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DOCUMENT OF THE INTER-AMERICAN DEVELOPMENT BANK
PUBLIC
COUNTRY STRATEGY
WITH
THE REPUBLIC OF TRINIDAD AND TOBAGO
2011-2015
This document was prepared by Iwan Sewberath Misser (CCB/CTT - Team Leader), Emmanuel
Abuelafia (CCB/CCB), Gabriel Castillo (CCB/CTT) and Michael Hennessey (CCB/CCB). The team
received valuable inputs from Jose Jorge Saavedra and Diego Morris (CMF/CBA); Juan Antonio
Ketterer, Mie Iwasa and Andrea Terán (ICF/CMF); Vashtie K. Dookiesingh (MIF/CTT); Peter StouteKing (CFI/CTT); Vanessa Defournier (VPP/VPP); Benjamin Santa Maria (ICS/CTT); Jorge Von Horoch
(ICF/ICS); Ryan Burgess (EDU/CTT); Ian Ho-A-Shu (SPH/CTT); Gerard Alleng (INE/ECC); Natacha
Marzolf and Christaan Gischler (INE/ENE); Jesus Tejeda (ENE/CGY); Marcello Basani (WSA/CGY);
Christian Dunkerley and Alejandro Taddia (INE/TSP); Magda Theodate and Denise Salabie (PDP/CTT);
Maria Jordan (CCB/CCB); Dale James, Jennifer Raffoul, and Dorri Agostini (CCB/CTT). Rocio
Medina-Bolívar and Rafael Cavazzoni Lima (VPC/VPC); Clark Sand, Carina Cockburn, and Gerard
Johnson (CCB/CCB) also contributed their comments and guidance. Maria Jordan was in charge of
document production.
TABLE OF CONTENTS
I.
COUNTRY CONTEXT...................................................................................................... 1
II.
PRIORITY SECTORS FOR BANK SUPPORT 2011-2015 ..................................................... 2
III.
BANK FINANCING UNDER THE STRATEGY ..................................................................... 9
IV. STRATEGY IMPLEMENTATION ..................................................................................... 10
A.
B.
V.
Country Systems .............................................................................................. 10
Donor Coordination ......................................................................................... 11
RISK ASSESSMENT ...................................................................................................... 11
LIST OF ANNEXES
ANNEX I
MACROECONOMIC INDICATORS
ANNEX II
MACROECONOMIC SITUATION
ANNEX III
CPE RECOMMENDATIONS
ANNEX IV
FINANCIAL SCENARIOS
ANNEX V
DONOR COORDINATION
ANNEX VI
DEVELOPMENT EFFECTIVENESS MATRIX
ELECTRONIC LINKS TO BACKGROUND INFORMATION
Climate Change Sector Note
Energy Sector Note
Social Protection Sector Note
Water and Wastewater Sector Note
Financial Sector Note
Education Sector Note
Private Sector Note
Private Sector and Competitiveness Sector Note
Transport Sector Note
Public Sector Modernization Sector Note
Fiduciary Technical Note
Development Effectiveness Matrix
Economic Growth in a Dual Economy
Impact of the Global Financial Crisis – Changes in Paradigms
Prosperity for All: Manifesto of the People's Partnership
Portfolio Alignment with the new Country Strategy
Tobago Brief
Civil Society Consultation Summary
i
ABBREVIATIONS
CBTT
CDB
CLICO
CPD
CS
CSO
CSOs
CXC
DBI
DEM
EC
ECCE
EE
EU
FSAP
FY
GCI
GCR
GDP
GORTT
IDB
IFC
IMF
KCP
KWh
LAC
MIF
MOE
MoE&EA
MoF
MoH
MoPH&E
MoPSD
MoT
MoW
NSG
OAS
OVE
PAHO
PBL
PBP
PEFA
PPP
PSIP
RE
SCF
Central Bank of Trinidad and Tobago
Caribbean Development Bank
Colonial Life Insurance Company
Country Program Document
Country Strategy
Central Statistical Office
Civil Society Organizations
Caribbean Examination Council
Doing Business Index
Development Effectiveness Matrix
Energy Conservation
Early Childhood Care and Education
Energy Efficiency
European Union
Financial Sector Assessment Program
Fiscal Year
General Capital Increase
Global Competitiveness Report
Gross Domestic Product
Government of the Republic of Trinidad and Tobago
Inter-American Development Bank
International Finance Corporation
International Monetary Fund
Knowledge and Capacity Building Products
Kilowatt hour
Latin America and Caribbean
Multilateral Investment Fund
Ministry of Education
Ministry of Energy and Energy Affairs
Ministry of Finance
Ministry of Health
Ministry of Planning, Housing and Environment
Ministry of the People and Social Development
Ministry of Transport
Ministry of Works
Non-Sovereign Guarantee
Organization of American States
Office of Evaluation and Oversight
Pan American Health Organization
Policy Based Loan
Programmatic Policy Based Loan
Public Expenditure and Financial Accountability
Public-Private Partnerships
Public Sector Investment Program
Renewable Energy
Structured and Corporate Finance Department
1
SGO
SME
SOEs
SSN
TC
TCCTP
UN
UNDP
UNICEF
USAID
WB
WEF
WASA
Sovereign Guarantee Operation
Small and Medium Enterprises
State Owned Enterprises
Social Safety Net
Technical Cooperation
Targeted conditional Cash Transfer Program
United Nations
United Nations Development Program
United Nations Children Education Fund
United States agency for International Development
World Bank
World Economic Forum
Water and Sewerage Authority
2
EXECUTIVE SUMMARY1
Trinidad and Tobago is one of themore prosperous countries in the region with per capita income
of US$15,000 and its social results are correspondingly positive. It grew at an average annual rate
of 7% for the 15 years preceding the global financial crisis. It has international reserves equivalent
to over a year of imports and its exchange rate is stable. The country‟s robust growth, solid
reserves and high living standards are due mainly to the energy sector that dominates the
economy, and accounts for 42% of GDP, 80% of exports and 90% of foreign exchange earnings.
This very positive situation, however, faces significant risks.
The fiscal revenue generated by the energy sector fuels an extensive regime of subsidies that
reduce costs and increase living standards. However, these same transfers distort private
economic activity and reduce incentives to make public expenditure efficient and effective. This
reliance by the non-energy sector and the public sector on the energy sector means that there is
significant vulnerability to energy revenues. While its commodity producing neighbors registered
positive growth throughout the international crisis, Trinidad and Tobago‟s economy contracted by
3.5% in 2009 and remained flat in 2010. This was due mainly to falling output in the energy
sector, which was in turn due to the rising extraction costs as reserves are increasingly found in
deep water or tar sands. Production has steadily declined from 230.000 to 100.000 barrels a day
between 1978 and 2010. Moreover, modest growth rates are expected in the medium term.
Trinidad and Tobago faces the significant development challenge of gradually transitioning its
economy into a post-hydrocarbon model, while continuing to improve its standard of living. This
transition will require several reforms to enable the non-energy sector to flourish even without the
current subsidy regime. Public sector spending will have to become more efficient and effective,
and the multiple subsidies and transfers supporting patronage systems and distorting incentives
for private sector activities will have to be rationalized and targeted to create incentives for the
transition to the post-hydrocarbon economy. Alternative sources of revenue will also have to be
identified to offset declining revenues from the energy sector.
The 2011-2015 Country Strategy proposes a significant increase in lending which reflects the
mutual agreement to a more vibrant and close engagement. The priority areas include: i) financial
sector regulation and supervision; ii) public sector management; iii) education; iv) social
protection; v) climate change; vi) energy; vii) water and sanitation; and viii) transport. Tobago‟s
development challenges will be addressed in a cross cutting manner, with a special focus being
given to the priority areas of energy, climate change, and water and sanitation.
The Bank‟s financing framework for sovereign-guaranteed approvals for 2011-2015 implies a
substantial increase in the pace of both approvals and disbursements. The strategy reflects a major
re-engagement with Trinidad and Tobago and its scope is appropriate given the scope of the
reform process. The envisaged approval level is US$1.5 billion for the strategy period, with
average annual disbursement of US$210 million, which would cover around 60% of the projected
gross financing needs of the country during the strategy period.
The main risk is the possible negative impact on the private sector and consumers from the
reduction of the extensive subsidy regime.. This will be mitigated by the Government‟s strong
commitment to the reform agenda, higher efficiency in public services, assisting private groups
to transition to the post hydrocarbon economy, increased public participation in ownership of
1
The present Country Strategy will be in effect from November 2011 to December 2015.
1
government assets, developing a framework for public-private partnership and public outreach.
Debt dynamics are sound and fully consistent with the proposed envelope.
2
RESULTS FRAMEWORK
IDB Strategic
Objectives
To reduce the
vulnerabilities of
the financial sector
and avoid systemic
crisis
Expected Results of the
Strategy
Supervisory and Regulatory
framework improved
1.
We will develop strategies to create
an environment for investment by
increasing domestic savings,
facilitating competitive interest rates,
securing property rights, by
establishing good governance
practices, by widening, expanding
and deepening domestic value-added
production and by managing to
achieve a low rate of inflation (p. 22)
IDB
Intervention
Sector
Financial Sector Regulation and Supervision
Country Development Goals
Indicators
Baseline Values
(Date, Source) 2
Aspirational CS
Targets3
% of the total assets of the
financial system under the
regulatory purview of the
Central Bank
76% (2010, CBTT)
80% (2015)
% of banks of the banking
system for which individual
financial soundness
information is disclosed
yearly by the CBTT
% of life insurance companies
that use CPPM valuation rule
for life insurance liabilities
% of Insurance companies
that use a risk based capital
regime
% of Occupational Pension
funds regulated by the
Occupational Pension Act
Percentage of Occupational
Pension Funds that present
reports annually to the CBTT
0% (2010, CBTT)
100% (2015)
0% (2010, IMF)
100% (2015)
0% (2010, IMF)
100% (2015)
0% (2010, CBTT)
100% (2015)
0% (2010, CBTT)
100% (2015)
Unless otherwise indicated, the baseline indicators were derived from the diagnostic studies, Sector Notes, referred to in the electronic links, portfolio review documents and
the National Budget. Progress on baselines will be monitored by the Bank and will be measured at least once (at end of strategy period); frequency of interim measurements
will be determined during programming process.
2
3
These aspirational targets will be revised and/or replaced, on a case by case basis, through the programming documents elaborated throughout the Country Strategy period.
1
“Empower the Auditor General to
conduct compliance, financial,
operational, forensic, performance
and value audits.” (p. 18)
The curriculum for all other
certification programmes for teachers
(including Secondary Education
Management Programme (SEMP))
will be reviewed to evaluate
philosophy, relevance and
competence-building concerns. In
keeping with the philosophical
underpinnings of diversity in
teaching/learning, teacher education
to support a curriculum for
transformation will be strengthened.
We will work with higher educational
institutions to strengthen teaching
quality and relevance in the
secondary and primary system.” (p.
30)
Public Sector Management
Strengthened the budget process
Time horizon for Public
Sector Investment Program
presentation to Cabinet
1 year (2010, MoF)
3 years by FY 2015/16
Enhanced project cycle
management
Percentage of procuring
entities using Standard
Bidding documents
Percentage of new Public
Investment project approved
by Cabinet and incorporated
in the PSIP program that have
independent pre investment
assessment (economic and
social )
Scope/Nature of audit
performed (including
adherence to audit standards)
– PEFA score
Number of fully owned SOEs
0 (2010, Procurement
Regulator Report)
100% by 2015
0 (2010, MoF)
100% by FY 2015/16
B (2008, PEFA)
A (2015)
47 (2010, MOF)
Universal early childhood care
and education
% of gross enrolment rates in
ECCE centers
86.9% (2009, MoE)
Reduction (To be
constructed by August
2011).
94% (2015)
Improved teacher training
Trained teachers in selected
schools apply new assessment
and teaching methods
0% (2010, MoE)
80% (2015)
2.
To support the
Government‟s
reform agenda
aimed at improving
transparency,
efficiency and
effectiveness of
public expenditure,
including SOEs
Enhanced Governance Structure
for SOEs
Education
“Our government will table
amendments to provide for and/or
strengthen provisions for … Access
to official information…Containment
and eradication of corruption, The
introduction of procurement
legislation which is fair, efficient and
transparent.” (p. 15)
3.
Good Governance: “The focus in
this area will be on three (3) key
elements for the purpose of ensuring
transparency, accountability,
participation and effective
representation as essential principles
of good governance. “
To contribute to
the development of
the
country‟s
youth, and the
promotion of a
highly
skilled
labour force to
drive
new
economic activity
2
Social Protection
To improve the
effectiveness and
efficiency of social
safety
net
programs
Climate Change
of
social
To support the
mainstreaming of
climate
change
adaptation
and
carbon reduction
into
national
development.
Improved
participation
and
reliability of social programs
managed by CSOs
Adopted Climate change policy
Climate
Change
adaptation
integrated into key sectors4
5.
“We need to review the approved
National Environmental Policy” (p.
52)
“We will increase the energy
efficiency of our industries…We will
establish an incentive scheme that
will support …heavy industry and
buildings which engage in energysaving measures” (p.53)
Improved targeting
safety net programs
Strengthened monitoring and
evaluation capabilities of Ministry
of the People and Social
Development
4.
“The issues of poverty eradication,
closing the divide between rich and
poor and providing a safety network
for the poor and vulnerable, are
fundamental to the strategy of
development that we embrace.” (p. 7)
Reduction in Carbon Intensity
4
% of beneficiaries above the
cut-off point for eligibility for
the Targeted Conditional Cash
Transfer Program (TCCTP)
20% (2010, TCCTP)
5% (2015)
% of students for the
wealthiest quintile that receive
free school meals through the
School Nutrition Program
Number of social safety net
programs evaluated in
accordance with updated
monitoring and evaluation
framework
% of Government certified
CSOs administering
Government social programs
% of the new public policies
reviewed by the Climate
Change Office of the MoH&E
following the new climate
change policy guidelines.
25% (2010, MoE)
10% (2015)
1 (2010, MoPSD)
10 (2015)
0% (2011)
100% (2015)
0 (2010, MoPH&E)
100% (2015)
% of key sector Ministries
with issue of climate change
covered under their sectoral
development policies
0 (2011, MoPH&E)
100% (2015)
# of operations in each key
sector that have introduced
climate change
considerations into their
design
Total CO2 emissions
0 (2011)
49,772 thousand metric
tons of carbon dioxide
(2008)
1 (2015)
5% reduction (2015)
These key sectors would be the ones included in the National Climate Change Policy (currently in draft form), namely: agriculture, human health, human settlements, coastal
zones, and water resources.
3
To support the
country in
developing a more
efficient,
sustainable and
cleaner energy
matrix
% of energy supplied by RE
sources
0% of energy supplied by
RE sources (2011,
MoE&EA)
3% of energy supplied
by RE sources (2015)
Mwh of energy saved as result
of EE and EC measures
0 MWh of saved energy
as a result of EE and EC
measures (2011,
MoE&EA)
8000 MWh of saved
energy as a result of EE
and EC measures
(2015)
% of electricity generation
from combined cycle gas
plants.
12% of electricity
generation from
combined cycles gas
plants (2011, MEEA)
0 barrels per day of
production of Low sulfur
diesel (2011, MoE&EA)
30% of the population,
(2011, WASA)
6.
Maximized efficient production
and use of fossil fuels
Barrels per day of production
of Low sulfur diesel
Water and Sanitation
“We shall effectively utilize the
Green Fund for the restoration of
areas that have been damaged by poor
and dangerous practices…We will
increase the energy efficiency of our
industries…We will establish an
incentive scheme that will support
…heavy industry and buildings which
engage in energy-saving measures”
(p.53)
“We shall create an action plan for
sewage treatment and clean water for
all” (p. 53)
7.
“Provide incentives for R&D on
alternative energy sources”(p. 55)
Strengthen regulatory and legal
framework to contribute to a more
sustainable energy sector with
increased efficiency and
transparency.
Energy
“The energy sector: The focus will be
on investment and partnership
opportunities in third –and fourthgeneration renewable energy
alternatives linked to research” (p.
22)
To improve
environmental
conditions through
decreasing the
uncontrolled
discharge of
untreated
wastewater into the
environment, and
to improve the
supply and
sustainability of
public water and
wastewater
management
services
Rehabilitated and expanded
wastewater system
Reduced non-revenue water
Improved WASA labor
productivity
4
% of population covered by
centralized wastewater
treatment systems
17% of electricity
generation from
combined cycle gas
plants.
40000 barrels per day
of production of Low
sulfur diesel (2015)
35% of the population,
(2015)
Wastewater flow treated
according to the 2006 Water
Pollution Rules (m3/sec)
% of Non Revenue Water
(1-billed volume/produced
volume)
1.41 (2011, WASA)
1.65 (2015)
44 (2011, WASA)
38 (2015)
Number of employees per
1,000 connections
12.5 (2011,WASA)
8 (2015)
Transport
To support the
Government‟s
reform agenda
aimed at
implementing a
comprehensive
road maintenance
and rehabilitation
system to improve
the quality,
sustainability and
safety of the roads
Strengthened the institutional
capacities required to implement a
road planning, rehabilitation, and
maintenance system
Yearly Transfers to the Road
Fund
0
TBD (2012)
Yearly Cost of routine
maintenance (average for the
road network )5
US$ 5000 per lineal
kilometer (2010, MoW)
US$ 4750 per lineal
kilometer (2015)
Operationalized Roads‟
Authority, Road Maintenance
Fund, and the Weight Control
System
Yearly Funds from the RF
used for road maintenance and
rehabilitation
0
TBD (2012)
% of the highways, main
roads and secondary roads
rehabilitated6 that were
identified using the new
policy and planning
framework
% of highways, main roads
and secondary roads in poor
and critical condition (with
international Roughness Index
(IRI) higher than 3)
% of the active portfolio that
use the following subsystems:
•
 Accounting & Reporting
 Internal Audit
External Control
0% (2011, MoW)
TBD (increase)
November 2011
26% (2009, MoW)
To be determined
(reduction)
November 2011
% of the active portfolio
that use the following
subsystems:
•
•Accounting & Reporting
- 0%
• External Control - 0%
% of the active
portfolio that use the
following subsystems:
•Accounting &
Reporting - 20%
•
External Control - 30%
8.
“Our policy on infrastructure will be
based on ensuring quality, reliability
and maintenance of existing
infrastructure while adopting
transparent and fair procurement
practices. We commit to making
significant improvements to the
nation‟s infrastructure … all guided
by a national transportation study. (p.
61)
• Roads & Bridges – A National
Roads and Bridges Authority will be
established to determine the
appropriate network of major roads,
highways. (p. 61)
“Traffic planning and management”
(p. 19)
9.
Country
Systems
Implemented results-based
performance maintenance
Promote
efficiency,
transparency and
accountability in
the use of public
funds
Increase in use of the country
financial management subsystems
in Bank financed Projects
5
Routine maintenance as defined as heavy patching, hand patching, crack sealing and shoulder grading.
Rehabilitation happens when standard maintenance procedures would not bring the road to an adequate level of services so a larger intervention is required such as pavement and
shoulder restoration and replacement, structural resurfacing and shoulder widening.
6
5
Increase in use of the country
procurement subsystems in Bank
financed Projects
6
% of the active portfolio that
use the following subsystems:
•National Information System
•National Price Comparison
Methods
•National Methods for
Contracting
•Individual Consultants
National System for
Procurement Subject to NCB
% of the active portfolio
that use the following
subsystems:
•National Information
System - 0%
•National Price
Comparison Methods 0%
•National Methods for
Contracting Individual
Consultants- 0%National
System for Procurement
Subject to NCB-0%
% of the active
portfolio that use the
following subsystems:
•Use of National
Information System 0%
•Use of National Price
Comparison Methods 100%
•Use of National
Methods for
Contracting Individual
Consultants- 100%Use
of National System for
Procurement Subject to
NCB-0%
I.
COUNTRY CONTEXT
1.1
Trinidad and Tobago has been one of the fastest growing countries in the region
during the past two decades7. The country‟s GDP amounts to US$20 billion and
US$15,000 in per capita terms (2010). Trinidad and Tobago is a dual economy,
dominated by the energy sector, which accounts for 42% of the country‟s GDP,
80% of its exports and 90% of its foreign exchange earnings. The country‟s
economy contracted by 3.5% in 2009, and remained flat in 2010. Moreover,
structural weaknesses indicate that the relatively high growth rates of the past will
remain elusive, and only modest growth rates are expected in the medium term.
1.2
Trinidad and Tobago‟s energy sector faces a number of important challenges in
the medium and long-term. Recent estimates project that stocks of oil and gas
reserves are nearing exhaustion.8 Moreover, production of crude oil has been
declining substantially in recent years (32% since 2006), as some of the country‟s
oil fields are maturing. Gas production has remained relatively stable, but
uncertainty remains with respect to the price of this commodity, due to
developments in new extraction technologies (such as those related to shale gas),
and expected supply increases associated with several worldwide investments to
come on-stream in the future. These trends in the gas industry, combined with
increasingly high exploration and extraction costs in Trinidad and Tobago, have
led to a decrease in the level of investment in the energy sector.
1.3
In this context, the sustainability of the country‟s non-energy sector of the
economy also faces significant challenges. The non-energy sector of the economy
is highly dependent on public sector expenditure and subsidies, which are in turn
dependent on the energy sector revenues that account for more than half of total
revenues. Moreover, governance structures for allocating public expenditure are
deficient and lack transparency, thereby making them vulnerable to political
patronage. Fiscal accounts were heavily impacted by the decrease in energy
revenues (40%) between 2008 and 2009, combined with the Government‟s
decision to maintain a high expenditure level. Fiscal deficit amounted 5.6% of
GDP in FY 2008/09 and registered an almost balanced budget in FY 2009/10.
However, there is a need to consolidate fiscal accounts, as it is expected that the
government will run fiscal deficits in the medium term.
1.4
Tobago represents a unique development challenge for the country. Tobago has a
tourism based economy with higher poverty, income inequality and retail prices,
but lower unemployment than Trinidad. The economy of the island is even more
heavily dependent on transfers and subsidies than Trinidad. Tobago suffers from
low capacity to manage and mitigate environmental risks, which in turn affects its
main economic activity, tourism.
7
Growth averaged 7% per year between 1993 and 2008.
At current extraction rates, proven natural gas reserves are estimated at 10 to 15 years and oil reserves at around 20
years (Ryder Scott Report 2010).
8
1
1.5
Given the outlook for its energy sector, and the dependence of the non-energy
sector of the economy on Government support, Trinidad and Tobago faces the
significant development challenge of transitioning its economy into a posthydrocarbon model, while continuing to improve its standard of living. This
transition will require that a number of reforms be undertaken so as to foster an
environment in which non-traditional economic activities can flourish
independently and the development of human capital can adapt to meet new
requirements. Public sector spending will have to become more efficient and
effective, and the multitude of subsidies and transfers feeding patronage systems
and distorting incentives for private sector activities will have to be rationalized
and targeted to support this transition. The country will also need to identify
additional sources of revenue to replace the decreasing revenues from the energy
sector.
1.6
The current Government was elected in May 2010 with a decidedly reform
oriented agenda. Its victory at the polls, after the former Government had been in
power for only two and a half years, has provided this administration with a
mandate to transform the country and put it on a new path away from an
entitlement model fueled by transfers to one that is competitive and sustainable,
while reducing its heavy reliance on the energy sector. The Government‟s
development plan is embodied in its Election Manifesto. The medium term plan
will be formalized by the end of 2011.
II. PRIORITY SECTORS FOR BANK SUPPORT 2011-2015
2.1
The proposed Country Strategy (CS) is designed to take advantage of a unique
opportunity to support the country‟s decision to embark on a new development
path. It reflects the shared priorities of the Government and the Bank, and will
provide both technical and financial support to the ambitious reform process in
the following areas: (i) financial sector regulation and supervision; (ii) public
sector management; (iii) education; (iv) social protection; (v) climate change; (vi)
energy; (vii) water and sanitation; and (viii) transport. Private sector
development9, fiscal sustainability10, and integral solutions for local governments
within the framework of the Sustainable Emerging Cities initiative have been
identified as areas for further dialogue with the Government. A CS Update will be
presented to the Board if specific interventions are identified and agreed with the
Government once the Bank has finalized its assessment of these areas.
2.2
The proposed CS will contribute to the fulfillment of the Bank‟s 9th General
Capital Increase (GCI-9) goals in several ways. The increased level of
engagement that it represents will contribute to the goal of supporting small and
vulnerable countries. Interventions in education, social protection and water will
contribute to the goal of lending for poverty reduction and equity enhancement.
9
In areas such as (i) improving policies and institutions to promote entrepreneurship and investment in non-energy
sector; (ii) improving the enabling environment for business development; and (iii) strengthening public-private
dialogue on issues of competitiveness, innovation, diversification and growth.
10
In areas such as taxation and tax administration.
2
Support in the climate change and energy sectors will contribute to the goal of
lending to support climate change activities, sustainable energy and
environmental sustainability. And finally, given its relevance as the regional
financial center for the Caribbean, the support to enhance the financial sector
regulation and supervision will contribute to the goal of supporting regional
integration.
2.3
Financial Sector Regulation and Supervision: Considered the regional financial
center for the English-speaking Caribbean, Trinidad and Tobago has a relatively
well developed financial sector11. However, the global financial crisis has exposed
its vulnerabilities to systemic risk and highlighted the need for more sophisticated
financial regulation12. The stability of the sector is essential to transitioning the
economy into a post-hydrocarbon model. Moreover, the recent crisis has
highlighted Government‟s limited institutional capabilities to identify systemic
risks and to propose adequate prudential measures in the financial sector. The
Ministry of Finance and the Central Bank have already embarked on a wide range
of reforms to improve regulation of insurance companies and to enhance
supervision of other actors13 in the sector to improve reporting standards,
coordination among supervisory agents, and data dissemination.
2.4
The objective of the IDB‟s interventions will be to reduce the vulnerabilities of
the financial sector and reduce the probability of systemic crisis. The associated
interventions will focus on: (i) reforming the regulatory and supervisory
framework for the financial sector; and (ii) strengthening the institutional capacity
of the Government in the area of risk identification and management.
2.5
A major risk to the interventions in the sector is the complexity of the issues to be
addressed by the reforms, and that the consultative process with relevant
stakeholders could take longer than expected. This will be partially mitigated by
strong technical support for the Government in policy formulation and
implementation. Also, the Bank is working in close coordination with the IMF on
the design and implementation of required reforms for the sector.
2.6
Public Sector Management: The Public Sector Investment Program (PSIP) has
been a significant contributor to capital formation, representing an average of
12% of GDP in the last 5 years, despite plummeting revenues. Fundamental
reforms are necessary to improve transparency, efficiency and effectiveness of
these expenditures. The public sector suffers from systemic institutional capacity
problems in the areas of public procurement, monitoring and evaluation, among
11
The Financial sector is composed by banks, insurance companies, credit unions, Unit Trust Corporation and other
minor actors. The regulatory bodies are the CBTT, the Security and Exchange Commission, and the Commission for
Credit Unions.
12
The IMF identify several weaknesses in the regulatory and supervisory system such as outdated legislative
framework for insurance companies, lack of reporting standards, and lack of coordination among supervisors, amongst
others. Moreover, there is no coordinated effort for identification and prevention of systemic risks. For further
clarification see Impact of the Global Financial Crisis – Changes in Paradigms.
13
Specifically, credit union and occupational pension and securities industries.
3
others.14 The budgetary system does not allow for the development of a rolling
system of performance-informed budgeting linked to strategic planning. State
Owned Enterprises (SOEs) provide goods and services in many sectors of the
economy and, in some cases, compete with private companies, while at the same
time relying heavily on Government transfers. The SOEs follow their own
procurement procedures and often fail to utilize best practices with regard to their
governance structures. Furthermore, poor country data represent a challenge for
decision making.15
2.7
The objective of the interventions in this sector will be to support the
Government‟s reform agenda aimed at improving transparency, efficiency and
effectiveness of public expenditure, including SOEs. The interventions will focus
on: (i) strengthening the policy-making processes, as well as coordination,
planning and monitoring of public expenditure, with a special focus on the PSIP;
(ii) enhancing project cycle management; including planning, and pre-investment
activities, procurement practices and monitoring and evaluation capacity;
(iii) improving information flows for decision making; by improving the data
quality and availability; and (iv) establishing a framework for strengthening the
governance of SOEs.
2.8
One major risk is that new business processes and technical innovations require
cultural changes that are expected to disrupt power relationships and public
employment terms and scope, and would likely be met with resistance. The strong
mandate received at the polls is a powerful endorsement of the Government‟s
reform agenda and will be a key contributor to the political capital needed to
make these changes. Training, outreach and consensus building activities for
middle management are also envisaged as specific mitigating measures.
2.9
Education: Transitioning the economy to a post-hydrocarbon model will require
significant changes in the productivity and skill mix of the work force. Although
performance indicators such as enrollment and drop-out rates compare favorably
to regional averages, Trinidad and Tobago faces a number of challenges in this
area. Student performance and learning outcomes have been low in national
exams (less than 50% of students earned five passes in the CXC exam). School
violence and indiscipline have also been increasing.16 The early childhood care
and education (ECCE) centers, mainly administered by the private sector, vary
greatly in approach and quality17. The Government is addressing the above
14
State Owned Enterprises adhere to their own business practices, including their own procurement procedures which
fall outside the scope the standard regulations of the Central Government. New investment projects lack independent
economic and social evaluations, and usually face cost overruns. These investment projects also lack formal impact
evaluation procedures. (PEFA report 2009 for Trinidad and Tobago).
15
“The Central Statistical Office (CSO) is in a desperate situation. Its output is low, un-timely, of undocumented
quality … many of the main users have given up on the CSO and its ability to produce statistics”, “The restructuring of
the Central Statistical Office of Trinidad and Tobago”, Stats Sweden (2007). The Bank is providing technical assistance
for the reform process of the CSO.
16
Legall, G. (2007). Report of the Third SEMP Census of Public Secondary Schools. Deosaran (2004) found that there
is higher incidence of indiscipline by Afro-Trinidadians compared with other groups.
17
The infrastructure in approximately 65% of centers is considered to be in poor or critical condition, and less than 5%
of the centers meet new standards on space, layout, teacher training and teacher-child ratios.
4
mentioned issues, and is in the process of involving a wide range of stakeholders,
including the private sector and Civil Society Organizations (CSOs), in realigning
the provision of key educational services.
2.10
The IDB‟s interventions in this sector will contribute to the development of the
country‟s youth, and the promotion of a highly skilled labour force. Interventions
will focus on: (i) improving access and quality of services of the ECCEs by
improving infrastructure, strengthening supervision of private providers,
harmonizing curricula, and training teachers; (ii) improving quality, equity and
relevance of primary schools by improving infrastructure and teacher training;
and (iii) strengthening the support of youth at risk with a special focus on violence
reduction18. Possibilities for NSG support may exist in the construction of
education infrastructure through SCF financing.
2.11
The primary risk in this area is the limited institutional capacity of the public
agencies in the sector. To mitigate this risk, the Bank is providing technical
support to accompany the reform process in its areas of intervention.
2.12
Social Protection: Although Trinidad and Tobago is a relatively high income
country, poverty is estimated at 17% of the population, with “pockets of poverty”
reaching 30% in some areas. Government has an extensive social protection
system, comprising approximately 120 programs across different line Ministries,
which account for 5% of GDP. The four main conditional cash transfers programs
account for approximately TT$2 billion in annual Government expenditures19.
The social protection system is challenged by poor interagency coordination,
weak targeting mechanisms and the lack of rigorous monitoring and evaluation
mechanisms. The Ministry of the People and Social Development (MOPSD)
suffers from low institutional capacity in the above mentioned areas. To address
these challenges, Government is seeking to improve the efficiency and
effectiveness of its Social Safety Net (SSN) programs. In addition, Government
plans to improve the quality and reliability of the services outsourced to CSOs20.
The social protection system requires reform not only to prepare for a future with
lower hydrocarbon revenue, but to also contribute in a transparent and rational
way to the transition to the new economic model.
2.13
The objective of the Bank‟s interventions in this sector will be to improve the
effectiveness and efficiency of SSN programs. Specific activities will include: (i)
Consolidation of its four main cash transfer programs and improvements in
targeting outcomes; (ii) Institutional strengthening of MOPSD, which includes
18
Additionally, the Bank will provide support to the Government in areas such as school-to-work transition, special
needs students and information and communication technology.
19
The conditional cash transfer programs are: Targeted Conditional Cash Transfer Program (TCCTP); the Senior
Citizens Grant; the Public Assistance Grant; and the Disability Grant. The programs target the same groups but each
program requires separate applications, investigations by staff, and documentation. Also, there are cases of duplication
of benefits. The consolidation of these programs will improve targeting, monitoring and save transactional cost.
20
There are approximately 1200 registered CSOs which provide a range of social services, namely, vocational
education, community development in rural areas, health services for the aged and care services for abandoned children
and the socially displaced. The CSOs have shortfalls of infrastructure and resources and governance.
5
monitoring, learning and evaluation capacity; and (iii) Improving the supervision
of the CSOs that receive public funds to provide social services.
2.14
The specific risks are: (i) geo-political concerns associated with the dissemination
and publication of poverty data; (ii) resistance from stakeholders who benefit
from the current leakages in the system due to weak targeting systems and poor
application of eligibility criteria; and (iii) sustained stakeholder commitment to
the reform process. The Bank will support the MOPSD to manage the
dissemination of sensitive information. Technical support will be provided to an
advisory committee to manage interagency coordination, and to prepare a
communication strategy, focusing on increasing public knowledge regarding
eligibility criteria and operational rules of SSN programs. The political capital of
the government will be key to effecting the improvements.
2.15
Climate Change: Trinidad and Tobago is vulnerable to the impacts of climate
change, particularly to sea level rise, changes in rainfall patterns and temperature
increase. This vulnerability is accentuated by factors such as the small size of the
country, fragility of its ecosystems, relative distance from developed country
markets and vulnerability to exogenous economic shocks, limited technological
resources, insufficient technical capacity, and limited ability to reap benefits of
economies of scale21. The implications of changes associated with climate change
on the socio-economic and environmental conditions are expected to be
significant, particularly in the key sectors of agriculture, human health, human
settlements, coastal zones and water resources22. Moreover, the country has very
high per capita greenhouse gas (GHG) emissions, on the order of 7.58 metric tons
of carbon (in 2010 it was ranked number 6 globally)23. The Government is
strongly committed to improving the management of the economic and
environmental risks resulting from climate change, as well as lowering its GHG
per capita emissions, as evidenced by the steps that it has taken to develop a
National Climate Change Policy.
2.16
The Bank will support the mainstreaming of climate change adaptation and
carbon reduction into the country‟s development program. Interventions will
focus on: (i) integration of climate change mitigation and adaptation concepts into
key sector policies24; and (ii) formulation of a stand-alone carbon reduction
strategy and policy. In addition, pilot activities related to coastal zone
management in Tobago will likely be supported by technical assistance.
2.17
Risks include: (i) lack of coordination among the different agencies involved in
the thematic area; and (ii) resistance to participation in energy efficiency audits by
public agencies. To mitigate these risks, the Bank is supporting the establishment
21
National Assessment Report on the Five Year Review of Progress made in Implementation of the
Mauritius Strategy for Further Implementation of the Barbados Programme of Action, September 2010.
22
Draft National Climate Change Policy for Trinidad and Tobago, 2009.
23
Carbon Dioxide Information Analysis Center (CDIAC). http://cdiac.ornl.gov/trends/emis/top2007.cap
24
As identified in the draft National Climate Change Policy, these sectors are: agriculture, human health,
human settlements, coastal zones, and water resources.
6
of focal points within each ministry on issues related to climate change. For the
latter, the Bank is working closely with the involved agencies to build up the
required support for the undertaking of audits and inspections.
2.18
Energy: In addition to its relevance for the economy, the oil and gas sector is also
the paramount source of energy for the country. However, the energy sector is the
subject of significant distortions. Energy prices are among the lowest in the region
(around US$0.04kw/h) and energy use rates among the highest25. These factors,
further exacerbated by the energy subsidy mechanism in place for fossil fuels,
provide few incentives for the use alternative cleaner energy sources26 and for
encouraging the efficient use of fossil fuels. In addition, there is low capacity, the
institutional framework lacks appropriate energy regulations and a formal energy
policy is lacking. As a first step, the Government initiated a process to develop a
National Energy Policy, which is currently in drafting stage, and includes the
promotion of energy efficiency (EE), energy conservation (EC) and renewable
energy (RE)27. The Government also introduced tax incentives to promote
investment in RE in the 2010/11 budget.
2.19
The objective of the IDB‟s interventions in the sector will thus be to support the
country in developing a more efficient, sustainable and cleaner energy matrix.
The interventions will focus on: (i) strengthening the regulatory and legal
framework to contribute to a more sustainable energy sector; and (ii) promote
efficient and rational production and use of fossil fuels. The Bank will also
provide technical assistance to Tobago in the area of developing and
implementing sustainable energy activities. NSG opportunities may arise in
downstream energy, RE and EE activities through the SCF window through PPP
arrangements.
2.20
The principal risks include: (i) lack of sustained Government commitment to
advance in the transition to a sustainable energy economy, irrespective of oil and
natural gas price fluctuations; (ii) lack of expertise required to support such a
transition and; (iii) delays in effecting the policy and regulatory changes
envisioned. These risks are to be mitigated by technical assistance supported by
the Bank, the permanent open dialogue with the GORTT in this regard.
2.21
Water and Sanitation: The wastewater sector in Trinidad and Tobago is in a dire
state. The sector faces a number of challenges, including limited expansion of the
central sewers, below-cost tariffs, lack of alignment between public policies and
private developers (hundreds of defective private schemes exist that are polluting
the environment), and poor maintenance. The sewerage system is dilapidated and
in urgent need of rehabilitation. The water supply system also suffers from
challenges related to high overhead, inadequate tariffs, aging infrastructure, and a
25
The production and distribution of electricity is mixed between public and private enterprises but prices are
regulated.
26
This factor limits the scope of the Bank‟s operations in the sector.
27
Feed-in tariffs; net metering, renewable portfolio standard and open distribution and transmission grid network
access, energy audits and substitution of more efficient equipment.
7
lack of adequate maintenance. These problems have led to a gradual deterioration
in the network, a high level of non revenue water (up to 44%), and low service
levels. The Bank will also start the diagnostic of the solid waste management
system in the country. The Water and Sewerage Authority (WASA), a state
owned enterprise, is the primary entity responsible for the delivery of water and
wastewater services under the 1965 WASA Act. The Regulated Industries
Commission establishes the principles on which tariffs will be based.28 The water
and sewage agency is not currently financially viable since its revenues fall far
short of its expenditures.
2.22
The IDB‟s interventions in this sector will aim to improve environmental
conditions through decreasing the uncontrolled discharge of untreated wastewater
into the environment, and to improve the supply and sustainability of public water
and wastewater management services. The interventions will focus on:
(i) improving the operational efficiency and financial sustainability of WASA; (ii)
rehabilitating and expanding29 the wastewater system; and (iii) improving the
sustainability of the wastewater and water systems. NSG operations are envisaged
in the implementation of a metering system for residential customers with SCF
financing.
2.23
The risks include: WASA‟s lack of institutional and financial independence, the
lack of a comprehensive wastewater and water sector strategy to guide activities
in the sector, and a lack of resources to finance the strategy. The Bank is currently
providing technical assistance to review the current institutional framework and
challenges, and to identify priority areas of intervention.
2.24
Transport: Although the road system is extensive and comparatively well
developed, many of the roads are narrow and follow difficult alignments. Road
maintenance has been sporadic, resulting in 26% of the roads being classified as
in poor or critical condition. Another difficulty is the elevated cost of road
construction and maintenance, due to high wages and high prices of materials.
Road safety is also an issue, with steadily increasing accidents and road fatalities.
Given that around 13% of capital expenditure is dedicated to the sector, it is
essential to improve the transparency, efficiency and effectiveness of public
expenditures in this area. The responsibilities for planning and maintenance of the
road system rely on several different ministries without a homogeneous
framework. There are urgent needs for a comprehensive policy and planning
framework and an institution capable of implementing coherent activities under
this framework, a role expected to be covered by the Roads‟ Authority. In
addition, the Road Maintenance Fund will institutionalize the provision of
funding to maintenance activities. The Government policy in the area focuses on
ensuring quality, reliability and maintenance of existing infrastructure.
28
29
The RIC is currently reviewing an updated water tariff scheme.
After the institutional reforms are initiated.
8
2.25
The objective of the Bank‟s interventions in the sector is to support the
Government‟s reform agenda aimed at implementing a comprehensive road
maintenance and rehabilitation system to improve the quality, sustainability and
safety of the roads. Interventions will focus, on a first stage, on: (i) strengthening
the institutional capacities required to implement a road planning, rehabilitation,
and maintenance system30; and (ii) operationalizing the Roads‟ Authority and
Road Maintenance Fund31. After the new institutional framework is in place, the
Bank expects to support road maintenance and rehabilitation activities. NSG
operations are envisaged, particularly in the rehabilitation and operation of roads
using SCF financing through PPP arrangements.
2.26
The main risk is weak coordination between line ministries involved in the road
sector. The Bank will support the creation of an inter- departmental coordination
committee including the line ministries as well as the MoF.
III. BANK FINANCING UNDER THE STRATEGY
3.1
The financing needs of the Government have increased in the last couple of years
because of the shortfall in revenues and the maintenance of fairly high
expenditure levels. The Government aims to correct the imbalance by fiscal year
2013/2014. However, in the short term the Government will continue to face
extraordinary financial needs as it gradually eliminates commitments to bail out
private investors in failed financial institutions, and resolves longstanding pay
disputes. Nevertheless, the public debt stock is low by regional standards (48% of
GDP in September 2010), and is sustainable in the medium term.
FINANCING SCENARIO32
2011 2012
290 450
272 155
50
49
222 106
Loan Approvals:
Disbursements:
Repayments:
NET LOAN FLOW
IDB debt/Multilateral Debt
IDB debt/External Debt
IDB debt/Total debt
Multilateral Debt / External Debt
2013 2014 2015
385 170 285
231 239 222
48
43
41
183 196 181
92%
93%
94%
95%
96%
26%
24%
26%
30%
34%
6%
7%
8%
11%
14%
29%
25%
28%
31%
36%
Source: IDB
3.2
The financial scenario was designed to reflect the intention to increase the Bank‟s
engagement with Trinidad and Tobago. The basic premise is that the Bank will
30
Special efforts will be devoted to the collection of essential statistics for the sector.
The Bank will support, among other activities, the development of maintenance standards, performance-based
contract documents, and social and environmental management actions.
32
The level of Approvals for 2012 are indicative and consistent with the assumptions underlying the 2011 Long Term
Financial Plan.
31
9
provide countercyclical support until the economy regains dynamism, while at the
same time providing technical assistance and financial support for the reform
agenda. The envisaged approval level is US$1.5 billion for the strategy period and
the disbursement projection amounts to US$1.1 billion. The expected average
annual disbursement of US$213 million would cover around 60% of the projected
gross financing needs of the country during the CS period33, and the Bank‟s
exposure would increase from 5% to 14% of total debt.34 This increase is not a
reason for concern since the stock of debt is well below standard benchmarks. The
Bank‟s relatively high share of total multilateral debt is explained by the fact that
the IDB has the single largest portfolio of all multilateral lending agencies.
IV. STRATEGY IMPLEMENTATION
A.
Country Systems
4.1
Financial Management: The Public Financial Management (PFM) system in
Trinidad and Tobago is focused mainly along the lines of expenditure control.
While the PFM system functions reasonably well along traditional lines, there is
need for the system to be modernized so that it is able to provide real-time and
accurate financial management information. The accounting and reporting system
for non-salary expenditure is largely paper based, manual and not well integrated
or interfaced between operating units or information sub-systems. There is a lack
of independence in the external function, whilst the internal audit function suffers
from inadequacies. Furthermore, the PFM system lacks the application of modern
approaches and techniques in the area of fiscal planning and management. As a
result of the weaknesses noted, the PFM subsystems are used to a minimal extent
in Bank financed projects35. Currently the treasury and budget subsystems are
used in all loan projects, since their use is mandatory as per the financial
regulations of the country. The fiduciary systems are expected to be modernized
and strengthened with initiatives introduced with the Government‟s reform efforts
in public capital expenditure management and the Bank‟s technical support in the
area of public sector management. Increased use of the national fiduciary
subsystems in Bank financed loan projects should be achieved.
4.2
Procurement: The national procurement system has evolved little since the
diagnostic recommendations highlighted in the European Union‟s Public
Financial Expenditure & Accountability (PEFA) report of 2008. The Central
Tenders Board (CTB) was created to ensure the principles of equity and fair
competition in the awarding of Government contracts. However, a number of
agencies, particularly SOEs, have been granted the authority to award
Government contracts, using procedures other than those contained in the CTB
33
The financing needs of the Government are estimated in US$ 1.7 billion between FY 2011/12 and FY 2014/15.
Domestic financing is assumed 30% as expressed by the Minister of Finance in its 2010/11 budget speech.
34
This increase reflects both the increase in lending and the expected reduction in the debt stock, due to improvements
in the fiscal situation.
35
The budget and treasury country subsystems are used in 100% of projects in execution, but the accounting,
reporting, internal audit and external control subsystems are not used in any projects in execution.
10
legislation. Procuring Entities, with the approval of Cabinet, award large value
contracts directly to the SOEs, which, in turn, award subcontracts according to
their own procedures. This system has created contradictions in the award of
public contracts and the perception of corruption, as evidenced by the constant
negative media attention related to contracts awarded through the SOEs.
Currently, no country systems are used in Bank financed projects. The IDBfinanced program for public capital expenditure support in Trinidad & Tobago
and the associated operational input for the procurement component of the
program will reinvigorate the national procurement modernization effort. Among
the expected results of the project are the introduction of legislation, development
of standard bidding documents, an e-procurement strategy, and procurement
practices and procedures that enhance the fairness and efficiency of the system.
Following the execution of the necessary baseline studies and consultancies for
strengthening these systems, greater reliance on the country‟s public procurement
and financial management systems is expected (especially in the areas of price
comparison, contracting of individual consultants and firms).
B.
4.3
Donor Coordination
Historically, Trinidad and Tobago‟s engagement with bilateral and multilateral
development agencies has generally been limited and uncoordinated among
sectors. Despite this, the Bank still maintains the position as the lead multilateral
partner in the country. There is no formal, Government lead coordinating
mechanism for development agencies to avoid duplication of effort and share
sector knowledge. The Ministry of Finance has recognized the need to formalize a
structured approach to multilateral development dialogue and has decided to
organize the priority areas of intervention as follows (i) Public financial
management with the European Union, the WB and IDB; and (ii) private sector
development with the WB/IFC and the IDB for the public offering program.
Annex V provides additional details on activities in sectors in which activities are
being coordinated with other donors.
V.
5.1
RISK ASSESSMENT
Macroeconomic Risks: Even though macroeconomic indicators have
deteriorated because of the crisis, the outlook remains favorable36. The debt stock
of the Public Sector remains below 50% of GDP, the international reserves
account is stable at 30% of GDP, and the country has accumulated around 16% of
GDP in the Heritage and Stabilization Fund. However, macroeconomic stability
faces several risks. Both non-energy fiscal and external accounts are
unsustainable in the long run because of the high dependence on the revenue
generated by the energy sector, whose reserves are expected to dwindle in the
coming decades. In the short run, there is a need to consolidate the fiscal
accounts, not only of the Central Government but also of the other public entities
36
There are plans mandated within the framework of the Report on the Ninth General Increase in the Resources of the
Inter-American Development Bank to Produce analyses of the macroeconomic sustainability of the borrowing member
countries (including annual reviews), but the corresponding process and implications of this activity are yet to be
defined by the Bank‟s Board of Executive Directors.
11
(where most expansion of expenditures has been observed). Delays in economic
recovery and lower than expected prices of key commodities could also prolong
the period during which fiscal stimulus in excess of revenue is necessary.
Furthermore, the fiscal consolidation process could hinder economic activity as
the non-energy sector of the economy is highly dependent on fiscal stimuli. The
Government also needs to meet outstanding payments to complete its bail out of
failed financial institutions37 while managing its impact on the fiscal accounts.
Substantial risks in the financial sector may still remain, suggesting that close
monitoring of certain financial institutions will continue to be necessary.
Moreover, the inflexible exchange rate regime poses an additional limitation on
efforts to boost the competitiveness of the non-energy sectors of the economy.
The Bank is collaborating with the Government in the areas of macroeconomic
management, financial supervision and competitiveness enhancement. The Bank
maintains close surveillance of the economy and coordinates closely with the IMF
on matters related to economic policy and the financial sector.
5.2
Political Risks: The Government could face resistance in implementing the
reform program, as it will shift power relationship within the targeted sectors and
reduce benefits. However, the Government has shown a strong commitment to
these reforms by including them as part of its electoral Manifesto and taking
concrete steps to implement them. During its first year in office, the Government
already submitted to Parliament key reform proposals for the procurement system,
homogenizing procurement practices across ministries and SOEs. The
Government‟s ongoing efforts to resolve the public sector wage dispute while
maintaining fiscal discipline also demonstrates its capacity to tackle sensitive
issues effectively. This strong commitment, combined with the ample majority
that the ruling coalition has in Parliament, will mitigate the risk of the reform
process being derailed. Negotiations with private investors in failed financial
institutions could erode the political capital of the ruling coalition, which would
impact negatively to their ability to undertake such an ambitious reform agenda.
5.3
Implementation Risks: Given the ambitious nature of the Government‟s reform
program there is a risk of delays in its implementation resulting from institutional
capacity constraints.38 In order to mitigate this risk the Bank will provide
technical support to the implementation process of the reforms. With regard to
investment projects, there are also concerns about Government‟s capacity to
execute a substantially larger portfolio, given the institutional capacity
constraints. However, the Government is currently implementing a US$2.4 billion
annual capital expenditure program, demonstrating its capacity to execute an
extensive investment program. Moreover, the Bank is supporting the
enhancement of the procurement practices, which is expected to cover all
procuring agencies. In order to mitigate these risks, the Bank will make use of the
multi-phased implementation modality whenever possible, which would not allow
approvals of new phases until prior phases are executed satisfactorily. Moreover,
37
38
For further information please refer to the document “Impact of the Global Financial Crisis – Changes in Paradigms“
Ultimately affecting the level of approvals and disbursements.
12
the Bank contemplates institutional strengthening and policy support in all the key
areas where investment loans are envisaged. Overarching outreach and consensus
building activities are also envisaged as part of the specific operations. There is
also a risk that the relatively higher transaction costs of the Bank financed
operations in comparison with alternative sources of funding (own resources or
bilateral donors) could hinder the execution of the Bank‟s portfolio. The
successful reform process of the procurement system will equate the transaction
costs associated with different sources of funding, as they all will be subject to the
same enhanced procurement procedures.
5.4
Private Sector Risks: For the NSG operations, an important implementation risk
is that the legal framework for PPPs may not be operational in time to support
interventions in the priority areas of water, wastewater, transport and education,
during the Strategy period. The Bank is providing technical assistance for the
development and operationalization of a legal and institutional framework to
support such PPPs.
13
Annex I
MACROECONOMIC INDICATORS
GDP (US$ Million)
GDP per capita (US$)
Natural Gas Production (MMCM/d)
Total Crude Production (MB)
Unemployment Rate
Inflation (year-to-year %)
Food
Core
Exchange Rate (%)
International Reserves (US$ Million)
Deposit Rate 6-12 months (%)
Change in Gross Private Sector Credit
Expenditure Central Government (%GDP)
Capital Expenditure (%GDP)
Fiscal Balance (% GDP)
Central Government Debt (%GDP)
2006
18,405
14,158
3,878
52.1
6.2
8.3
23.2
3.6
6.3
6,761
3.7
16.2
32
4
2
17
(*) preliminary
Source: Ministry of Finance and CBTT
1
2007
21,734
16,719
4,089
43.8
5.6
7.9
17.4
4.4
6.3
6,659
3.9
21.7
29
6
0
16
2008
27,133
20,871
4,182
41.8
4.6
12.0
25.9
6.2
6.3
9,394
4
13.4
32
6
2
14
2009
19,701
15,155
4,391
39.1
5.0
7.0
12.7
4.1
6.3
8,652
3.2
-4.4
37
7
-5.6
20
2010*
20,596
15,843
4,320
35.9
6.0
16.0
32.0
4.1
6.3
9,111
1.8
-3.9
30
4
-0.4
22
Annex II
MACROECONOMIC SITUATION
The country is experiencing a mild economic recovery driven by energy prices, but
there are significant medium term risks. In the short run, the Government is
addressing the current challenges in the financial system, the relatively high level
of inflation, the de facto peg of the domestic currency and the fiscal discipline of
the public entities. In the medium to long term, however, the high dependence on
oil and gas production, the uncertainty about the effectiveness of the policies
adopted to diversify the economy and the related problems of fiscal and current
account sustainability need to be addressed, in order to avoid a sharp adjustment in
the future when reserves of oil and gas are depleted.
Both the non energy fiscal and the current accounts are unsustainable in the
long run. The non-energy fiscal deficit is above its sustainable level given the
relatively short expected lifespan of hydrocarbons production. Similarly, the nonenergy current account deficit is much higher than the calculated sustainable level.
The country has accumulated a significant net international creditor position that
will help smooth the required transition to a less energy-dependent economy in the
years to come.
The public entities constitute a risk to fiscal sustainability. The public entities
represent an important proportion of public expenditure and their deficits have been
growing over time. These entities issue debt with and without government
guarantees and there is no proper record keeping system in place. The GORTT
could face further contingent liabilities going forward that could affect the fiscal
results and even the debt dynamics if the GORTT would has to honor some of the
public entities‟ debt.
The GORTT is in the process of settling the outstanding issues with the
CLICO’s policyholders. The GORTT so far devoted US$ 1.1 billion in the
rescue package of the failed financial institutions but the net fiscal cost is yet to be
determined as there is no clarity about the value of the assets remaining in CLICO.
However, the GORTT has contracted an international accounting firm to update
the financial reports of Clico and its sister company the CL Financial Group. The
GORTT announced in September 2010 a scheme to return the investment to the
policyholders of the failed institutions. So far, the GORTT has returned, in cash,
the investment of the policyholders with balances below TT$ 75000 (around US$
11000) as well as through a compassionate window, devoting US$ 61 million. The
GORTT has recently announced in Parliament an enhanced scheme to settle all
outstanding policyholders and investors; while at the same time enacting special
legislation for protecting the assets of the CLICO. Under this enhanced scheme
the investors will receive 20-year bonds with zero interest rate, but would have the
opportunity to exchange the bonds with a maturity of 11 to 20 years for units of a
trust fund composed by Republic Bank shares.
1
Annex II
Inflation pressures subsided. Domestic supply shocks had increased food prices
sharply during 2010 as food price inflation reached almost 40% in August 2010.
After this increase fuelled by a severe drought that affected the domestic supply of
staple commodities, inflations levels are around 1% monthly. There is a risk that
increasing commodity prices in international markets will convert this domestic
shock into a more persistent one and keep food prices at elevated levels.
Trinidad and Tobago is vulnerable to oil and gas price shocks. The economic
activity is highly dependent on the energy sector so any further contraction in the
sector will imply a further slowdown in economic growth for the country. As was
mentioned in the document, oil and gas revenues represent around 50% of the total
revenues of the government and a decrease in the prices of these commodities will
increase fiscal deficit and impact on the fiscal and debt sustainability. The
government could need to reduce expenditure contracting the economy even
further. On the external sector, given the reduction in the inflows of foreign
exchange, there is a risk of losing substantial reserves in the case that the CBTT
decides to defend the de facto peg with the US dollar.
2
Annex III
CPE RECOMMENDATIONS
Country Program Evaluation Recommendations
Recommendations of the Country
Program Evaluation 2000-2008
The IDB should offer a menu of assistance
to the Government of Trinidad and Tobago
for the following key areas:
a) Support the Government’s efforts by
targeting specific development gaps, in
order to help T&T achieve developed
country status by 2020. Several sectors
should be strategically selected in
agreement with the Government. Activities
should be based on Economic Analysis and
they should target both the supply and
demand sides.
Incorporation into the Country Strategy
2011-2015
The CS targets specific areas for
intervention which represent the shared
priorities between Government and the
Bank. The reforms envisaged in the
Strategy target both the supply and demand
sides as they include the strengthening of
enabling environments in the priority areas,
as well as activities in the priority areas.
The project teams will collaborate closely
with SPD in order to ensure that cost
benefit analyses are performed and taken
into
consideration
for
individual
operations.
b) Provide counter-cyclical support The CS was structured to provide
during downturns. Social protection countercyclical support by providing fastprograms could also be used to shelter the disbursing resources at the beginning of the
poorest from volatility.
strategy period, while at the same time
introducing the required reforms to
enhance the effectiveness of public
investment, benefiting the interventions to
be supported by new investment.
The CS also addresses social protection
programs via the social sector priority area.
The Bank has been supporting the
Government‟s initiatives to increase the
efficiency, effectiveness and sustainability
of public investment through several
Modernization of State operations, most
notably, the Public Capital Expenditure
Management Program PBP. (which first
operation was approved in 2010). The
Bank will continue to provide support in
this area, through the Public Sector
Management priority area of the CS, and
will also aim to strengthen the governance
of SOEs and increase the accountability of
the social safety net expenditures.
The Bank is coordinating with other
c) Engage the Government regarding the
sustainability of fiscal spending beyond
the depletion of energy resources. The
focus should be on how to increase the
effectiveness
and
efficiency
of
expenditures. If requested by the
Government, the IDB should work with
other multilaterals to provide research and
technical
assistance
regarding
the
implementation of savings mechanisms.
1
Annex III
Recommendations of the Country
Program Evaluation 2000-2008
Incorporation into the Country Strategy
2011-2015
multilateral institutions in key areas of
support.
The present strategy is the result of
extensive
technical
work
already
completed and an ongoing policy dialogue.
The CS contemplates the continuation of
support for high quality analytical work
and technical assistance both in the priority
areas of the CS and others emerging areas
of importance. The Bank can have
additionality in financing infrastructure if
the operations are designed in such a way
that they focus not only on the
infrastructure but also on institutional
strengthening and capacity building
activities to improve coordination,
planning and sustainability of the
investments.
The technical assistance to be provided
under the 2011-2015 Country Strategy will
be aligned with the priority areas, or the
areas for further dialogue, cited in the
Strategy, reflecting its demand-driven
nature. As mentioned as one of the
mitigating factors in the “Implementation
Risks” section of the Strategy, technical
assistance to support the reform process
and institutional capacity building is
envisaged in several of the Strategy‟s
priority areas. All technical assistance
interventions will be consistent with the
Bank‟s
Development
Effectiveness
Framework.
The IDB should tailor its instrument mix
to
T&T’s
needs.
Aside
from
countercyclical support, T&T‟s incomelevel suggests it should be supported in the
medium term via high quality analytical
work and Technical Assistance (both as
part of loans and as standalone TCs) in
place of financing infrastructure. Thus the
Bank should redevelop its relationship with
T&T to become a provider of a strategic
program of higher quality Knowledge and
Capacity-Building Products (KCP) and
other Technical Assistance activities.
The
IDB
should
improve
the
effectiveness of its Technical Assistance.
The portfolio of these activities should be
strategically identified to maximize
externalities and have the potential to be
scaled up. Exchange of expertise should be
encouraged. Technical Assistance should
be anchored on selected long term strategic
partnerships. To ensure that these activities
are demand-driven and high quality, the
IDB should follow the lead of the World
Bank and pilot fee-for-service contracts in
T&T (including contingent recovery
arrangements with appropriate incentives).
Furthermore, these activities should put
much greater emphasis on building local
capacities to manage and execute activities
through to successful completion. Finally,
the success of these activities should be
measured by systematic solicitation of
client feedback as envisioned in the
Development Effectiveness Framework.
The IDB should provide stronger and
strategic support to the private sector.
Bank activities regarding the business
climate should be targeted toward the
The Private Sector Development was
identified as a key area for technical
assistance during the strategy period.
Support in this area will be focused on
2
Annex III
Recommendations of the Country
Program Evaluation 2000-2008
removal of market failures and constraints
to competitiveness, while encouraging the
diversification of the economy. The IDB
should conduct research and pilot various
policies proposed by the academic
literature and used by other countries to
stimulate private sector development, such
as investing in R&D, marketing abroad,
mechanisms for private sector dialogue like
the East Asian „deliberation councils,‟ and
industrial zones, etc.
Incorporation into the Country Strategy
2011-2015
providing assistance on improving the
enabling environment for business
development and innovation, trade
facilitation and investment attraction.
Productive development policies such as
those aimed at strengthening innovation
and public-private dialogue are identified
for technical assistance.
The IDB’s activities should reflect more
consensus, be more feasible and flexible,
and more evaluable. Activities should
have realistic objectives, be simple, and
consensus should be cultivated across a
broad set of stakeholders and informed by
analytical work. All activities should also
include outcome indicators, baselines,
targets, and track these data over time.
The new strategy reflects the shared
priorities between the Government and the
Bank, and is the result of extensive
background work in the key areas of
support. The CS takes into account
feedback provided from Government and
other stakeholders throughout the Strategy
preparation process, such as civil society
organizations.
“SMART”
outcome
indicators with baselines and targets have
been developed in each of the priority areas
and are consistent with the Bank‟s
Development Effectiveness framework.
Interventions in the Social Protection
priority area will include strengthening the
Monitoring and Evaluation capabilities of
the line ministry involved in the delivery of
social safety net programs. In the Public
Sector Management priority area, the Bank
envisages technical
cooperation to
strengthen the Government‟s capacity in
management for results. Moreover, some
of the programs already in execution and
the new interventions contemplate the
collection of primary data in order to
undertake impact evaluations. Moreover,
the Bank has already agreed with the
GORTT on technical assistance to
strengthening the CSO.
The IDB should make a large push for
broad data generation and analysis. The
data deficit is so large in T&T that the
Bank should support data generation as a
public good. This large push for data
should also improve the design of
activities. It will also support the efforts of
the Government and the newly realigned
IDB to focus on Management for Results.
Furthermore, the Central Statistical Office
should be strongly supported.
3
Annex IV
FINANCIAL SCENARIOS
Financial Scenarios
The financial scenario reflects the renewed development partnership between the
Government and the Bank. The scenario envisages an approval envelope of US$ 1.5
billion and disbursements for US$1.1 billion during the strategy period. Compared to the
previous strategy period, the proposed financing scenarios imply an historic level of
approvals and a strongly positive net flow of resources to the country.
The increases in the exposure indicators reflect the above mentioned reengagement of the
Government with the Bank as well as the medium term fiscal program of the country.
The Government expects to run fiscal surpluses by year 2013/14, and part of these
resources could be devoted to reduce the stock of debt of the country
FINANCING SCENARIO39
2011 2012
Loan Approvals:
290 450
Disbursements:
272 155
Repayments:
50
49
NET LOAN FLOW
222 106
IDB debt/Multilateral Debt
IDB debt/External Debt
IDB debt/Total debt
Multilateral Debt / External Debt
Source: IDB
2013 2014 2015
385 170 285
231 239 222
48
43
41
183 196 181
92%
93%
94%
95%
96%
26%
24%
26%
30%
34%
6%
7%
8%
11%
14%
29%
25%
28%
31%
36%
Fiscal projections
The fiscal situation has been deteriorating since 2009. The worsening in the fiscal
accounts reflects the impact of the sharp decrease in energy revenues, the cost of the
bailout of the financial system, and the decision of the Government to maintaining a
relatively high level of capital and current expenditure. The fiscal results of the public
entities not included in the Central Government‟s budget have also deteriorated
substantially in recent years. The financial scenario used for the elaboration of the
Country Strategy assumes that the Government adopts active policies in order to turn the
fiscal accounts to surplus by fiscal year 2014/1540. Under this assumption, the financing
needs of the country diminish over time, amounting almost US$ 1.8 billion between FY
2011/12 and FY 2014/15. The Government announced that it will modify the strategy to
finance its fiscal imbalance from a preeminent domestic source to a strategy of financing
a substantial proportion of the deficit from external sources. The financial programme
39
The level of approvals for 2012 are indicative and consistent with the assumptions underlying the 2011 Long Term
Financial Plan.
40
The fiscal measures assumed are an increase in the efficiency of tax collection as well as a reduction in transfers to
public entities, issues that are in close alignment with the policies announced by Government.
1
Annex IV
assumes that the Government will start repaying some of the debt with the private sector
in FY 2014/15, as well as transferring resources to the Heritage and Stabilization Fund.
Fiscal programme and Total Financing Needs – Active Scenario
(US$ million)
Total Revenues
Total Expenditure
Interest Payments
Primary Balance
CLICO financial Support
Overal Balance Central Government
Overal Balance C Gvt with CLICO
Debt Amortization
Total Financing Needs
Foreign Financing
Domestic Financing
2010/11 2011/12 2012/13 2013/14 2014/15
7,121
8,022
8,778
9,514
10,321
7,881
8,686
8,805
9,245
9,999
736
818
883
895
903
-24
153
856
1,163
1,226
1,994
107
113
0
0
-760
-664
-28
268
323
-2,754
-771
-141
268
323
220
266
356
560
296
2,973
1,038
497
291
-27
991
692
331
194
1,982
346
166
97
-9
Source: IDB
2
Annex V
DONOR COORDINATION
Historically, Trinidad and Tobago‟s engagement with bilateral and multilateral development
agencies has generally been limited in the number and volume of interventions, and
uncoordianted among sectors. Despite this, the Bank still maintains the position as the lead
multilateral partner in the country. Due to the absence of a formal, Government-led, coordinating
mechanism for development agencies, the Bank adopted a proactive approach to engage other
donor agencies to discuss ongoing developmental issues and share sector knowledge. The
information emanating from these meetings deepened sectoral relationships among bilateral and
multilateral donor agencies. The Ministry of Finance, however, has recognized the need to
formalize a structured approach to all dialogue with development agencies so as to optimize
Official Development Assistance to the country. The Government‟s strategy as it relates to donor
coordination is to focus on the most important areas of intervention, namely: (i) Public financial
management with the European Union, the WB and IDB; and (ii) private sector development
with the WB/IFC and the IDB for the public offerings program.
(i)
Public sector management and supervision: Historically, the Bank has maintained a
strong presence in fiduciary issues over the years, by providing advice to Government on
the modernization of public procurement, and coordinating with the EU‟s diagnostic
work on two PEFAs. In 2010, the IDB approved the Public Capital Expenditure
Management Program. This comprehensive policy based framework helped leverage a
significant disbursement of the EU's budget support. The Bank also coordinated with
CARTAC on the multiannual macroeconomic framework, which feeds into the annual
budget process With respect to the Public Offerings Program of State Owned Companies,
the MOF requested the IDB to lead the conceptual design of the public offerings
program, for the WB/IFC and the IDB to undertake diagnostics in sectors of specific
expertise, and to collaborate on potential NSG transactions. With respect to Integrated
Project Management, the IDB and UNDP have coordinated efforts to build capacity
building in line ministries to enhance the implementation of public investment projects.
(ii)
Education. The Bank has maintained a long term dialogue and financial engagement in
this sector. The EU is the only significant donor providing policy based budget support
(grants) for tertiary education, and has engaged the Bank for information sharing about its
initiatives in Technical and Vocational Training and the National Training Agency. The
Bank has also coordinated with the CDB a Regional Policy Dialogue on literacy and
numeracy. UNICEF has support education and youth initiatives, particularly in the area
of monitoring and evaluation and the ILO has an intervention on entrepreneurship, so
coordination efforts are likely to focus on the transition from school to work.
(iii) Social protection. The Bank has participated in regular UN meetings to monitor the
Millennium Development Goals.
(iv)
Climate change. The Bank has coordinated with the EU and UN agencies providing TA
in this area, and also on regional and international initiatives.
(v)
Energy. The Bank had coordinated with the WB on the Extractive Industries
Transparency Initiative, and with the US' Energy and Climate Partnership of the
Americas (ECPA) for the establishment of the Renewable Energy Center in T&T.
1
Annex V
To strengthen donor coordination in Trinidad and Tobago, the Bank is expecting to provide
technical assistance to the Ministry of Finance for the implementation of its strategic realignment
process, which among other activities will help establish capacity in the Ministry to effectively
utilize and coordinate Official Development Assistance.
X
X
Source: IDB
UNDP
US/ AID
X
X
X
X
X
X
X
Public Sector
Management
Financial Sector
CARTAC
X
PAHO
X
ILO
OAS
X
CEPAL
UNICEF
IFC
X
EU
Education
Social Protection
Private Sector
Development
Climate Change
Energy
WB
Area
IMF
DONOR COORDINATION MATRIX
X
2
X
Annex VI
DEVELOPMENT EFFECTIVENESS MATRIX
1
Annex VI
2