Strong Prospects for T&T’s Economic Recovery in 2022
Commentary
After managing almost two years of lockdown and economic constraint, Trinidad & Tobago (T&T) cautiously re-opens in an effort to kick-start the economy with strong prospects in place. Following a contraction of economic growth by 1% in 2021, the International Monetary Fund’s (IMF) latest World Economic Outlook outlines growth for T&T at 5.4% in 2022 while the Latin America and Caribbean region is expected to record growth of 3% and global growth at 4.9%, for 2022. Economic growth for T&T will be strongly attributed to higher energy prices and a resurgence in domestic economic activity along with fiscal measures outlined in the recent budget statement.
Source: International Monetary Fund
Despite the market decline in 2020, the energy sector remains the key driver for recovery, with revenue from this sector historically accounting for 35% of total government revenue. In this fiscal year, the state is expected to collect TTD20 billion in taxes on income and profits, largely contributed by energy corporations. The introduction of major oil and gas projects coupled with the surge in energy prices is expected to foster a 13% growth of the energy sector by 2022, according to the Minister of Finance Colm Imbert.
Currently, international energy prices on October 19th were USD82.96 per barrel of oil and natural gas was selling at USD5.09 per MMBtu. The Government chose to be conservative with energy prices and pegged the budget against USD65.00 per barrel of oil and USD3.75 per MMBtu of gas, respectively. If prices were to remain high, the Government would be able to capitalize from gaining higher revenue, foreign exchange, and economic growth.
According to the Minister of Trade and Industry, Ms. Paula Gopee-Scoon, T&T’s export numbers for 2021 have shown real improvement from its performance even from 2019, in a pre-pandemic market. During the period January to August 2021, total non-energy exports averaged TTD1.3 billion per month, which is an estimated 43% higher compared to 2020. She explained that our local exports have continuously improved owing to particular products for example in the food and beverage sub sector, the cereals, aromatic bitters, alcoholic & non-alcoholic beverages which registered an overall 36% increase over 2020. Within the manufacturing sector, products such as plastics and rubber products saw increases of up to 53%, glass products with an increase of 149%, while electrical equipment, machinery and parts, insulated copper conductors saw a 110% increase. She further noted that trade destinations have become more diverse, and not only has the number of trading partners been increasing, but also the number of products being exported is also rising.
Source: Central Bank Trinidad &Tobago, Ministry of Trade & Industry
Furthermore, according to projections from the Finance Minister, the non-energy sector would register 2.3% growth in 2022 as the vaccination campaign continues and initiatives such as the ‘safe-zone’ implementation for businesses have been put in place as of October 11th. The initiative allows fully-vaccinated persons to access bars, casinos, cinemas, gyms, restaurants and water parks. As of October 19th, 41% of T&T’s population is fully-vaccinated against Covid-19 while 44% of citizens had received at least one dose. As the vaccination campaign continues, and more persons become vaccinated, the Government will further ease restrictions so businesses can further expand production and rehire employees. Private consumption will therefore experience growth which should make the recovery more visible by 2022.
In an attempt to stimulate the economy further, some fiscal measures were mentioned by the Minister of Finance in the 2022 budget as they aim to help individuals and businesses alike. For example, the removal of Value Added Tax (VAT) on most basic food items, the removal of duties on devices to help the visually and hearing impaired, and continuing the rebates on utilities aim to improve standard of living at a lower cost. There was also a reduction of taxes for the manufacturing sector and small-medium enterprises (SME’s) also aimed at increasing investment within these sectors, in an effort to create employment opportunities and generate foreign exchange.
The challenge here lies in implementing measures without incurring more debt given the already strained fiscal position of the economy. Due to this limited fiscal space, measures must be rolled out effectively to yield desired results. As highlighted by economists, there is a need to remove any possible bottlenecks that may unnecessarily hinder the ease of doing business and local competitiveness. This would not only be more attractive to potential investors but would also create the advantage of employment opportunities. While there exist strong prospects for T&T’s economic recovery, there are challenges that can undermine real GDP growth in 2022. The IMF forecasts global growth to slow down to 4.9% in 2022 from 5.9% in 2021, as base effects and government stimulus fades, along with vaccine hesitancy and the potential threat of Covid-19 continuing to spread which can lead to an even sharper decline in global activity. As the country reopens cautiously, growth will therefore depend highly on a progressive energy sector, more of the population being vaccinated, and an improved business climate which would all effectively ensure an active economy.
