The economy in Trinidad and Tobago is expected to see a short-term boost from increased public spending in the run-up to the general elections, scheduled for September 7.
However, the outlook beyond the polls is less easy to predict, injecting a dose of uncertainty into long-term economic forecasts, amidst speculation over the prospects of further fiscal consolidation to address recurrent deficits.
While T&T enjoys one of the highest standards of living in the Caribbean, it has recorded sluggish growth in recent years, a situation compounded by the sharp fall in hydrocarbons prices. Although natural gas accounts for nearly three-fourths of its energy revenues, oil-indexed gas contracts have also been hit by weaker prices.
According to the latest report from the Central Bank of T&T (CBTT), the economy grew by 0.9% in 2014. This follows a contraction in both 2010 and 2011, a small recovery in 2012 and a rebound to growth of 2.1% in 2013. The latter was largely due to the performance of the non-oil sector, with financial services, manufacturing and construction all recording strong momentum.
The CBTT’s outlook for this year is “relatively positive”, with many analysts cautiously optimistic. Nonetheless, growth estimates are varied. The IMF forecasts 1.2% and 1.5% growth in 2015 and 2016, respectively, with inflation expected to reach 7.3% this year before easing to 5.7% in 2016. The Royal Bank of Canada, however, predicts a more sombre 0.5% contraction this year and 5.5% inflation in its regional economic report in June.
Public sector finances also remain an issue. The current administration expects the country’s fiscal deficit to reach 1.5% of GDP this fiscal year, despite austerity measures imposed in response to last year’s decline in hydrocarbons prices.
This means the new government will need to consider additional belt-tightening measures to stop the deficit from widening further. “The new government must initiate politically unattractive but durable fiscal reforms within the first two years of coming into office,” the CBTT’s governor, Jwala Rambarran, said in June, calling for reductions in fuel subsidies and other structural adjustments to address the country’s recurrent deficits.
Weaker oil prices could provide some breathing room to help accomplish the former, while greater fiscal consolidation could be achieved by tightening value-added tax collection and addressing redundant social programmes, Rambarran said.
The battle between the ruling People’s Partnership (PP) coalition and the main opposition group, the People’s National Movement (PNM), promises to be a lively and closely run affair. With few fundamental differences in economic policy, both have sought to encourage private sector investment while increasing public spending and introducing several job-creation schemes to maintain full employment.
Regardless of the outcome, the election cycle itself is expected to give the economy a short-term boost. “Election-related expenditure should … provide impetus for distribution, advertising and transport,” according to an economic newsletter published in March by Republic Bank. The health care and construction sectors in particular are likely to benefit from higher public spending, with a children’s hospital opening in Couva and construction starting on medical facilities in Arima and Point Fortin.
External factors also bode well for growth in certain areas in the near term. Cheaper fuel and the broader global economic recovery could drive tourism receipts and demand for manufactured goods, according to Republic Bank.