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Trinidad & Tobago - Economy

Trinidad and Tobago is a high-income economy, endowed with vast energy resources (oil and natural gas). The economy is classified as being "resource-rich", given the significant share of export earnings and government revenue obtained from oil and natural gas. The heavy dependence on the fortunes of the energy sector makes the economy highly vulnerable to energy price shocks. Energy exploration and production drive TTs economy, and this sector has historically attracted the most foreign direct investment. In 2015, the energy sector accounted for approximately 32 percent of GDP and 80 percent of export earnings. TT is the worlds largest exporter of ammonia and methanol and is the sixth largest exporter of liquefied natural gas (LNG). TT has an undiversified economy and lacks economies of scale, so it depends on imports.

Trinidad and Tobago is the most industrialized economy in the English-speaking Caribbean. It is the leading Caribbean producer of oil and gas, and its economy is mainly based upon these resources. Trinidad and Tobago also supplies manufactured goods, mainly food products and beverages, as well as cement, to the Caribbean region. Even though other products are also manufactured, oil and gas is the leading economic sector and accounts for 40% of Gross Domestic Product (GDP.

Trinidad and Tobagos output continued to shrink while declines in global energy prices led to surging fiscal deficits and are pushing the external current account into deficit. Energy output was sharply lower due to supply-side constraints. Combined with weak non-energy growth, real GDP was estimated to have declined 2.1 percent in 2015 and was expected to fall another 2.7 percent in 2016. Core inflation remained anchored at 2.0 percent yoy in 2015, while headline inflation fell to 1.5 percent (yoy). Unemployment remained low (3.6 percent in September 2015), in part as make-work programs continue to facilitate employment, though layoffs were picking up.

Although the Trinidad and Tobago economy has been producing oil for over 100 years, it only established an interim sovereign wealth fund in 2000, which was later formalized in 2007. Despite the fact that the sovereign wealth fund species rules regarding deposits into the fund, these guidelines were not based on any rigorous framework but rather on adhoc rules which may not have taken specic issues such as household welfare and scal stability into account. Thus, a key issue facing policymakers in Trinidad and Tobago is how to determine the optimal allocation of resource windfalls between spending today and saving in the sovereign wealth fund, so welfare can be improved and at the same time there can be a lasting impact on development.

Trinidad and Tobago experienced 16 consecutive years of real GDP growth through 2008 as a result of economic reforms adopted in the early 1990s, tight monetary policy and, until recently, buoyant markets for its export commodities. In 2007, the country experienced a real GDP growth rate of 5.5%, which moderated to 3.5% in 2008. The country experienced negative growth of 3.5% in 2009, with an expected rebound of 2.5% in 2010.

The government largely avoided deficit spending throughout its history, but a high non-energy fiscal deficit raises concerns for long-term sustainability, while rapid increases in infrastructure and recurrent spending have contributed to rising inflation and the governments last three budgets increased the countrys deficit significantly. The 2010 budget reflected an 11% increase in spending, and the governments spending seems generally unaffected by the state of the international market. Long-term growth prospects nevertheless remain promising, as Trinidad and Tobago further develops its oil and gas resources and the industries dependent on natural gas, including petrochemicals, fertilizers, iron/steel and aluminum. Additional growth potential also exists in financial services, telecommunications and transport.

Strong growth in Trinidad and Tobago over the past few years has led to trade surpluses, even with high import levels due to industrial expansion and increased consumer demand. Unemployment reached 5.8% in December 2009, up from 3.9% in December 2008, and recent estimates indicate an unemployment rate of 6.7% in 2010. However, official rates likely mask a higher underemployment rate by counting participants in government make-work projects as employed persons. The inflation rate fluctuated in the last 24 months, settling at 5.1% in April 2010, but rising again to 14.1% in July, and then dropping again to 10.7% in early 2011. In an effort to contain inflation, the Central Bank repeatedly raised interest rates and reserve requirements, while issuing bonds to mop up excess liquidity. There are no currency or capital controls, and the Central Bank maintains the TT dollar in a lightly managed, stable float against the U.S. dollar. During 2008, the exchange rate fluctuated between TT$6.1573 and TT$6.3573 to U.S. $1. The rate as of August 2009 was TT$6.3401 to U.S. $1, but shifted to approximately TT$6.4 to U.S. $1 in the first quarter of 2011. During the 12-month period of July 2009 to July 2010, the average buying rate of the U.S. dollar appreciated from $6.2719 to $6.3239. Within the same period, the selling rate increased from $6.3367 to $6.3771.

Trinidad and Tobago has made a transition from an oil-based economy to one based on natural gas. Natural gas production over the period October 2007 through April 2008 was 115.2 million cubic meters per day, up from 111.9 million cubic meters per day over the same period in 2006-2007. About half of the country's natural gas production is converted into liquefied natural gas (LNG) at the Atlantic LNG facility in Trinidad and exported under long-term contracts and on the spot market. Trinidad and Tobago is the fifth-largest exporter of LNG in the world and the single largest supplier of LNG to the U.S., providing two-thirds of all LNG imported into the U.S. since 2002, and currently supplying approximately 40% of U.S. LNG imports. Natural gas production continues to expand and should meet the needs of new industrial plants coming on stream over the next few years, including iron, aluminum, ethylene, and propylene. The petrochemical sector includes plants producing methanol, ammonia, urea, and natural gas liquids; after steady growth in recent years, this sector more than any other felt the impact of a global economic slowdown in late 2008. A number of plants responded with temporary shutdowns. Since 2010 the government has increased its commitment to the development of renewable energy sources by creating various tax credits and incentives for the import and maintenance of renewable energy equipment.

Growth in the non-energy sector was projected to slow from 7.7% in 2007 to 4.8% in 2008, and took a 7.2% hit in 2009. The manufacturing sector grew by 2.5% in 2008, but contracted by 1.7% in 2009; it was expected to rebound to 8.4% of GDP in 2010. Services sector growth slowed to 4.5% in 2008 from 6.6% in 2007, and was projected to contract another 0.8% in 2010. An increase of 8.6% in 2008 was projected for the domestic agriculture sector in response to several government initiatives, but the government expected drops in 2009 and 2010 and that agriculture would contribute 0.4% and 0.5% of GDP, respectively. The government also is seeking to diversify the economy to reduce dependence on the energy sector and to achieve self-sustaining growth. The Ministry of Trade and Industry is leading efforts to develop seven other sectors where the country is believed to have a comparative advantage: yachting; fish and fish processing; merchant marine; music and entertainment; film; food and beverage; and printing and packaging. A national research and development fund will be established to stimulate innovation and investment in a new technology park, currently under construction.

Trinidad and Tobago has an open investment climate. Since 1992, almost all investment barriers have been eliminated. The government has a double taxation agreement, a bilateral investment treaty, and an intellectual property rights agreement with the United States. The stock of U.S. direct investment in Trinidad and Tobago was $3.8 billion (book value) as of 2007. Total foreign direct investment inflows over the 4 years 2004-2007 amounted to approximately U.S. $3.8 billion, although foreign direct investment in Trinidad and Tobago has dropped significantly since 2008. Among recent and ongoing investment projects are several involving U.S. firms. Several U.S.-branded hotel chains have entered the market; most recently, a Hyatt-managed hotel opened in early 2008, part of a multimillion-dollar waterfront development project in Port of Spain.

Trinidad and Tobago's infrastructure is adequate by regional standards. Expansion of the Crown Point airport on Tobago is being planned, which follows opening of the Piarco terminal on Trinidad in 2000. There is an extensive network of paved roads. Traffic is a worsening problem throughout Trinidad, as the road network is not well suited to the rising volume of vehicles and only a rudimentary mass transport system exists as an alternative. Utilities are fairly reliable in cities, but some rural areas suffer from power failures and water shortages in the dry season. Flooding in the rainy season due to inadequate drainage affects urban and rural areas alike. Infrastructure plans include housing, roads and bridges, rural electrification, flood control, and improved water supply, drainage, and sewerage.

Telephone service is modern and fairly reliable, although significantly more costly to consumers than comparable U.S. service, including for wireline, wireless, and broadband services. Two wireless providers, bmobile and Digicel, are operational, and the use of cellular technology is widespread. Some portions of the country have not been penetrated by wireless Internet, but that service is increasingly common throughout the country. Improvements in service and price are likely as competition in the Internet services market increases in coming years.





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Page last modified: 23-05-2017 15:48:40 ZULU