Washington -- Jan. 29, 2008 -- Trinidad and Tobago’s economic performance has been remarkable in a regional context and in comparison to other energy producing economies (Figures 1–2).
In the last four years, output doubled in U.S. dollar terms, net foreign assets have improved by the equivalent of a year’s GDP, and public debt declined considerably. By contrast, inflation rose and reliance on energy revenues increased.

Economic activity remains robust, supported by the strength of the energy sector, with signs that the economy is operating at full capacity (Figures 3–4). In 2006, real GDP grew 12 percent, led by a double-digit expansion of the energy sector. Despite a temporary reduction in energy output early this year, the economy is expected to grow by some 6 percent in 2007. The nonenergy sector is projected to grow at about 7½ percent on the continued strength of construction and manufacturing, and supported by government spending and the expansion of credit to the private sector. Emerging capacity constraints and labor shortages represent a downside risk.

The external accounts are solid and net foreign assets continue to accumulate at a rapid pace (Figure 5). In 2006, the current account posted another strong surplus— 26 percent of GDP—and FDI flows remained healthy, while portfolio outflows accelerated. International reserves, including deposits in the Heritage and Stabilization Fund (HSF), continued
to accumulate rapidly, reaching US$6.5 billion. In 2007, the current account surplus will narrow reflecting higher imports of capital goods related to large scale projects financed with FDI. Net foreign assets are projected to turn positive.

The government’s balance sheet continues to strengthen but the underlying fiscal position is unsustainable (Figure 6). In FY 2005/06, the central government’s budget surplus increased to 7 percent of GDP, its gross debt fell to 18 percent, and deposits in the
HSF reached 8 percent. The rapid increase in public spending widened the nonenergy deficit to 15 percent of GDP—exceeding the medium-term sustainable level (Box 1). In FY 2006/07 the budget surplus is projected to decline to 4 percent of GDP, and the nonenergy deficit to further increase to 16 percent, owing to higher public investment.

Capital spending by public enterprises has increased rapidly in recent years owing to investments in infrastructure for the gas processing industry. Looking forward such spending is projected to remain high as Petrotrin’s refinery needs to be upgraded to remain competitive. The government has continued to work on a fiscal reform agenda to improve the quality of fiscal policy (Text Table). Since the last consultation, the main development in this area was the approval of the HSF Act (Box 2 in IMF Country Report No. 07/10).

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Source: imf.org