UNC Plan 2020
Trinidad and Tobago has great economic potential. It enjoys one of the highest per capita incomes in the Americas, with most of the country’s wealth due to exploitation of oil and natural gas. It has a diverse and educated labor force and is a geographical gateway to major markets, including the United States, Canada and Latin America. Trinidad and Tobago has built up substantial financial buffers in its sovereign wealth fund, the Heritage and Stabilisation Fund (HSF). There is a long tradition of political stability.
Despite these substantial strengths, Trinidad and Tobago’s economy is on life support, hovering on the brink of collapse. Since the current government took office in September 2015, it has failed to properly steer the country through a deep recession brought on by a downturn in the energy sector, the main engine of Trinidad and Tobago’s socio-economic development.
No Economic Turnaround
Trinidad and Tobago’s serious economic situation is reflected in one of the most critical and common measures of the health of an economy, the GrossDomestic Product (GDP), which is the value of all goods and services produced within a year. Official estimates from the Central Statistical Office (CSO) indicate that real Gross Domestic Product (GDP) in Trinidad and Tobago declined by a cumulative 8.8 percent between 2016 and 2018, the sharpest contraction in more than three decades. The IMF projected 0% economic growth in 2019. As a result, the Trinidad and Tobago economy is now 10 percent smaller than five years ago. The current government optimistically boasts of a turnaround. However, this anticipated economic turnaround is very doubtful for at least three reasons.
Additional natural gas production from the new Juniper and Angelin fields is not enough to eliminate the historical gas shortages of the last eight years and does not provide firm assurances about the reliability of gas supply to the Point Lisas-based petrochemical companies. Energy plants at Point Lisas are scaling back operations or closing down.
International energy prices are projected to remain low over the next few years, as the United States becomes a net energy exporter by 2020 due to massive shale production.
The purported economic turnaround does not take into account the serious negative transitional fallout on growth, employment, public finances and foreign exchange earnings from the unexpected closure and major reorganisation of Petrotrin, the state-owned oil refinery. Since Trinidad and Tobago is a mature oil province, exploring, finding and refining additional oil supplies will require significant time and effort.
Outside of the dominant oil and gas sector, Trinidad and Tobago’s non-energy sector is languishing. Modest growth in financial services has not been able to compensate for weakness in traditional manufacturing, especially small and medium enterprises, and continued stagnation in agriculture. Construction has been hard hit by the slow pace of execution of public sector investment projects. This crisis of confidence has resulted in no new foreign direct investment (FDI) flowing into the non-energy sector since September 2015.
Rising Job Losses
The ability to create jobs is another indicator of an economy’s health. The latest CSO estimates indicate that 16,000 persons have lost their jobs between September 2015 and the end of June 2018. Retrenchment notices from the Industrial Court suggest a further 4,879 persons lost their jobs between 2016 and 2019. Petrotrin’s closure in late 2018 put an additional 5,000 skilled workers out of jobs and many more in the central and south fenceline communities who provided services to the company or to its workers. Anecdotal evidence suggests several small and medium businesses have quietly sent workers home and contractors have sent home hundreds of workers. This means since the current government came into office more than 25,000 persons have lost their jobs, or about 4 percent of the country’s entire labour force. The average number of vacancies advertised in the print media continue to slow, falling by more than 10% in the first nine months of 2019.
The current government has been implementing a host of ill-conceived fiscal policies, in the wrong order and at the wrong speed. To compensate for the sharp fall in energy revenues, the current government has imposed a plethora of taxes on citizens and businesses. Tax measures include the introduction of VAT on food, re-introduction of the controversial property tax, higher corporate taxes on businesses and banks and an online tax thrown in for good measure. It is futile to impose more regressive taxes while the economy is deep in recession and job losses are mounting. The current government has also been cutting public spending with no consideration of the consequences on poor and vulnerable citizens who are already burdened by higher taxes. However, public expenditure is still at an unsustainable $50 billion level even as the perception of corruption continues to rear its ugly head. Public spending has to be recalibrated to somewhere between $42 billion and $45 billion to achieve and maintain fiscal balance.
Not surprisingly, the current government has consistently fallen short of its revenue targets every year. This has resulted in four consecutive annual budget deficits averaging about 5 percent of GDP since September 2015. With no timetable for at least returning to fiscal balance, the current government will continue to run a sizeable fiscal deficit during the last year of its term in office.
Unsustainable Public Debt
The level of indebtedness of a nation is another indicator of an economy’s health. This current administration has embarked on a dangerous borrowing path. In general, public debt over 60 percent of GDP signals heightened debt vulnerabilities. At the end of September 2019, the country’s gross public debt stood at $125 billion, which is the highest it has ever been in our recorded history, and this represented 77 percent of GDP. The International Monetary Fund (IMF) expects total government debt to reach an unsustainable 85 percent of GDP by 2023, leading Trinidad and Tobago again into the middle-income country debt trap.
Most of the borrowing by the current government has been to finance recurrent expenditure and capital projects whose economic returns are highly questionable. In addition to borrowing, the current government has also raided more than $4 billion from the HSF to finance its profligate spending. None of its capital projects has the capacity to generate a consistent revenue stream in the near future to help repay the enormous public debt. The Dragon Field gas deal is stalled for the foreseeable future due to political instability in Venezuela. The Sandals tourism deal is scrapped. The La Brea dry-docking facility will not get underway until well after 2020.
Credit Rating Downgrade
The current government’s fiscal mismanagement has led to a deterioration in our sovereign credit worthiness. In July 2019, Standard and Poor’s again lowered Trinidad and Tobago’s investment grade sovereign credit rating, warning that further downgrades to speculative grade or junk status are possible unless the government stabilizes the public debt and undertakes key fiscal reforms. Junk status will negatively affect how investors view the quality of the country’s economic management.
Hemorrhaging Foreign Reserves
The stock of international reserves is another indicator of our economy’s health. In Trinidad and Tobago, we import almost everything we eat, drink, wear, drive and use in our homes, schools, hospitals, offices and factories. Holding an adequate stock of international reserves not only enables us to purchase these imported goods and services, but also to defend the country against shocks without experiencing a costly and disruptive crisis.
Under the current government, our external reserves are hemorrhaging. Net official reserves have fallen sharply from a peak of US$11.5 billion in September 2014 to US$6.9 billion in December 2019, the lowest level in a decade. At the current rate, our international reserves will fall to US$3 billion by 2022, or even earlier.
The rapid depletion of our external assets has been accompanied by a large unofficial devaluation of the TT dollar by over 25 percent in just three years and rising foreign exchange shortages which, in turn, promote further feverish speculation about devaluation of our currency. Despite the Central Bank selling over US$6.5 billion to commercial banks between 2016-2019, the foreign exchange distribution process lacks transparency and equity, giving rise to many unanswered questions about who receives foreign exchange, how much they get, and when they get it.
Weak Monetary Policy
This rapid depletion of our country’s external assets also stems from weakness in monetary policy. For the past four years, the Central Bank has essentially maintained a neutral monetary policy stance, keeping its policy rate – the repo rate – unchanged to support growth in the languishing non-energy sector. Instead, the Central Bank should have increased interest rates to discourage capital outflows and to protect our balance of payments position.
Deteriorating Global Performance
Trinidad and Tobago’s performance in various global indices is additional proof that the current government is failing to properly manage the country’s economic affairs. Our ranking in the global competitiveness, ease of doing business, economic freedom, networked readiness and corruption perception indices have either been deteriorating or stagnating over the past decade.
Trinidad and Tobago’s Global Competitiveness ranking has fallen sharply to 79th position in 2019, from 89th in 2015. The Ease of Doing Business ranking declined dramatically from 79th in 2015 to 105th place today. In terms of the index of Economic Freedom, Trinidad and Tobago’s ranking has dropped precipitously from 68th in 2015 to 112th in 2019. The Networked Readiness Index, also referred to as Technology Readiness, has remained fairly stagnant at around 64th position. Lastly, in terms of the Corruption Perception Index, the ranking worsened to 85th place in 2019, from 72nd in 2015.
UNC’s National Economic Transformation Masterplan
Trinidad and Tobago cannot afford to continue on its current economic path. We cannot afford to live by accumulating more debt or by depleting hard-earned foreign exchange reserves. Government must contain expenditures at a sustainable level capable of facilitating national development. The Central Bank must strengthen its monetary policy stance. Society must eschew unreasonable wage demands. We must diversify the economy. We need to both earn and save foreign exchange, creating new areas of economic activity.
All of this urgently underscores the need to regain fiscal balance, stabilize public debt, stop the bleeding of official reserves, and bring our economy back onto a growth trajectory. It also underscores the urgent need to restart the diversification process.
The UNC’s National Economic Transformation Masterplan lays out a comprehensive suite of policy initiatives and programmes to steer the economy towards a more sustainable development path over 2020 to 2025. The Masterplan leverages the country’s significant financial buffers in the sovereign Heritage and Stabilisation Fund, its solid human capital and overall political stability. The Plan builds on our strengths, exploits the opportunities and actively addresses the challenges confronting our country.