GEISHA KOW­LESSAR ALON­ZO

With the 2026 na­tion­al bud­get on the hori­zon, T&T is once again brac­ing for a fis­cal deficit.

In his mid-year bud­get re­view on June 18, Fi­nance Min­is­ter Dav­en­dranath Tan­coo in­di­cat­ed there was a pro­ject­ed $9.67 bil­lion deficit for the 2025 fis­cal year, with a re­duc­tion in rev­enue of $556.7 mil­lion.

This sig­nals that the Gov­ern­ment would con­tin­ue to face sig­nif­i­cant fi­nan­cial strain as it pre­pares for the 2026 bud­get, which Prime Min­is­ter Kam­la Per­sad-Bisses­sar has al­ready stat­ed would not be bal­anced.

T&T’s pro­ject­ed fis­cal deficit is a con­tin­u­ing pat­tern that has large­ly de­fined its fi­nan­cial land­scape since 2011.

The lone break in this trend was a $1.33 bil­lion sur­plus in 2022, which was an ex­cep­tion­al event rather than a sign of a sus­tain­able eco­nom­ic re­cov­ery. That sur­plus was pri­mar­i­ly a di­rect re­sult of a tem­po­rary surge in glob­al en­er­gy prices trig­gered by geopo­lit­i­cal con­flict.

The Busi­ness Guardian en­gaged econ­o­mists Dr Vaalmik­ki Ar­joon and Dr Vanus James for their in­sights in­to this coun­try’s es­ca­lat­ing deficits, which re­sult in ris­ing debt and the ur­gent need to re­assess na­tion­al pri­or­i­ties.

Ar­joon not­ed that the deficits of 2011 to 2015 were com­par­a­tive­ly con­tained, av­er­ag­ing just over $3 bil­lion a year.

Even then, how­ev­er, the lat­ter part of that pe­ri­od start­ed show­ing the ear­ly ef­fects of de­clin­ing nat­ur­al gas out­put and a soft­en­ing in glob­al prices.

How­ev­er, con­di­tions wors­ened sharply from 2016 through the im­me­di­ate pre-pan­dem­ic year of 2019.

Ar­joon stat­ed that the col­lapse in in­ter­na­tion­al en­er­gy prices af­ter 2014, cou­pled with ma­te­r­i­al sup­ply-side chal­lenges in nat­ur­al gas out­put, drove a pro­nounced fall in gov­ern­ment re­ceipts.

Over these four years (2016 to 2019), he ex­plained, the cu­mu­la­tive fis­cal deficit reached $31.23 bil­lion, more than dou­ble the $15.36 bil­lion short­fall record­ed across 2011 to 2015, il­lus­trat­ing how quick­ly the bal­ance de­te­ri­o­rat­ed when the en­er­gy cy­cle turns.

The rev­enue dy­nam­ics are strik­ing: from 2011 to 2015, an­nu­al en­er­gy rev­enues av­er­aged $25.13 bil­lion; from 2016 to 2019, they fell to $10.33 bil­lion on av­er­age, with the low­est in 2016 at a mea­gre $6.64 bil­lion.

Ar­joon fur­ther analysed that the deep­est sin­gle-year deficit came in 2020 at $16.69 bil­lion, as the pan­dem­ic de­pressed com­mod­i­ty prices fur­ther choked pri­vate-sec­tor op­er­a­tions and house­hold spend­ing. Gov­ern­ment sped­ing al­so in­creased in 2020.

Tax­es on in­come and prof­its, typ­i­cal­ly 60 to 65 per cent of tax rev­enue, slid to $15.98 bil­lion, their low­est lev­el since 2004.

“Oth­er ma­jor stress years were 2016 and 2017, post­ing deficits of $7.97 bil­lion and $13.53 bil­lion re­spec­tive­ly, amid a hy­dro­car­bon price col­lapse, while 2021 record­ed a deficit of $12.35 bil­lion as pan­dem­ic pres­sures lin­gered. Tak­en to­geth­er, the four stress years of 2016, 2017, 2020, and 2021 ac­count for near­ly 60 per cent of the cu­mu­la­tive 2011 to 2024 fis­cal short­fall, un­der­scor­ing how vul­ner­a­ble our pub­lic fi­nances are to ma­jor ex­ter­nal shocks and do­mes­tic en­er­gy pro­duc­tion,” Ar­joon added.

He fur­ther not­ed that a fleet­ing re­bound fol­lowed in 2022. Rus­sia’s in­va­sion of Ukraine lift­ed glob­al en­er­gy prices, push­ing en­er­gy rev­enues to $29.79 bil­lion, the high­est since 2008, and de­liv­er­ing the lone sur­plus of the pe­ri­od.

How­ev­er, as prices nor­malised and hy­dro­car­bon vol­umes stayed sub­dued, the bal­ance swung back in­to deficit: $3.17 bil­lion in 2023 and $9.11 bil­lion in 2024.

The con­trast is stark.

With­in just two years, the fis­cal bal­ance swung from the deep­est deficit on record in 2020 to a sur­plus in 2022, a spread of $18.02 bil­lion.

Ar­joon said this dra­mat­ic swing un­der­scores the ex­tent to which fis­cal out­comes are volatile and re­main hostage to en­er­gy for­tunes, adding, “In­deed, in the last decade, oil and nat­ur­al gas out­put fell by rough­ly 36 per cent and 39 per cent, re­spec­tive­ly, erod­ing roy­al­ties and tax­es, weak­en­ing div­i­dends from State-owned en­er­gy com­pa­nies and trim­ming the for­eign-ex­change earn­ings that grease non-en­er­gy op­er­a­tions.”

The re­sult was con­strained pri­vate in­vest­ment, stalled di­ver­si­fi­ca­tion and soft­er col­lec­tions in tax­es on in­come and prof­its, even be­yond the trough years. In short, with prices weak and pro­duc­tion de­pressed, per­sis­tent fis­cal deficits are the base­line one would ex­pect in an econ­o­my this sig­nif­i­cant­ly ex­posed to hy­dro­car­bons.

The way for­ward

The cen­tral ques­tion looms large: where would the Gov­ern­ment find the mon­ey to ser­vice its debts and run the coun­try?

With en­er­gy pro­duc­tion still de­pressed, the new ad­min­is­tra­tion has lit­tle choice but to run a deficit.

Ac­cord­ing to Ar­joon, this need not sig­nal a fis­cal weak­ness if it is care­ful­ly de­signed.

“Used for a few dis­ci­plined, time-bound years, deficits can fi­nance high-mul­ti­pli­er in­vest­ments that ex­pand pro­duc­tive ca­pac­i­ty and gen­er­ate the rev­enues need­ed to close the fis­cal gap,” he said.

Mean­while, for James the an­swer is nei­ther sim­ple nor sin­gu­lar.

It lies in a com­plex mix of tax rev­enues, bor­row­ing, spend­ing de­ci­sions, and mon­e­tary pol­i­cy—all of which are shaped by the volatile per­for­mance of the en­er­gy sec­tor and the struc­tur­al lim­i­ta­tions of the broad­er econ­o­my.

James not­ed tax­es re­main the Gov­ern­ment’s pri­ma­ry source of rev­enue, but their re­li­a­bil­i­ty is deeply tied to the health of the en­er­gy sec­tor.

For 2025, the Min­istry of Fi­nance based its rev­enue pro­jec­tions on an oil price of US$77.80 per bar­rel (WTI) and a nat­ur­al gas price of US$3.59 per MMB­tu. Yet, mar­ket da­ta from Trad­ing Eco­nom­ics paints a sober­ing pic­ture.

Since Jan­u­ary, oil prices have de­clined by rough­ly 13.6 per cent, falling from US$73 to US$63, while New York nat­ur­al gas has dropped by 18 per cent, slid­ing from US$3.60 to US$2.95.

These fig­ures re­flect the well-known volatil­i­ty of com­mod­i­ty mar­kets and sug­gest that en­er­gy rev­enues would fall far short of the pro­ject­ed $14.174 bil­lion.

Con­se­quent­ly, to­tal rev­enues are un­like­ly to meet the bud­get tar­get of $54.224 bil­lion, James stat­ed.

Non-en­er­gy rev­enues, pro­ject­ed at 18.5 per cent of GDP or ap­prox­i­mate­ly $35 bil­lion, are al­so un­der pres­sure.

“This is where the Cen­tral Bank and IMF’s growth pro­jec­tions for the year come in. The IMF pro­ject­ed a 2.4 per cent growth of re­al GDP (af­ter ac­count­ing for in­fla­tion) in 2025, notwith­stand­ing that the econ­o­my achieved on­ly 1.43 per cent in 2024 and got up to on­ly 2.1 per cent nom­i­nal growth by elec­tion time in April/May this year.

“With in­fla­tion above 1 per cent so far this year and head­ing up­wards, as es­ti­mat­ed by the Cen­tral Sta­tis­ti­cal Of­fice, this would put re­al GDP growth in the neigh­bour­hood of 1 per cent so far,” said James.

He said the T&T econ­o­my is un­like­ly to hit the IMF’s pro­jec­tions if we take ac­count of an­tic­i­pat­ed weak per­for­mance of the en­er­gy sec­tor. And since the for­eign ex­change earn­ings of the en­er­gy sec­tor pro­vide the ba­sic fu­el for the high­ly im­port-de­pen­dent so-called non-en­er­gy sec­tor, that al­so spells its weak per­for­mance. So, the non-en­er­gy sec­tor is al­so like­ly to gen­er­ate no bet­ter than the $35 bil­lion it yield­ed last year, and that is as­sum­ing it could be col­lect­ed,” James ex­plained.

He sug­gest­ed that Gov­ern­ment could al­so draw down on the HSF and use up some of its own re­serves man­aged by the Cen­tral Bank, but that is sure­ly con­strained bud­get strat­e­gy.

The HSF stands at about US$6 bil­lion and of­fi­cial for­eign re­serves were US$4.80 bil­lion in Ju­ly.

Ac­cord­ing to James ex­ces­sive short-term draw­down on ei­ther is risky busi­ness, part­ly be­cause of the im­por­tance of im­port cov­er in an im­port-de­pen­dent econ­o­my, and part­ly be­cause of the un­cer­tain fu­ture of the en­er­gy sec­tor in an econ­o­my that is achiev­ing lit­tle di­ver­si­fi­ca­tion.

Print­ing mon­ey (bor­row­ing from the CBTT) and ex­tract­ing seignior­age (debt mon­eti­sa­tion) is al­so an op­tion to which gov­ern­ment can turn.

James said this is “quite a temp­ta­tion” in times of bud­getary stress be­cause with the Cen­tral Bank un­der its con­trol, Gov­ern­ment could sim­ply is­sue bonds to the Bank, which it “buys” by cre­at­ing new Cen­tral Bank mon­ey which the Gov­ern­ment can draw down. This kind of debt mon­eti­sa­tion means the Gov­ern­ment could cov­er a lot of its oblig­a­tions even if oth­er tax­es are un­der­per­form­ing.

How­ev­er, James cau­tioned the “re­al tax” risks as well as the so­cial risks of this strat­e­gy are con­sid­er­able be­cause ex­pand­ing spend­ing when the econ­o­my is un­der­per­form­ing will cause in­fla­tion and ris­ing de­mand for im­ports, adding that in­fla­tion un­der­mines the re­al wealth of the pub­lic and ris­ing de­mand for im­ports puts the im­port cov­er un­der even more strain.

The way for­ward, James ad­vised, re­quires sound and well-in­formed pol­i­cy­mak­ing of a kind the coun­try has nev­er put in place.

“So, the coun­try has grown his­tor­i­cal­ly and con­tin­ues to grow with­out de­vel­op­ment. The above bud­getary cri­sis tends to re­cur fre­quent­ly in that con­text, caus­ing trou­ble for suc­ces­sive gov­ern­ments,” he said.

T&T’s 2026 fis­cal strat­e­gy must there­fore bal­ance im­me­di­ate needs with long-term sus­tain­abil­i­ty.

With en­er­gy rev­enues fal­ter­ing, non-en­er­gy sec­tors un­der strain, and lim­it­ed fis­cal space, the gov­ern­ment faces tough choic­es. Whether through dis­ci­plined bor­row­ing, cau­tious re­serve use or struc­tur­al re­form, the path for­ward de­mands care­ful nav­i­ga­tion, strate­gic fore­sight and a com­mit­ment to eco­nom­ic re­silience.