經濟研究
Trinidad and Tobago

Trinidad and Tobago

Population 1.4 million
GDP 15,459 US$
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Synthesis

major macro economic indicators

  2015 2016 2017(f) 2018(f)
GDP growth (%) -0.6 -6.0 -3.2 1.9
Inflation (yearly average, %) 4.7 3.1 3.2 3.2
Budget balance (% GDP)* -8.6 -12.7 -11.9 -10.8
Current account balance (% GDP) 3.9 -10.7 -8.5 -7.9
Public debt (% GDP) 27.9 39.4 47.2 54.7

*Fiscal year from October 2017 to September 2018 (f): forecast

STRENGTHS

  • World’s fifth largest producer of liquefied natural gas (LNG)
  • Petrochemical industry (world’s leading exporter of methanol and ammonia)
  • Large sovereign funds and currency reserves
  • Lead country in Caricom, the Caribbean community
  • Well-trained and English-speaking workforce

WEAKNESSES

  • Small economy and reliant on oil and gas
  • Undeveloped non-energy sector (including agriculture; tourism)
  • Projected decline in energy resources
  • Ineffective public initiatives
  • Inadequate supervision of financial sector
  • Inequitable distribution of wealth, drug traffic related criminality 

RISK ASSESSMENT

Towards an upturn in activity in 2018

Growth is set to return to a positive state in 2018, following a slowdown of activity in the country since 2014, due to low oil and gas prices, together with the depletion of a number of gas and oil fields, and chronic operational underinvestment. Growth is expected to come mainly from the energy sector (oil, gas and petrochemicals), which accounts for almost 35% of GDP and over 90% of export sales. The increase in gas production, thanks to the drilling of new wells, should also help boost activity and exports.

Nevertheless, continuing weakness in prices is likely to restrain investment in the sector, given that the most easily-accessible reserves are already in operation, and that extraction from the remaining available reserves will be increasingly costly. In addition, private investment in the non-energy sectors will be dependent on the ability of the government to introduce a legal context that is more favourable for companies. These sectors, together with households, will likely experience difficulties in accessing credit due to the scale of the government’s financing requirements, which will be a burden on the domestic banking system. In addition, household consumption is expected to remain restrained as a result of higher unemployment and the government’s continued budget consolidation policy. Inflation is likely to remain steady, reflecting continued sluggish domestic demand, but will nevertheless be subject to supply factors, and notably the volatility of foodstuff prices.

 

High public deficit, despite budget consolidation measures

The budget deficit will likely remain huge in 2018. The specific measures (sales of assets abroad, partial disposal of public sector companies), implemented by the government with the aim of making up for the decline in energy revenues, will not provide enough revenue to prevent budget overspending. The fixed portion of spending (wages and payments to government workers, transfers and subsidies required by law), which amounts to more than 60% of total spending, places a limit on adaptations to the state budget. The government has said that it will introduce a number of fiscal reforms aimed at increasing state revenues (raising corporation tax from 25% to 30%, higher taxes on alcohol and tobacco, reduced diesel subsidies, ending of discounted prices for public services used by public sector companies), but does not appear to have a medium-term strategic budget framework. The huge public deficit will be partly financed by drawing on the country’s sovereign funds, as well as through loans from international donors (in particular the Inter-American Development Bank), and with loans from domestic banks. However, the overloading of the domestic banking sector will force the government to borrow on the international markets at very high interest rates, resulting in a further deterioration in the level of foreign debt.

 

Slight improvement in the current account deficit

The current account will, once again, be in significant deficit in 2018. The slow recovery in oil and gas prices and the expected increase in production will, however, help reduce the trade deficit. The income balance deficit should also contribute to improving the current account, as the level of profits shifted out of the country by foreign-owned companies operating in the energy sector will be lower. Nevertheless, the services deficit is likely to deepen as a result of a fall in tourist revenues. The country’ currency reserves (nine-and-a-half months of imports in 2017) are expected to continue shrinking, in so far as foreign direct investments will not be enough to offset the scale of the current account deficit. In addition, the short-term measures (sales of public sector assets abroad, withdrawals from the sovereign fund), aimed at rebuilding reserves, will no longer be effective. This situation is likely to make the peg of the Trinidadian dollar to the US dollar difficult to maintain, leading to a probable devaluation in 2018.

 

The search for new growth opportunities

In power since September 2015, Prime Minister Keith Rowley of the People’s National Movement (PNM) party is expected to continue with the process of consolidating the public finances despite his waning popularity. With a majority in Parliament (23 out of 41 seats), and aware of the very limited scale of economic diversification, the government has set itself the objective of enhancing the local productive fabric by attracting more investment in both energy (petrochemicals, in particular) and non-energy (tourism, agri-food, finance, etc.) sectors. However, institutional weaknesses, the high level of corruption, and the lack of infrastructure will continue to limit diversification in the economy. The country’s geographic location makes it a transit point for drug trafficking, which brings with it a high level of criminality. The country will likely continue to play an active role within the Caribbean Community (Caricom) and in cooperative initiatives in the fight against crime and drug trafficking in partnership, notably with the United Kingdom and the United States.

 

Last update: January 2018

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