IMF warns T&T to cut spending

The International Monetary Fund (IMF) has told the Government of Trinidad and Tobago to watch its spending and has suggested that it reduce spending on infrastructure and some of its subsidies.

The international financial agency says after seven consecutive years of economic growth the country's growth is in decline as a result of the global financial crisis, which is expected to get worse in the months ahead.

The IMF official's warning came at a news conference in Port of Spain at the end of the institution's regular consultation with the government.

“Recessions in advanced economies, their spillovers to the tourism-dependent economies of the region and sharply lower prices for energy products are projected to slow growth to 3.5 per cent in 2008 and 2 per cent in 2009,” said Christina Daseking, deputy division chief in the Western Hemisphere Department of the Washington-based IMF.

She said the IMF expected oil prices to average about US$60. That view is held by industry analysts, which means that the government's projected revenues based on an oil price of US$70 would be affected and impact on its spending. On Tuesday, oil is trading at around US$55.00 a barrel.

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The 2009-08 budget of TT$51 billion is the largest ever for the country and includes significant spending on mega-projects including phase one of a light rail system and energy-dependent industries such as an aluminum smelter.

Prime Minister Patrick Manning has now admitted that government has to revise its budgetary measures after ignoring opposition and private sector calls for the past two months. He will address the nation Wednesday on the issue.

The global financial crisis is impacting the Trinidad and Tobago economy despite government claims to the contrary. The fall in fertilizer prices in the past few months has caused several plants in the Point Lisas Industrial Estate to shut down production. This situation has created a gas surplus.

Daseking said the IMF expects the country's current account surplus is to decline by 13 per cent due to falling energy export earnings, which account for the bulk of the country's foreign earnings.

In reality, she noted, it would mean a two per cent deficit on the GDP, which would necessitate an adjustment in anticipation of the possibility of an major economic slowdown in 2009.

“Fiscal revenues and trade surpluses are projected to decline significantly as a result of falling energy prices. Thus, even though the government has cushions to weather shocks, spending adjustments are warranted to contain the deterioration in the fiscal position and safeguard sustainability under more difficult circumstances,” she told reporters.

She spoke of the need to continue to generate in the "rainy day" Heritage and Stabalisation Fund. And she said it is critical for the Manning administration to "prepare for the possibility of more severe spillovers from the global financial crisis by strengthening the crisis-response framework and developing contingencies measures.”

Daseking suggested that the Government has scope for reducing expenditures while still supporting its development objectives. And she said the ease in subsidies that is already happening is a good starting point. “In this light, the recent increase in electricity tariffs and the price of premium gasoline are steps in the right direction and should be built upon by adopting a comprehensive approach to phase out unproductive subsidies over time,” she said.