Trinidad and Tobago: Risk Assessment
Country Risk Rating
Business Climate Rating
- World’s ninth-largest exporter of liquefied natural gas (2020)
- Large oil and gas reserves
- Petrochemical industry (global exporter of methanol and ammonia) supported by gas production (ranked 25th worldwide)
- Large sovereign wealth fund (25% of GDP) and currency reserves (seven months of imports)
- Lead country in the Caribbean Community (Caricom)
- Weakly diversified economy due to heavy dependence on gas and petrochemicals
- Ineffective public initiatives
- Uneven distribution of hydrocarbon wealth (20% of the population lives below the poverty line)
- Growing crime, especially linked to drug trafficking
- On Europe’s list of non-cooperative tax jurisdictions since 2021
A recovery was driven by exports of gas and gas derivatives
Trinidad and Tobago was hard hit economically by the COVID-19 pandemic through the energy sector (40% of GDP and 80% of exports), where demand fell, and production was partially put on hold in 2020, tourism (8% of GDP in 2019), and the strict lockdown measures adopted to fight the spread of the virus. Regarding volume and price, the energy sector’s recovery stabilized activity in 2021. This upturn, set to continue in 2022, combined with an easing of health-related restrictions, should result in comfortable growth. The main driver will be exports of crude oil (11% of exports), liquefied natural gas (34%), methanol (14%), and ammonia (9%), as well as iron, steel, and aluminum. However, the petrochemical and steel industries will remain dependent on local hydrocarbon supplies, which are fiercely competitive with exports, even as the quantities of hydrocarbons extracted decrease amid a downward trend that predates the crisis. Illustrating this point, a shortage of available natural gas forced the closure in 2020 of Atlantic LNG Train 1, a significant liquefaction plant belonging to the state-owned National Gas Company. The facility has yet to reopen. In parallel, however, new gas resources are being or will be developed this year, including an OK east of the Cashima field and the Cassia Compression project, which aims to maximize production from existing areas. Other sectors will be much less dynamic. Tourism, a significant industry for the country, will recover gradually but is at the mercy of a potential re-imposition of restrictions on air travel. The agricultural sector, which is smaller (0.5% of GDP and 4% of employment), should also pick up via citrus, flowers, cocoa, coffee, and sugar cane crops.
On the demand side, private consumption could remain subdued due to the gradual lifting of health restrictions, the vaccination campaign backed by the WHO’s COVAX Facility, which saw just 46% of people fully vaccinated by the end of November 2021, and the slow decline in the unemployment rate. For the same reasons, residential construction is expected to pick up tentatively. Public consumption will be hampered by fiscal consolidation, while the annual Public Sector Investment Programme (PSIP) will focus on enhancing productivity through improved infrastructure and tackling climate change. The majority of private investment will continue to be in the gas sector.
An increased current account surplus and a shrinking public deficit
After vanishing in 2020, the current account surplus will resume the upward trend that began in 2021, driven by the rebound of hydrocarbon and petrochemical exports, whose prices will be kept high by strong global demand. The slow recovery of the tourism sector will only slightly mitigate the services deficit, which will persist, especially as freight costs are poised to remain high. The income account will stay in debt due to income repatriation by the many foreign oil companies operating in the country.
The fiscal deficit widened significantly because of the support measures implemented during the pandemic and the fall in revenue from the energy sector (about 30% of government revenue). Next year, it will continue the improvement that began in 2021, on the back of increased energy revenue and improved tax collection, with the creation of a gambling tax in 2021. The government will continue to draw on its sovereign wealth fund, the Heritage and Stabilisation Fund, which finances part of the deficit. However, despite this slight improvement, the public debt (whose external portion is between 25% and 30% of the total) will increase. In 2021, credit rating agency Moody’s downgraded Trinidad and Tobago’s rating from Ba1 to Ba2 due to the country’s persistently high level of debt, dependence on the oil and gas sectors, and under-diversification. However, the prospects for improvement over the coming years are positive, with the development of new gas resources.
High levels of insecurity undermine political stability.
Prime Minister Keith Rowley, leader of the centrist People’s National Movement (PNM), has been at the head of the government since 2015 and was re-elected in the 2020 elections to lead the country until 2025, with a narrow absolute majority in parliament (22 out of 41 seats against 19 for the United National Congress, the opposition party led by Kamla Persad-Bissessar, a former prime minister). In 2022, the government will have to continue dealing with high levels of corruption, rising crime, and extensive drug trafficking, which reflect the country’s institutional weaknesses. Trinidad and Tobago has the sixth-highest crime rate in the world. People are angry about the climate of insecurity, feeling that the police are not doing enough to protect citizens. Acting police chief Gary Griffith has spoken of a “fear factor” in police dealings with criminals. There are also tensions between Afro-Trinidadians, who vote for the PNM, and Indo-Trinidadians, who vote for the UNC.
The number of migrants from Venezuela trying to escape the economic and humanitarian crisis in that country is increasing, rising from 24,000 in 2020 to 30,000 in 2021. In response, the prime minister, a staunch ally of Nicolas Maduro, has no compunction about expelling migrants and opposes the further opening of the borders.