Fall in energy prices squeeze TT

These, along with the prolonged economic stagnation, capital allowances, and challenges with tax administration have continued to contribute to weak revenue collections, leading to still significant fiscal deficits and rising public debt levels, the Fund said.

But there is a light at the end of the tunnel, it seems—while the economy seems to have contracted in the first half of the year, the energy sector, our purported saviour, is poised to rebound in the second half. Even beleaguered state oil company, Petrotrin, was noted for its relatively positive contribution in boosting oil production through increased exploration efforts and refinery upgrades. The gas sector, in particular, is of interest to the IMF as a major kick-starter for the economy. As such, it expects knock on effects throughout the entire economy, with positive spill-over into non-oil sectors as well.

Then again, the light at the end of the tunnel could also be an oncoming train. The overall outlook for the country remains stagnant to negative growth for the year. While the IMF praised the government for making fiscal policy adjustments, it cautioned that a sustainable solution would require more measures, especially regarding rising public debt levels. The Fund also noted the levels of foreign reserves remained “healthy… reducing and eventually eliminating the imbalance in the market is of paramount importance,” and suggested structural reforms to give greater flexibility to the market.

The report was fairly predictable.

In fact, even last year, the evaluation team at the IMF made similar observations: Trinidad & Tobago’s economic woes stem from low energy prices, and government needs to implement mitigating and sustainable policies to manage the economy… and foreign exchange systems probably need to be reevaluated.

What is most interesting about the IMF report is what it doesn’t mention: the country’s continued dependence on oil and gas revenues at the expense of other industries; Petrotrin’s bloated operational costs; the current labour climate; the lack of a reliable connection between Trinidad & Tobago; the country’s increasing debt levels, which several local economists have considered beyond the point of no return; and the political unrest in Venezuela.

Perhaps these aren’t the IMF’s focus—perhaps these issues are too specific, or even new, to its overall assessment— or else not as impactful to the macroeconomic outlook of the country than energy, foreign exchange and policy.

Perhaps the IMF team wasn’t able to get access to reliable data, considering the woefully inadequate or outdated information available from the Central Statistical Office.

But resolving these issues are just as integral to returning the country to economic equilibrium.

Even US-based credit rating firm Moody’s overlooked most of these concerns in their assessment, issued in April this year, focusing on reduced oil and gas receipts.

Moody’s did, however, point out the government’s alternative revenue raising measures—changing the value added tax (VAT) structure from 15 per cent on certain items to an across the board 12.5 per cent, as well as sales of assets and dividends from the National Gas Company, have had “limited results,” primarily because government spending remains rigid and expensive.

“…These measures have not changed a rigid expenditure structure, in which wages, subsidies and transfers account for 70 per cent of total government spending.

Furthermore, total expenditures will continue to increase this year amid higher debt servicing costs and larger capital expenditures,” the report said.

Moody’s was also clear about the lack of timely macroeconomic data and weak policy execution that has stymied the effectiveness of official response to energy price decline.

The agency did make a note that “government efforts have promoted only limited economic diversification, modestly decreasing the dependence of the economy in the energy sector.” The Central Bank’s economic indicators for 2016 point to how important—and how much of a priority—the non-energy sector has become to the economy.

In 2012, the energy sector contributed 41 per cent to the country’s gross domestic product; in 2016, it was 18.8 per cent (preliminary).

Meanwhile, even though growth has contracted in the non-energy sector, it is contracting at a slower rate than the energy sector. In 2016 the energy sector shrank 9.6 per cent while the non-energy sector fell 1.8 per cent.

In the Mid-Year Budget Review, Finance Minister Colm Imbert noted the significant loss of US$2.5 billion per year in foreign exchange inflows from oil and gas receipts since 2014.

As a result, foreign reserves have fallen by 12 per cent from US$10.4 billion in May 2014 (12 months’ import cover) to US$9.1 billion in April 2017 (10 months).

Meanwhile, even though though the gas deal between Trinidad & Tobago and Venezuela that would allow this country to process natural gas from neighbouring and shared fields had been scheduled to be completed last month, there still has been no official word to seal the deal, and the current political unrest—including deadly protests— in that country suggests that its government has other priorities.

As the country prepares for the 2018 National Budget—expected sometime in September—it’s time to note the government’s promise of delivering its promises of diversifying away from oil and gas and building the capacity in other sectors like manufacturing, tourism and agriculture, all of which can contribute to foreign exchange earnings.