PORT OF SPAIN, Trinidad (CMC) — A mission from the International Monetary Fund (IMF) Friday ended a two-week visit to Trinidad and Tobago indicating that the oil-rich twin island republic continues to face economic challenges stemming primarily from the sharp declines in global energy prices, combined with a fall in natural gas and oil production.

It said that the economic improvement that is now beginning is projected to continue into the medium term, and that “fruitful discussions were held on a number of adjustment measures to achieve the necessary fiscal consolidation”.

The mission led by Elie Canetti noted that the country’s continued economic challenges stem primarily from the sharp declines in global energy prices since 2014, combined with a fall in natural gas and oil production in recent years.

“These, along with the prolonged economic stagnation, capital allowances, and challenges with tax administration, have continued to contribute to weak revenue collections, leading to still significant fiscal deficits and rising public debt levels,” said Canetti, an advisor, Western Hemisphere Department at the Washington-based IMF.

He said although preliminary data shows that the economy contracted in the first half of the year on weak energy production and spillovers to the non-energy sector, the economy may be starting to turn a corner as a result of a projected recovery in gas output, though growth may still be flat or somewhat negative for the year as a whole.

“The economic improvement that is now beginning is projected to continue into the medium term, notably given a pipeline of projects that will improve the supply of natural gas to the downstream energy sector.

“Oil output is growing due to State-owned Petrotrin’s recent exploration efforts and refinery upgrade. As the energy sector recovers, the non-energy sector is expected to rebound due to positive energy-related spillovers and as implementation of the Public-Sector Investment Programme picks up.”

The IMF official said that the mission welcomed ongoing fiscal policy adjustments, including the Government’s efforts to reform the energy tax regime and to boost domestic revenues.

“Nonetheless, it cautioned that sustainable fiscal adjustment will require additional measures, including containment of current expenditure to rebalance the public finances, especially as one-off, non-debt-creating financing options such as asset sales will diminish over time.

“The team urged the authorities to undertake a medium-term, modestly front-loaded fiscal adjustment to rebalance the public finances and put debt on a sustainable path. Delaying fiscal adjustments would only make it harder to arrest rising debt levels and restore confidence down the road,”Canetti said.

He said in addition, the IMF sees the need for an increase in capital investment to set the stage for a lasting recovery in economic growth and for economic diversification. The authorities and the team held fruitful discussions on a number of adjustment measures to achieve the necessary fiscal consolidation.

The IMF official said that although Trinidad and Tobago still holds healthy levels of international reserves, there has been a sharp drop in foreign exchange inflows as energy prices and volumes have both fallen.

“This, combined with still high demand for foreign exchange, has created a notable imbalance in the foreign exchange market that has had a number of adverse consequences,” he said, adding that the team continues to believe that reducing and eventually eliminating the imbalance in the foreign exchange market is of paramount importance, and outlined that a range of measures will likely be necessary to do so.

He said these include fiscal adjustment, structural reforms to enhance the country’s foreign exchange earnings capacity, and operating the foreign exchange market with a greater degree of flexibility.

“Wide-ranging structural reforms will be needed to enhance the functioning of the Government and increase the scope for growth and diversification.

“These include carrying through with envisaged procurement reforms, continuing to ease the costs of doing business, modernising financial supervision, and continuing to push through reforms that will enhance and speed-up the production of the country’s economic statistics,” Canetti said.