Trinidad and Tobago: Risk Assessment
Country Risk Rating
Business Climate Rating
- World’s eighth-largest producer of liquefied natural gas
- Petrochemical industry (global exporter of methanol and ammonia)
- Large sovereign wealth fund (25% of GDP) and currency reserves
- Lead country in the Caribbean Community (Caricom)
- Well-trained English-speaking workforce
- Small economy that is reliant on oil and gas
- Underdeveloped non-energy sector (including agriculture and tourism)
- Projected decline in energy resources
- Ineffective public initiatives
- Inadequate financial sector supervision
- Uneven wealth distribution (20% of the population lives below the poverty line)
- Drug trafficking-related crime
Modest growth set to return at last in 2021
Economic activity in Trinidad and Tobago, which was already anemic, was severely impacted by the COVID-19 crisis. To contain the pandemic, the government implemented lockdown measures, including closing borders and shutting down schools and universities. These measures, coupled with the fall in external demand, caused the country to plunge into recession in 2020. Consequently, the government announced fiscal measures (3.3% of GDP) to mitigate the effects of the crisis. These measures included subsidized loans to individuals and businesses, and financial and food support for the poorest households. Even so, household consumption declined due to the restrictions resulting from COVID-19. It is expected to recover only marginally in 2021 due to the uncertainties associated with the crisis, which are pushing households to save. Private investors have put their decisions on hold, while public investment has been confined to health infrastructure. Investment in new projects is expected to continue to lag in 2021.
The energy sector (40% of GDP and 70% of exports in 2019) is one of the mainstays of the country's economy. Hydrocarbon exports (natural gas accounts for 34% of exports, crude oil for 11%, and refined products for 4%), which had already been affected by the depletion of national oil reserves, were hit hard in 2020 by the decline in external demand and prices. In 2021, hydrocarbon production and exports are expected to pick up due to firmer global demand and a slight increase in prices. More importantly, new gas projects are being completed, including the discovery of natural gas in an exploration well east of the Cashima field and the Cassia Compression project, which aims to maximize production from existing fields. These projects should enable the country to boost production as early as 2021. Conversely, oil refining will remain severely handicapped by the drop in crude oil production in Venezuela, its main supplier. The petrochemicals (methanol and ammonia account for 14% and 9% of exports respectively) and steel industries (iron and steel, 6%) are not likely to be any better off, due to their dependence on the economic situation of end markets, i.e. primarily construction and automotive. Although a slight recovery is expected in 2021, these two sectors are set to remain weak, which will negatively affect both prices and production. Fertilizers (3%) are benefiting from the agricultural sector’s resilience in the face of the crisis and should get back to pre-crisis levels in 2021. Although they account for a smaller share of the petrochemical industry, they limit the negative impact on it.
Return to a modest current account surplus and a large public deficit
The traditional current account surplus resulting from massive exports of hydrocarbons and petroleum derivatives momentarily turned into a deficit in 2020 as the energy market fell. At the same time, despite the drop in domestic demand, imports did not really decrease, as they are mainly made up of necessities. Meanwhile, imported food products, on which the country depends, became more expensive. Furthermore, the decline in tourism and the increase in maritime transport costs caused the services deficit to widen. In 2021, the current account is expected to return to a small surplus due to the recovery in external demand for energy, while the services deficit will not decline and nor will the deficit in income related to profit repatriation by foreign investors.
The public deficit widened dramatically because of the situation. Government revenue (22.5% made up of energy revenues) contracted, while expenditure rose sharply, particularly in the health sector (equipment, medical staff and infrastructure). The support plan also had an impact. In order to finance the budget deficit, the government called on multilateral institutions for help, with the Inter-American Development Bank, for example, providing USD 50 million. The government also made greater use of its sovereign fund, the Heritage and Stabilisation Fund, which traditionally finances the deficit. The deficit will be reduced in 2021 due to increased revenues but will remain high. Because of this increased deficit, the debt is increasing.
Fragile political stability
Prime Minister Keith Rowley, a member of the People's National Movement (PNM), who has led the government since the 2015 elections, was reappointed following the August 2020 elections, in which the PNM retained an absolute majority in parliament (22 of 41 seats). The United National Congress (UNC), the opposition party led by former Prime Minister Kamla Persad-Bissessar, won 19 seats. Effective handling of the COVID-19 crisis played a decisive role in the election outcome. The political environment will remain tense due to the economic fallout from the crisis, the high crime rate, corruption and ethnic tensions. Voting in the country tends to take place along ethnic lines, with Afro-Trinidadians voting for the PNM and Indo-Trinidadians voting for the UNC. The fact that the two groups are equally sized explains the small gap separating the parties, leaving the rest of the population to determine the outcome.