(Trinidad Express) The International Monetary Fund (IMF) has told Government it may have to pay local contractors billions of dollars owed to them if it wants to bolster confidence in the economy. A team from the Washington DC, US-based organisation met with People’s Partnership Government officials in Port of Spain during the past two weeks to review economic and financial developments and discuss economic prospects.
At the end of the meetings, the IMF team, headed by Judith Gold, deputy division chief in the IMF’s Western Hemisphere Department, issued a statement on Monday which cited a number of factors, including the collapse of insurance conglomerate CL Financial, that affected economic stability in Trinidad and Tobago.
In a statement released by the Ministry of Finance in Port of Spain on Tuesday, the IMF said: “After 15 years of positive growth, Trinidad and Tobago was hit hard in 2009 by the global financial crisis, the fall in energy prices and the collapse of a large financial conglomerate.”
It said the country entered this period of crisis from a position of strength with large fiscal surpluses and low debt, which provided important buffers to help deal with both the external and domestic shocks.
However, this fiscal balance turned negative, even with a decline in expenditure last year, the IMF said.
The 2010/2011 national budget adapts an expansionary stance, with additional expenditure and tax incentives to catalyse private-sector activity in the country and higher domestic and external investments to support a recovery, the organisation said.
“The Government could enhance confidence by accelerating efforts to implement the public sector investment programme and addressing arrears to contractors and on VAT (value added tax) refunds,” the IMF mission said.
This has come at a time when “inflation has surged despite weak economic activity, reflecting weather-related increases in food prices, and unemployment has increased sharply to 6.7 per cent in the first quarter of 2010”, the IMF stated.
There are other challenges for Government, the IMF said, noting the State’s intervention in a “large financial conglomerate in January 2009 (CL Financial and CLICO) avoided contagion but has been costly”. The priority now is completing the intervention while containing the fiscal costs of rescuing CL Financial and CLICO, the IMF said.
The former People’s National Movement (PNM) government and the Central Bank have injected around $5 billion to save CL Financial and CLICO—the country’s largest insurer.
On the positive side, the IMF said growth in Trinidad and Tobago was expected to pick up only in 2011. But there are a number of near-term risks tilted to the downside, and these reflect “fragile confidence, the weak region al outlook and global uncertainty”, the IMF said. “Notwithstanding the expected firming of energy prices, economic prospects over the medium term are weaker compared to the strong growth period preceding the economic crisis,” the IMF added.
Last week, the Central Bank said in its latest Monetary Policy Report that almost 25,000 jobs were lost in the country between 2009 and 2010. Central Bank governor Ewart Williams said, at a news briefing in Port of Spain, the current weakness in economic activity in the country was accompanied by a sharp increase in unemployment and a surge in headline inflation.
