Trinidad and Tobago
major macro economic indicators
|2017||2018||2019 (e)||2020 (f)|
|GDP growth (%)||-2.3||-0.2||-0.3||-4.5|
|Inflation (yearly average, %)||1.9||1.0||1.0||1.4|
|Budget balance * (% GDP)||-11.3||-7.9||-5.8||-6.5|
|Current account balance (% GDP)||5.0||7.1||3.4||2.7|
|Public debt (% GDP)||60.3||60.8||64.0||67.0|
(e): Estimate. (f): Forecast. *Fiscal year 2020 from October 2019 to September 2020.
- World’s seventh-largest producer of LNG
- Petrochemical industry (world’s leading exporter of methanol and ammonia)
- Large sovereign wealth fund (25% of GDP) and currency reserves
- Lead country in the Caribbean Community (Caricom)
- Well-trained English-speaking workforce
- Small economy and reliant on oil and gas
- Underdeveloped non-energy sector (including agriculture and tourism)
- Projected decline in energy resources
- Ineffective public initiatives
- Inadequate financial sector supervision
- Inequitable wealth distribution (20% of the population lives below the poverty line)
- Drug traffic-related crime
Sluggish growth, reliant on hydrocarbons
After four years of recession, mainly due to low hydrocarbon prices and disappointing production in the energy sector, growth could stabilize in 2020. It remains extremely vulnerable, being closely tied to the hydrocarbon sector (oil, gas and petrochemicals), which accounted for 35% of GDP and 80% of goods exports in 2018. In 2020, production in this sector is expected to decline slightly again. The new extraction sites (notably the Angelin project) will not be able to offset the decrease in production from existing sites, especially since low prices are not encouraging companies to invest to maintain existing capacity. Oil refining activity will continue to be severely hampered by the drop in crude oil production in Venezuela, the main supplier. The petrochemical industry (ammonia, methanol, fertilisers) is unlikely to fare better, in view of the fall in the prices of these products owing to unfavourable global conditions in the chemical sector. Other sectors of the economy, which are underdeveloped, will make a small contribution to growth. Construction will benefit from the increase in public investment expenditure, particularly in transport infrastructure. Credit growth has recovered, which will promote private investment. Household consumption, which will be boosted by the sharp rise in the minimum wage, should also benefit from this credit growth. However, access to credit remains generally constrained, with the public sphere capturing a large share of the domestic banking system’s financing capacity. Inflation will continue to be moderate, due to weak economic activity.
Borrowing and the sovereign wealth fund finance the deficit
After shrinking for several years, the public deficit is set to increase in FY 2020, as expenditure growth exceeds revenue growth. The relative improvement in the economic situation should lead to an increase in revenues. In addition, the government plans to reduce tax exemptions on the profits of oil and gas companies. However, the same companies will get larger investment tax credits to encourage new exploration. On the expenditure side, several major measures will be introduced, including a hike of about 15% in the minimum wage and an increase in the tax credit for solar water heaters. The main expenditure items will remain the State wage bill (18% of total expenditure) and especially transfers and subsidies (48%), the lion’s share of which goes to households and regional health authorities. The deficit will be financed by drawing on the country’s sovereign wealth fund and by contracting domestic and international bank loans at high interest rates, which will push up the interest burden (3% of GDP). However, public debt remains largely domestic (80%) and contracted over medium- and long-term maturities, while being mainly denominated in local currency.
The current account is structurally in surplus owing to massive exports of hydrocarbons and oil derivatives, although the surplus has narrowed because of the sharp slowdown in the sector in recent years. In 2020, the trade surplus (9% of GDP in 2018) will shrink again, also reflecting a slight rebound in imports thanks to a pick-up in domestic consumption. Conversely, the services deficit is expected to remain in place, as tourism revenues are marking time and are insufficient to offset services related to the hydrocarbon sector. The current account surplus allows the financial account to record net outflows of capital, mainly in the form of investments by the sovereign wealth fund, while at the same time replenishing foreign exchange reserves, which stood at about eight months of imports in 2019. These reserves are regularly used by the central bank to maintain a fixed parity between the national currency and the US dollar, and they are expected to continue to decline in 2020.
Difficult elections ahead for the ruling party
Prime Minister Keith Rowley, a member of the People’s National Movement (PNM), has been in power since the parliamentary elections of September 2015. He can rely on the PNM’s absolute majority in parliament (23 out of 41 seats). However, it will not be easy for the PNM to hold onto power in the next elections, which are scheduled for 2020, particularly given the weakness of the economy and the continuing level of crime. The government has also achieved mixed results in terms of meeting two of its main objectives, namely to consolidate the public finances and diversify the economy. In addition, the popularity of the PNM and Mr Rowley was severely damaged by the arrest of Marlene McDonald, Minister of Public Administration, on corruption charges in August 2019. The main opposition party (also centre-left), the United National Congress (UNC), led by former Prime Minister Kamla Persad-Bissessar, could take advantage of this favourable situation to win the elections.
Last update: February 2020