IMF: When the sun is shining, fix the roof! T&T: The sun is always shining!
by Marla Dukharan (originally published April 24, 2022)
The IMF is expecting global growth to slow from 6.1% in 2021 to 3.6% in 2022–23 and 3.3% over the medium-term. Note that global growth below 3% is considered a global recession, and already the IMF shaved 0.8 and 0.2 percentage points off its 2022 and 2023 growth projections just three months after initially publishing them, demonstrating the high level of uncertainty prevailing and downside risks to the outlook. The IMF Managing Director recently advised “when the sun is shining, fix the roof!” Alas. In March, the IMF released its Staff Report for T&T, highlighting the gaping holes in our roof.
In 2019 when most economies regionally were recording positive growth, T&T was posting its fourth consecutive year of economic contraction. This is not just a recession. This is a stagnation precipitated by years of relentlessly poor governance and inappropriate if not detrimental policy choices — not by COVID or any other exogenous shocks. T&T has now contracted for six consecutive years 2016–2021 inclusive. The IMF reported “A strong economic recovery is projected for 2022, with downside risks predominating. Still, output would remain below pre-COVID-19 levels well into the medium term.” This ‘strong recovery’ puts growth at 5.5% in 2022, 3% in 2023, then averaging 1% to 2027, which only returns the economy to its 2016 size in 2025. Total debt is expected to increase steadily to at least TTD113.5 billion by 2027, and is currently estimated at 88% of GDP, with no balanced budget in sight. Inflation is now projected at 5.5% this year and 3.1% in 2023.
The IMF highlighted many areas of concern in their report, perhaps the most persistent of which is the foreign exchange regime; “The current system rations individual FX demands, which motivates the creation of schemes to circumvent them. A proliferation of special-purpose facilities at the Eximbank to prioritize FX access to manufacturers, importers of necessities — including SOEs — have produced a hybrid exchange rate system that is prone to inefficiencies. The current account gap is estimated at -3.4%, suggesting a currency overvaluation of 11.6%…” The IMF suggested that the Government “eliminate exchange restrictions and multiple currency practices…replace the special purpose windows at the Eximbank to reduce those inefficiencies.” Furthermore, they reported the net Errors and Omissions item at -USD2.1 billion in 2017, -USD2.2 billion in 2018, and -USD1.1 billion in 2019. This represents a total net outflow of USD5.4 billion in just three years from our FX reserves that the Central Bank / Government is unable to explain. This is about the same as the HSF balance.
Other important IMF recommendations include “…to publish a COVID-related spending report, including information on the beneficial ownership of entities awarded COVID-related contracts, to strengthen transparency…” and “auditing the stock of VAT refunds (estimated at 5.2% of GDP).” The IMF’s language in their report is understandably diplomatic and measured, otherwise the authorities will not release it, which has happened in the past. Unfortunately, many misinterpreted the tone of this report therefore as ‘positive’ and even suggest that the economy has shown signs of ‘tremendous recovery’. High oil and gas prices and a return to normal life will definitely have positive fiscal, external, and growth effects. But these effects will be transient at best. Sustained medium-term economic performance will depend on the urgent implementation of reforms to fiscal and FX management at least. The sun is shining now, so let’s fix our roof!
