May 20, 2010 -- Context: Economic activity contracted significantly in 2009, reflecting a collapse in tourist arrivals and FDI-financed construction, although the pace of decline slowed in the last quarter. The banking system remains well capitalized, although NPLs have increased. The collapse of the Trinidad and Tobago-based CL Financial Group has heightened financial sector uncertainty.

Existing Arrangement: In April 2006, the Executive Board approved a PRGF arrangement with 90 percent of quota (SDR 10.53 million). The Board augmented access to 102.5 percent of quota in July 2008 (first review) and to 140 percent of quota in June 2009 (third review). The fourth review was completed in November 2009. The completion of the fifth review, based on end-November 2009 performance criteria, would release a final disbursement of SDR 1.68 million. Under the new architecture for low-income country lending, PRGF arrangements were converted into ECF arrangements on January 7, 2010. The current ECF arrangement expires on April, 16, 2010.

Program performance: Four of the six quantitative performance criteria for end-November 2009 were met. The primary balance excluding grants target was missed by 3.3 percent of GDP due to higher-than-expected expenditures related
to donor-financed capital projects and overruns on current spending associated with a sharp rise in unpaid invoices less than 60 days old. The target on the nonaccumulation of external official arrears was breached in several cases due to the late arrival of external budgetary support, short-term disruptions associated with systems upgrades, and other procedural weaknesses. The authorities are requesting waivers for the missed performance criteria based on their implementation of corrective measures. The structural benchmark on introducing a Value Added Tax (VAT) was met, but establishing a Public Procurement Authority is being delayed until September 2010 to allow additional time to revise the Public Procurement Act in line with international best practices, with TA from the OECD.

Proposed Successor Arrangement: The authorities have requested a successor arrangement (ECF) to continue their comprehensive economic reforms, to reduce vulnerabilities, and to foster economic growth, paving the way for poverty reduction. Proposed access under the arrangement is 75 percent of quota (SDR 8.775 million), with an initial disbursement of SDR 1.275 million (10.9 percent of quota) to become available upon approval of the request.

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