactions at that rate. The CBTT also limits sales of its FX intervention funds to meeting only “trade-related” demand, which do not include non-trade transactions that are, however, current international transactions as defined under Article XXX(d) of the IMF’s Articles of Agreement, and encourages authorized dealers to similarly prioritize sales of FX obtained from other sources. These actions result in undue delays in access to FX to make payments or transfers for current international transactions and external payment arrears.

The two multiple currency practices arise from the absence of a mechanism to prevent the potential deviation of more than two percent at any given time among several effective exchange rates regulated by the authorities, for spot exchange transactions; namely:

  • a. The potential two percent deviation between: (i) on the one hand, the CBTT’s intervention rate and the authorized dealers’ sell rates (the maximum of which is anchored on the intervention rate plus fixed margins), and (ii) on the other hand, the authorized dealers’ buy rates (the maximum of which is limited at the previous day’s mid-rate).

  • b. The potential two percent deviation between: (i) on the one hand, the buy and sell rates for FX transactions between the CBTT and the government, and (ii) on the other hand, the authorized dealers’ sell rates.

Last Article IV Consultation and Recent Contacts

The 2014 Article IV mission was concluded on June 16, 2014 and staff visits took place on January 19–26, 2015 and September 18–25, 2015.

Technical Assistance

Trinidad & Tobago has received a significant volume of TA across the various CARTAC fiscal, financial, statistical, and macroeconomic program areas including: TA missions to TTSEC on stress testing of securities markets, development of macroprudential indicators and an in-country workshop on financial stability indicators. On fiscal issues, CARTAC has supported Treasury modernization in cash management and bank reconciliation issues, while the Inland Revenue Division has benefited from focused TA on establishing internal audit capacity, enhancing performance management capabilities, and in-country training on basic taxpayer audit techniques. CARTAC assistance was provided to strengthen macro projection capacity and in the development of a medium-term strategy document. Statistical reform priorities have advanced with CARTAC help with CPI rebasing and with national accounts. Beyond the provision of direct in-country TA, officials from Trinidadian institutions participated in training events and regional workshops across all areas of CARTAC expertise.

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Relations with the World Bank

(As of April 2016)

Since graduation in 2003, Trinidad and Tobago has had no lending program with the World Bank Group (WBG). However, technical and advisory services have been provided since then focusing on promoting a better investment climate in order to stimulate inclusive growth, economic diversification and increased competitiveness; strengthening institutional capacity; and, building a modern and efficient public sector, with a view to promote the achievement of the country’s long-term development objectives.

Between the fall of 2013 and the fall of 2015, the Government proactively reached out to the Bank for new technical assistance activities in a number of areas, including financial sector development, anti-money laundering and the fight against terrorism financing.

Trinidad and Tobago also receives grants in the Accounting and Extractive Sectors (Extractive Industries Transparency Initiative—EITI).

Since the September 2015 elections, the authorities have requested technical assistance from the World Bank in several areas, including on a Public Expenditure Review. A World Bank team also returned to Trinidad and Tobago after the IMF/World Bank Spring Meetings in April 2016 for further discussions.

Reimbursable Advisory Services

Reimbursable Advisory Services Program: The RAS program with the Government of Trinidad and Tobago currently covers: (i) Investment Climate Reform; (ii) Anti-Money Laundering (National Risk Assessment); and, (iii) Broadband Strategy.

Technical Assistance

In 2014, the Government of Trinidad and Tobago requested the World Bank to provide in-depth technical assistance on a range of issues, such as: insolvency resolution, tax alternative dispute resolution, developing a commercial court, and developing a collateral registry. This request was formulated in the form of a RAS, following the successful completion of a previous RAS agreement with the Government that focused on investment climate reform with particular attention to the reforms related to Doing Business indicators. Under the previous RAS, which was concluded in May 2014, the World Bank supported the Government to reform the business registration process. This technical assistance program contributed to a positive reform on Starting a Business, and the Doing Business Report 2015 reflected these improvements in the efficiency of the business registration process. In the area of insolvency resolution, the World Bank provided recommendations on how to align a draft legislation with international good practices and supported the Government with technical assistance on a new insolvency legislation that was passed in May 2014. In the same year, the Government also requested to develop a RAS agreement related to improving the country’s investment promotion capacity and developing special economic zones. More recently, changes in the fiscal conditions in Trinidad and Tobago have decreased the resources available for the proposed activities, and the discussions on the finalization of the RAS agreements have been limited.

RAS—Trinidad and Tobago—Broadband for Development Phase 2: This activity seeks to help transform the country’s economy into a more diversified one that effectively utilizes broadband connectivity to unleash the power of information, technology, and knowledge throughout all economic sectors. The specific objective of the RAS is to support broader use of broadband for competitiveness and productivity through activities aimed at increasing IT skills, developing an IT-Enabled Services industry, and promoting innovation through open data. This Phase 2 of the RAS builds on the results of the Phase 1 Broadband Strategic Plan. The activities are designed to address bottlenecks identified in the supply as well as in the demand (i.e. take-up) of broadband services. As of April 2016, project implementation is pending. Several activities have been completed; and the legal agreement is going to be extended to reschedule the pending activities’ milestones.

Extractive Industries Transparency Initiative (EITI): Trinidad and Tobago was officially granted candidate status for EITI in 2011 and was declared fully “compliant” in January 2015. The Ministry of Energy and Energy Industries (MEEI) leads the implementation of the initiative with the objectives of making Trinidad and Tobago’s energy sector one of the most transparent in the world, as well as to work closely with civil society. With support from a MDTF EITI grant, one of the successes in Trinidad was raising awareness with youth, civil society, communities, and parliamentarians. The MDTF EITI grant was extended up to September 2014, and Trinidad and Tobago has asked for a second grant from the newly established Extractives Industries Global Programmatic Support (EGPS) MDTF. This program would focus on building a Caribbean knowledge hub for extractive industries with UWI, developing an environmental indicator to include in the EITI, and finally automating the information on EI revenues. Funding decision by EGPS MDTF donors is pending. TTEITI is set to publish the next report covering fiscal revenues from 2014 by end-September 2016. The scope of this report is being expanded to also include the mining sector.

National Risk Assessment (NRA): The World Bank is supporting Trinidad and Tobago’s National Risk Assessment (NRA) on Money Laundering (ML) and Terrorism Financing (TF). This project targets to assist them in their self-assessment of ML/TF risks with broad participation from various stakeholders. In addition to better understanding of the ML/TF threats and vulnerabilities in the country, the project aims to improve the skills and knowledge of the government agencies in assessing ML/TF risks and applying a risk-based approach in this area. A workshop to begin the NRA was held on March 17-19, 2014 in Port of Spain, organized through the AML/CFT Compliance Unit of the Ministry of National Security and the Financial Intelligence Unit (FIU). Since the first workshop, the World Bank team continued to provide technical assistance to the Ministry of National Security and the FIU, including through the review and provision of comments on the draft NRA report and Action Plan prepared by Trinidad and Tobago. The final workshop that will mark the conclusion of the World Bank’s technical assistance on the NRA is scheduled for May 24–25, 2016.

Statement of World Bank Group Loans

Disbursements and Debt Service

(In millions of U.S. dollars, calendar year)

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As of March 2016

Relations with the Inter-American Development Bank (IDB)

(As of April 15, 2016)

Financing

The 2016-2020 Country Strategy (CS) is being developed and is expected to be submitted for approval during the last quarter of 2016. Meanwhile, the current CS 2011–2015 remains in force until the end of 2016 with the following priority areas: (i) financial sector regulation and supervision; (ii) public sector management; (iii) education; (iv) social protection; (v) climate change; (vi) energy; (vii) water and sanitation; and (viii) transport.

The current CS also envisages private sector development, fiscal sustainability, and integral solutions for local government, as areas for further dialogue during the CS period. We have programs approved under the current CS in 5 of the original 8 priority areas. It should be noted that at least one (1) SG operation was approved in a dialogue area as the Bank sought to respond to changes in client needs. The CS had envisaged Sovereign Guaranteed (SG) lending of US$1.5 billion for the period, however, SG lending reached only US$695.0M, as of March 15, 2016.

Table 1.

Net Flow of IDB Convertible Currencies 2012–2016 1

(In millions of U.S. dollars)

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Debt Service Projections based on Approved Balances as at 31 Dec. 2015.

Portfolio composition

The active portfolio consists of 11 loans for a total of US$695.5M, 85.6 percent of which is undisbursed. The main sectors represented include: Water and Sanitation (3 loans, 60 percent of total volume); Social Protection and Health (2 loans); Housing (1 loan), Integration and Trade (2 loans) and Public Sector Modernization (3 loans). The Bank has proactively offered a task force to support execution on a targeted basis to improve portfolio execution.

Table 2.

Projects in Execution

as of March 15, 2016 (US$ million)

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Statistical Issues

(As of April 2016)

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Table of Common Indicators Required for Surveillance

(As of April 28, 2016)

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Any reserve assets that are pledged or otherwise encumbered should be specified separately. Also, data should comprise short-term liabilities linked to a foreign currency but settled by other means as well as the notional values of financial derivatives to pay and to receive foreign currency, including those linked to a foreign currency but settled by other means.

Both market-based and officially-determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.

Foreign, domestic bank, and domestic nonbank financing.

The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments.

Including currency and maturity composition.

Includes external gross financial asset and liability positions vis-à-vis nonresidents.

Daily (D), Weekly (W), Monthly (M), Quarterly (Q), Annually (A); Irregular (I); Not Available (NA)

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