The International Monetary Fund (IMF) has reported that Trinidad and Tobago’s economy is gradually recovering toward pre-pandemic levels, though growth remains constrained by persistent challenges in the energy sector and ongoing foreign exchange shortages.
In its concluding statement following the 2026 Article IV Mission, an IMF team led by Ana Guscina noted that recent economic activity has been largely supported by the non-energy sector, particularly manufacturing and services, while oil and gas production has remained stagnant due to the maturity of key energy fields.
Despite these headwinds, the IMF observed that inflation and unemployment remain low, the banking sector appears stable, and private-sector credit growth is strong. The country’s current account continues to post a surplus, though the Fund assessed that Trinidad and Tobago’s external position has weakened.
Foreign reserves remain adequate, covering 6.4 months of prospective imports, while the Heritage and Stabilization Fund provides an additional buffer, totaling US$6.38 billion as of February 2026.
Fiscal deficit remains high as public debt rises
The IMF highlighted that fiscal pressures remain a key vulnerability. The overall fiscal deficit for FY2025 is estimated at 5.5 percent of GDP, while central government debt increased to 67.8 percent of GDP, and total public sector debt reached 84.2 percent.
Although the deficit was financed largely through domestic borrowing and withdrawals from the stabilization fund, the IMF noted that strong investment returns helped increase the HSF balance by approximately US$250 million.
Trinidad and Tobago retains investment-grade market access, though rating agencies have signaled concerns. Standard and Poor’s maintained its BBB- rating with a negative outlook, while Moody’s kept its Ba2 rating, also revising the outlook downward. The government successfully issued a US$1 billion 10-year bond in January 2026, which was reportedly 2.5 times oversubscribed.
Growth outlook subdued in the short term
According to IMF projections, the economy grew by 0.8 percent in 2025 and is expected to expand by 0.7 percent in 2026, as weaker energy production offsets gains in the non-energy sector. However, growth could accelerate in the medium term as new projects come online, particularly the Manatee energy project, lifting growth to 2.9 percent in 2027 and 3.5 percent in 2028.
Inflation is projected to remain stable at around 2 percent, while the current account surplus is expected to average about 4 percent of GDP over the medium term.
IMF urges deeper fiscal consolidation and stronger framework
The Fund acknowledged that the FY2026 budget includes significant measures such as an asset levy on banks and insurers, new surcharges, and higher excise duties, alongside modernization of tax administration. The budget targets a deficit of 2.2 percent of GDP, though IMF staff estimate the deficit could remain closer to 5 percent unless further measures are implemented.
The IMF recommended aiming for a more realistic fiscal deficit target of 3.5 percent of GDP for FY2026, supported by reforms including broadening the VAT base, phasing out untargeted utility subsidies, improving public spending efficiency, and reducing transfers to state-owned enterprises.
Exchange rate policy under pressure
The IMF warned that maintaining the current stabilized exchange rate regime has required significant foreign exchange sales, contributing to declining reserves while shortages continue to disrupt economic activity.
To support the existing exchange rate system, the IMF suggested a tighter policy mix, including faster fiscal adjustment and a shift toward a more neutral monetary policy stance. The Fund also noted that closing the interest rate differential with the United States could help stabilize capital flows.
However, IMF staff stated that greater exchange rate flexibility could reduce the cost of adjustment by allowing a more gradual fiscal consolidation while improving external rebalancing.
Pension reform welcomed
The IMF praised reforms aimed at improving pension sustainability, including the gradual increase in retirement age and contribution rates. These measures are expected to delay depletion of National Insurance System assets by 15 years, though additional reforms are still needed to strengthen compliance and contain long-term fiscal pressures.
Diversification and labor reforms remain essential
The IMF emphasized that Trinidad and Tobago must accelerate diversification to build resilience beyond energy revenues. The government’s agenda includes expanding agriculture, tourism, creative industries, and innovation-based sectors, while strengthening SMEs and improving the business environment.
The Fund also called for decisive action to reduce labor informality and increase participation, particularly among women, noting that rigid labor regulations, tax structures, and social incentives contribute to informality and reduced productivity.
Digitalization and AI preparedness gaining momentum
The IMF highlighted progress in digital transformation, noting the establishment of the Ministry of Public Administration and Artificial Intelligence as a key step toward modernization. It stressed the importance of improving digital skills, integrating AI into production, and supporting workforce transitions to ensure inclusive productivity gains.
The IMF concluded by thanking national authorities and stakeholders for cooperation, noting that its findings will be incorporated into a report to be presented to the IMF Executive Board for discussion.
