Population 1.329 million
GDP 23.837 US$ billion
@rating
country
Business climate
assessment
| 2010 | 2011 | 2012(e) | 2013(f) | |
|---|---|---|---|---|
| GDP growth (%) |
0 |
-1.5 |
-0.5 |
1.9 |
| Inflation (yearly average) (%) |
10 |
5 |
9 |
4.5 |
| Budget balance (% GDP) |
0 |
-0.5 |
-4 |
-5 |
| Current account balance (% GDP) |
20 |
7.1 |
8 |
7.5 |
| Public debt (% GDP) |
40 |
40 |
39 |
39 |
| (e) Estimate (f) Forecast | ||||
STRENGTHS
- World’s fifth largest producer of liquefied natural gas (LNG)
- Petrochemical industry (world’s leading exporter of methanol and ammoniac)
- Good trade and current account surpluses
- Well-resourced sovereign fund and reserves
- Access to multilateral finance
- Dominant trading partner in Caricom
- Good business environment
WEAKNESSES
- Small-scale economy dependent on hydrocarbons
- Weak non-energy sector (including agriculture and tourism)
- Lack of investment
- Predicted decline in energy resources
- Inefficient public action
- Inadequate financial sector supervision
- Unequal wealth distribution and crime linked to drug trafficking
Risk assessment
Expected return to moderate growth
After several years of recession or stagnation, growth is expected to pick up somewhat in 2013. It will be sustained by an accommodative fiscal policy, while public investment in infrastructures, especially in the defective transport system, as well as education, health and sanitation spending will again increase. Hit by maintenance stoppages and security reasons in 2012, the energy sector (hydrocarbons, refining, gas chemistry), which represents 45% of GDP, will rally, as will construction, which suffered from a prolonged strike at the archipelago’s one and only cement producer and supplier. By contrast, tourism, concentrated on the island of Tobago, the source of 10% of GDP and 15% of jobs, will remain limited. Finally, despite subsidies, particularly for petrol, and significant social transfers, as well as unemployment down to 5%, household spending will still be depressed.
Strong demands on public revenues, but comfortable external situation
The widening public deficit will go hand in hand with the accommodative fiscal policy. The balance would be even more negative were it not for the expected increase in contributions from the energy sector (50% of total revenues) thanks to renewed strong performance and rising gas prices. Public debt, which represented 60% of GDP in 2000, before falling to 20% in 2007 has climbed back to 39%. But the portion held by foreign creditors is limited to 6%.
The current account surplus is expected to stabilise at 7% of GDP. The rising food bill is likely to be offset by increased income from export of gas and chemical products. Hydrocarbons, chiefly natural gas, as well as ammoniac, methanol and urea resulting from the transformation of gas, make up 83% of exports and provide conditions for maintaining the surplus, enabling the Central Bank to set aside $10 billion, or 14 months of imports. This is more than enough to ensure the pegging of the Trinidad and Tobago dollar to the American dollar at a rate of 6.4:1. However, the competitiveness of traditional exports is suffering from this peg, which is equivalent to an appreciation of the currency, given that local inflation is higher than that observed for the main trading partners.
Hydrocarbons: paramount but ossified
Dependence on hydrocarbons is huge. As well as the budget and exports, local natural gas production fuels the electric power stations while petroleum production sustains the refining plants. It happens that because of weak domestic and foreign investment in exploration and exploitation, proven oil reserves have fallen considerably and production has stagnated. Petroleum represents only one tenth of total hydrocarbon production, which makes it necessary to import crude to meet domestic and refining capacity needs. Gas reserves will last for about a decade at the current pace of extraction. Failing increased investment, gas production, which grew strongly until 2006 before stabilising, could now fall. The authorities are projecting an increase in the gas price but will have to reckon with the expansion of North American shale gas. Whereas in 2004, all gas was purchased by the United States, now American imports have stopped. If the available gas could be directed to other parts of the world where prices are higher than on the American market, the export of North American gas could make a difference.
Political will to kick start the economy
Kamla Persad Bissessar’s government, in power since May 2010, is seeking to reinvigorate the energy sector while fighting criminality. The government has introduced fiscal incentives aimed at attracting investment in exploration as well as exploitation, but also downstream to diversify chemical production. Finally, it has a sovereign fund, the Heritage and Stabilization Fund, for saving and investing some of the revenues drawn from the energy sector in order to mitigate any falls in price and a drop in production. However, due to the current budget deficit, deposits in the fund are reliant on additional public borrowing. The governing People’s Partnership (PP) coalition is facing internal dissent but this should not undermine its majority in the Chamber of Representatives over the opposition People’s National Movement (PNM). The next opportunity to go to the polls will be the election of the local House of Tobago, traditionally controlled by the PNM, where the PP is contesting the legality of two key contracts concluded recently by the majority PNM with private stakeholders.
