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Trinidad and Tobago Faces Economic Challenges Amid Global Uncertainties

Trinidad and Tobago is grappling with significant economic challenges, as revealed in a recent interview with Economist Dr Marlene Attzs on Altos. The country’s Finance Minister, Colm Imbert, delivered a mid-year budget review that highlighted a $3 billion shortfall in revenue, largely attributed to lower natural gas prices and decreased production.

Dr Attzs explained that while the government makes revenue estimates based on projected oil and gas prices, these projections can be affected by unforeseen global events. She noted, “We all know that the best laid plans can go awry. Sometimes you might find geopolitics. When the Russia-Ukraine war started in 2022, we didn’t anticipate that, but it was a good thing for us because it sent prices up.”

However, the current situation is less favourable. Dr Attzs pointed out that the United States has capitalised on the global geopolitics and has flooded the market with oil and gas, which means “that it’s putting downward pressure on the prices”.

The revenue shortfall isn’t solely due to the energy sector. She emphasised that non-oil revenue, including taxation, is also a factor.  Recent efforts to improve tax collection, included the public naming of business owners with significant tax debts.

The country’s deficit has increased dramatically, moving from $5 billion to $9 billion. “It is significant. Government’s expenditure has also gone up to over $61 billion.”

Another critical aspect of Trinidad and Tobago’s economic challenges is the foreign exchange situation. Dr Attzs explained, “The foreign exchange conversation, the shortages that we face are in fact linked to declines in production and declines in revenue from the energy sector, because the energy sector is where we earn the bulk of the foreign exchange in Trinidad and Tobago, about 80 per cent of our forex comes from that source.”

This decline in energy sector revenue has significant implications. “If revenue is declining from that source, it stands to reason that our forex stream is going to be trickling, and it means that if you want to access forex, you’re going to have to draw down on the reserve.”

The “reserve” she mentioned is the Heritage and Stabilisation Fund (HSF). Dr Attzs elaborated on the nature and purpose of the HSF: “The HSF is what we call our… Well, in layman’s terms, I’ll call it our National Savings Account, in a sense….meant to provide for, as the name implies, future generations, because we earn our wealth in Trinidad and Tobago from non-renewable resources.”

She further explained the dual purpose of the fund: “The HSF also is for stabilisation, and the most poignant time that we used it was for Covid-19. In March 2020, Covid-19 was declared a catastrophe for us, and we were able to dip into that savings fund as it were.”

The HSF serves as a crucial buffer for the country’s economy, alongside the foreign exchange reserves. Dr Attzs distinguished between the two: “That [HSF] is one of our buffers. But the other buffer that we have is where you hear conversations about the reserves in terms of months of import cover.” The country’s Central Bank has had to intervene to maintain stability in the foreign exchange market. She noted, “The Central Bank issued their annual report for 2023, where they actually spoke to the fact that they’ve had to dip into the reserves to provide some stability to the forex market and also to use some of the money to put into the Heritage and Stabilisation Fund.”

Looking ahead, the Finance Minister has expressed optimism about improved revenue projections by 2026-2027, linked to increased gas production. However, Dr Attzs warned of potential geopolitical risks, particularly concerning the Dragon Gas deal with Venezuela and upcoming elections in both Venezuela and the United States. She noted that a potential return of President Trump or changes in Venezuela’s leadership could affect the deal’s prospects.

Dr Attzs emphasised the need for economic diversification: “These vacillations, geopolitically, that impact on our revenue stream, they are reminders for us that we need to do the transition. We need to start to put some of our eggs in other baskets, so to speak, and not depend totally on the energy sector.”

As Trinidad and Tobago navigates these economic challenges, balancing the narrative and considering long-term strategies for diversification will be crucial for the country’s financial stability and growth.

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