PORT OF SPAIN, Trinidad (CMC) — The International Monetary Fund (IMF) says the recent changes in the energy markets represent a major “economic challenge” for Trinidad and Tobago, whose exports are heavily linked to those markets.

An IMF delegation, headed by Elie Canetti, advisor in the IMF Western Hemisphere Department, has ended a one-week visit here.

Canetti said, although it is difficult to know where the markets will settle, the drivers of energy price declines appear likely to endure.

“Therefore, we support the Government’s prudent decision to prepare revised budget plans based on conservative price assumptions,” he said, adding “the case for policy tightening remains intact as the economy seems to be close to, if not beyond, full capacity”.

“For that reason, we agree with the authorities’ goal of returning to the original 2014/15 target of a fiscal deficit of 2.3 per cent, which, barring the emergence of further downside risks appears feasible.”

Oil prices have plunged to US$46 as of Wednesday from a high of US$115 per barrel last June.

The falling prices have forced Trinidad and Tobago to review its national budget, which had been pegged on a price of US$80 per barrel of oil.

The IMF official said that, over the medium term, the fiscal recommendations issued by the Washington-based financial institution on the Trinidad and Tobago economy remain critical to achieving long-term goals of diversification, and saving and investing for the future.

“We reiterate our advice to scale down fuel subsidies, and note that the fall in global energy prices provides a unique opportunity to do this.”

He said recent moves to tighten monetary policy appear appropriate, but that shortages of foreign exchange remain a critical headwind for the economy, with businesses continuing to report severe difficulties in paying suppliers.

“We are encouraged, therefore, by the central bank’s intention to increase the size and frequency of foreign exchange injections until the backlog of orders is eliminated. It will be essential to continue to meet foreign exchange demands in a timely manner in order to restore the market’s confidence.”

Canetti said there has been progress on the structural reform front even as he noted “data provision by the Central Statistical Office (CSO) has materially improved, but still falls short of acceptable standards. “Therefore it will be important that the pace of CSO improvements is sustained, and we encourage the Government to press ahead with its plans to put the CSO on an independent and well-funded footing within 18 months.”

He said there has also been further progress on financial reforms, while improvements in easing the costs of doing business have indeed been impressive.

“Procurement legislation has also been passed and, once implemented, should help to improve expenditure efficiency and allay concerns regarding corruption.”

“However, improving the functioning of the civil service and reducing the distortions to the labour market caused by government temporary employment programs remain critical priorities,” Canetti said.