Economic Update

Published 31 Oct 2019

Trinidad and Tobago has continued along the path of fiscal consolidation with the release of the country’s budget for 2020, delivered against a backdrop of subdued energy prices and calls for increased diversification.

On October 7 Colm Imbert, the minister of finance, outlined the upcoming budget for the 2020 calendar year, released under the title “Stability, Strength and Growth”.

Efforts made in recent years have seen spending fall considerably, and the new plans looks set to consolidate this progress: the budget foresees revenue of TT$47.7bn ($7bn) and expenditure of TT$53bn ($7.8bn), resulting in a fiscal deficit of TT$5.3bn ($782.9m).

While at 3.1% of GDP the deficit is slightly higher than this year’s projected figure of 2.4%, it remains considerably lower than 2017’s high of 9%.

The additional TT$2.5bn ($369.3m) in spending, which comes ahead of an expected election in 2020, includes a decision to raise the minimum wage from TT$15 ($2.21) to TT$17.50 ($2.59) an hour, which the budget states will benefit 194,000 people.

Overall, education and training will see the largest allocation of resources, at TT$7.5bn ($1.1bn), followed by national security, at TT$6.4bn ($945.4m), and health, at TT$6.1bn ($901.1m).

In terms of growth, citing World Bank estimates, the budget foresees GDP expansion of 0.9% this year, up from 0.7% in 2018, followed by 1.9%, 4.1% and 3.6% in 2020, 2021 and 2022, respectively.

See also: The Report – Trinidad & Tobago 2018

Hydrocarbons output boost

The budget comes at a time when government revenues are still being affected by the downturn in oil and gas prices that began in 2014, exacerbated further by declining output, increased tax allowances to energy companies and accelerated capital allowances.

While revenues have increased from a recent low of TT$36.1bn ($5.3bn) in 2017 to a projected TT$47.7bn ($7bn) next year, they are still well below 2014’s levels of TT$57bn ($8.4bn).

To address this, the government will extend the capital allowance write-off period from three to five years and reduce tax relief for energy companies from 100% to 75%, effective January 1.

In terms of pricing, the budget was calculated on the projected gas price of $3 per million British thermal units (Btu) and $60 a barrel for oil.

However, projections from Henry Hub put the gas price at $2.55 per million Btu for 2020 and the West Texas intermediate projection for 2020 is $56.20 per barrel, suggesting that there could be a mismatch between the expected and actual revenue for the upcoming year, especially given that the country is increasingly reliant on natural gas rather than crude oil.

With an eye towards reversing years of underinvestment in the sector, Imbert highlighted the signing of a memorandum of understanding between the newly formed Heritage Petroleum Company and Shell TT, which will see the latter provide Heritage with financial and technical support for its activities.

Elsewhere, from January 1 the government will increase its investment tax credit from 20% to 25% to further encourage exploration, while it is also estimated that BHP Billiton’s recent discovery of oil will lead to a 25% increase in production over the next two years.

Diversification remains a priority

While there are a number of key developments in the hydrocarbons sector, the government has reiterated its commitment to economic diversification by expanding the non-energy economy, which now contributes 60% of total GDP.

In this vein, the budget has outlined tax incentives to boost agriculture and agro-industry, widely regarded as being among the best-positioned economic areas to increase GDP contribution.

In his speech presenting the budget, Imbert proposed transforming agriculture into a “tax-free industry”, including the removal of “all taxes and all duties on all inputs and resources for farmers registered for agricultural purposes”.

In addition, the government hopes to boost productivity through improved technological infrastructure such as internet connectivity, the consolidation of data into an electronic document management system and the provision of a land card, which would allow state land users access to electronic files.

According to PwC, increasing output through these measures would bolster food security and reduce import-reliance while simultaneously curbing inflation. The firm also noted in their evaluation that “tax-free agriculture may encourage persons to move into those sectors, thereby reversing the deterioration of participation in the sector and positively impacting unemployment figures”.

However, given the minimal contribution of the agricultural sector to overall GDP – it has accounted for less than 0.5% of GDP since 2012 – PwC and others agree that more could have been done to stimulate activity in the sector, especially in light of subdued energy prices and signs of heightened consumer demand for certain products.

“Some food and beverage (F&B) annual sales are up by 4%, which is indicative of a return to growth in demand for these products among the middle class,” David Franco, managing director of F&B importer Brydens T&T, told OBG.