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Exchange rate needs adjusting

The trinidad Guardian / The International Monetary Fund (IMF) says more fiscal adjustment measures are needed to restore stability to the T&T economy.

The multi-national agency gave the assessment following the conclusion of its latest Article IV Consultation on October 23.

While the IMF commended steps towards fiscal adjustment in the 2016/17 and 2017/18 Budgets, including introduction of property, excise and gaming taxes, royalties on natural gas production and elimination of fuel subsidies, it said additional fiscal consolidation, measures to restore balance in the foreign exchange market and structural reforms are still needed.

It said risks to the country’s outlook are still “tilted to the downside” and recommended that T&T “use its buffers to smooth out the pace of adjustment.”

The IMF said measures in the 2017/18 budget to improve revenue collection, streamline expenditure and achieve full cost recovery pricing to significantly reduce transfers to public utilities, could be a “significant step in the right direction.” However, it is calling for additional measures, including further broadening the VAT base, raising the overall VAT rate to the regional average; reforms of the fiscal regime for oil and gas; and significant reductions in the cost of transfers and subsidies.

“The external position in 2016 was weaker than suggested by fundamentals, although the international reserves cover is still relatively strong,” the IMF said.

“Going forward, policy measures are needed to deal with foreign exchange shortages, which undermine investor confidence and country risk perceptions.”

The agency is also recommending that Government “swiftly reduce and eventually eliminate these imbalances and distortions, including through an exchange rate adjustment as part of a broader package of fiscal adjustment and structural reforms.”

Other measures needed, it said, include “removing distortions to the labour market and pervasive rigidities in the public sector, improving the business climate for the non-energy sector, raising the efficiency of state-owned enterprises, and improving procurement practices.”

In addition, the IMF welcomed progress toward creation of the National Statistical Institute to address remaining data shortcomings to strengthen policy making and surveillance.

In its assessment of the country’s current economic position, the agency said T&T has faced several years of weak or negative growth on the back of low global energy prices and energy supply shocks, which led to sharp deteriorations in internal and external balances.

 

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