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The International Monetary Fund (IMF) expects the T&T economy to return to positive growth this year following two years of recession.
In a statement following its latest Article IV Mission yesterday, the IMF said the signs of improvement were driven by energy sector growth from the second half of 2017 and a return to positive growth is expected as the recovery takes hold in the non-energy sector.
“Real GDP contracted at a slower pace of 2.6 per cent in 2017, following the 6.1 per cent drop in 2016 driven by energy sector shocks,” the IMF said, adding that improved gas production “had knock-on effects on downstream industries, while oil production remained largely flat, at a historically low level.”
While headline inflation fell to historic lows of 1.9 per cent last year, then dropped further to 1.1 per cent year-on-year in April, the unemployment rate rose to 5.3 per cent in the second quarter of 2017, with youth unemployment at an estimated 12 per cent last year, compared with 7.9 per cent in 2014.
However, according to the IMF, fiscal performance improved as the deficit reversed its rising trend of the past seven years, registering a slightly lower overall deficit last year.
The statement continued: “Economic prospects are expected to improve broadly over the medium-term. The economy is projected to grow at a modest pace as energy projects come on stream and the recovery takes hold in the non-energy sector. Near-term growth will likely be led by natural gas production with continued challenges in the oil sector.
“Gradual recovery in non-energy growth would help stabilise growth at 1.5 per cent over the medium term. The fiscal deficit is expected to narrow to an average four per cent of GDP as energy revenues rise, non-energy revenues recover, and spending falls with improved efficiency of transfers and subsidies.”
The IMF said the outlook is subject to a number of risks tilted to the downside in the near term, including lower energy prices, delays in delivering energy-related projects on time, and further disruptions to output, pending completion of the oil and gas tax regime reform.
“Tightening of financial conditions could stress balance sheets and undermine the non-energy sector’s capacity to import and produce. Rising US rates and further US-dollar appreciation could worsen competitiveness and pressure the currency. A sharp rise in energy prices or implementation of a comprehensive medium-term macroeconomic strategy and supportive structural reforms provide upside risks,” the agency said.
The IMF said it “welcomes and supports the fiscal consolidation measures underway, and stresses that the adjustment needs to remain on track.”
While the tightness in the foreign exchange market is believed to have eased compared to last year, it is still “in a state of disequilibrium with strong excess demand.” There are still shortages although there was a seven per cent nominal depreciation in 2016, a current account surplus last year and increased foreign currency inflows from energy companies, among other developments.
“Anecdotal evidence continues to suggest the existence of an informal parallel market,” the IMF said.
It recommended taking advantage of the current relatively stable period with low inflation to address the foreign exchange shortages, by adjusting the price or supplying foreign exchange at the given exchange rate.