Continuing lower returns from the energy industry and slowing activity in the private sector saw Trinidad and Tobago’s economy shrink in 2017; however, an increase in gas output and widespread reform of the tax system are expected to drive a rebound in the coming year.
While the rate of contraction has eased over the past 12 months, T&T’s economy is still set to post negative growth in 2017, according to the IMF, which forecast GDP would decline by 3.2% this year, down from the 6% reduction seen in 2016.
This negative growth is largely the result of continued low earnings from the energy sector and weak levels of non-hydrocarbons activity, with both areas projected to fall by 3.3% and 3.1%, respectively.
Although the government has moved to reduce spending and shore up the state’s revenue base through new taxes and subsidy cuts in areas such as fuel and utilities, the year-end fiscal deficit is expected to total 11% of GDP, down from 12.1% in 2016.
Energy sector rebound to drive 2018 growth
While the non-energy sector is expected to struggle somewhat in the coming year – the IMF has forecast a 1.2% contraction in non-oil growth in 2018 – energy’s contribution to the economy is set to rebound strongly; the sector is predicted to grow by 7.7% on the back of higher prices and increased production.
This growth will be key to driving T&T’s economy back into positive territory, with the IMF projecting headline GDP will expand by 1.9% next year.
The sector was boosted by a number of new developments throughout 2017, and fresh finds and new projects are slated to bolster returns and output for years to come.
In June BPTT, a joint venture between BP and its Spanish partner Repsol, announced the discovery of gas deposits totalling 2trn cu feet off the coast of Trinidad. The two new fields, Macadamia and Savannah, could be brought on-line by 2020, and officials have noted that there is potential for further finds in the region.
A further fillip came in mid-August, when BPTT began production from its Juniper gas platform, located 80 km south-west of the Trinidad coast. Juniper helped lift national output by 7.7% month-on-month in September, and the project is expected to increase gas production capacity by around 590m cu feet per day.
Further discoveries could be in the offing, following the signing of an energy partnership agreement with Venezuela in November. The deal will see the two countries jointly explore cross-border gas fields.
Tax overhaul to boost state revenue collection
Along with the energy sector, another area identified as key to boosting state revenue is tax, and the government has undertaken wide-ranging reforms aimed at improving recent fiscal imbalances.
In October officials announced the creation the T&T Revenue Authority, the new agency tasked with tax collection. Set to be operational in early 2018, the authority will have a broader remit than the two bodies it is replacing – the Inland Revenue Division and the Customs and Excise Division – and will be responsible for improving financial transparency, conducting audits and investigating suspected evasion.
In addition, the government introduced a series of changes to the tax system in the 2018 budget. The measures include a hike in fuel prices, extra charges for electronic gaming and gambling devices, and increases to corporate tax and hydrocarbons royalties.
While the reforms are expected to generate extra revenue for the state, industry groups in affected sectors have warned local businesses and activity could be negatively affected.
Inflation and interest rates remain steady throughout 2017
The subdued economic conditions throughout 2017 have helped contain consumer prices. Inflation slipped from 3.6% in January to 2% at the end of September, according to the central bank. Production inflation remained marginally higher at 2.2% at the end of September.
Low inflation and the slow pace of lending led the central bank to hold interest rates steady throughout the year, with the benchmark rate unchanged at 4.75%.
However, the tax measures in next year’s budget are likely to lead to a substantial rise in both consumer and wholesale inflation; higher fuel costs are set to impact logistics, manufacturing and domestic transport costs, as price rises are passed on to consumers.
Business outlook optimistic heading into 2018
Despite some challenges associated with diversifying the economy and improving revenue generation, OBG’s most recent survey of CEOs in the country, published in November, shows a growing sense of optimism among the business community.
Some 57% of respondents said they were positive about local business conditions for the coming 12 months, a marked improvement on the 18% recorded in the corresponding survey conducted in late 2016. C-suite executives also expressed a greater appetite for expansion, with 60.7% saying it was likely or very likely their firms would make significant capital investments in 2018, up from 44% the previous year.