The Government must provide measures in Monday’s budget to raise the national savings rate, attract net inflows of funds and correct distortions in wage and price structures to get out of its “disequilibrium trap.”
The disequilibrium trap is marked by recurring boom-and-bust cycles which has plagued the domestic economy for decades.
This is the view of Winston Dookeran who is a former Central Bank Governor and who also served as a finance minister under the People’s Partnership Government.
Dookeran sent the Business Guardian a paper he wrote which is a proposal for the upcoming budget for the 2026 fiscal year.
The paper was also published by the University of the West Indies’ (UWI) Institute of International Relations, dated October 1.
Dookeran explains that a “disequilibrium trap” arises when the combined forces of the market and the state persistently produce mismatches between supply and demand, preventing the system from reaching stability.
He argues that T&T’s economy is in such a state.
“A cursory review of current data suggests that T&T is experiencing all three types of disequilibria: The cyclical volatility of the foreign exchange market and the imposition of new tariff measures; the secular shifts in production functions and consumption behaviour; and the structural transformations in the finance equation including pension funding and changes in the tradable–non-tradable balance. Dookeran argues all three factors converge to create widespread imbalances in the balance of payments.”
Professor of Economics, University of Buenos Aires, Daniel Perrotti sent Dookeran a note congratulating him on his analysis.
“It offers a remarkable synthesis of conceptual rigour and strategic insight, linking modern growth theory with the concrete challenges facing Trinidad and Tobago’s economy. The structure is coherent, and the argument both elegant and persuasive.
“The paper is particularly valuable for its integrated vision, which connects real-economy dynamics, fiscal design, and institutional architecture within a cohesive framework,” Perrotti said.
2026 budget
Dookeran said the Government must take actions in the upcoming budget to balance the economy.
“The foregoing analytics must set the stage for deliberate and unambiguous choices. The macro-systemic measures should translate into immediate, actionable programmes, designed not as piecemeal fixes, but as the opening steps in a renewed fiscal strategy aimed at confronting the disequilibrium trap in the T&T economy.”
He added, “What is required is nothing less than a fresh start for fiscal policy: one that redefines priorities, restores credibility, and establishes the foundations for long-term stability, equity and growth. Outlined below is a ten-point framework of focus areas, each of which can anchor specific measures to chart this new course.”
He argues that T&T will not overcome this decades old problem overnight.
“The pathway to a high-level equilibrium cannot be immediate. It requires a long-term horizon, punctuated by short-term adjustment measures that incrementally steer the economy towards stability. At the centre of this transition must be the restoration of balance in the external accounts, the Balance of Payments, complemented by the design of a sustainable finance equation, recalibrated on an annual basis.”
He then described the complexities involved in attempting to balance an economy and said it is more than merely “balancing numbers.”
“The arithmetic must add up, but so too must the geometry and the algebra. In this construct, arithmetic captures the empirical realities of the economy, geometry speaks to its underlying structure, and algebra reflects the policy choices that connect them both.”
He then gave areas of the economy that the Government must work on to overcome this perpetual imbalance.
One of the priority areas he highlighted is the stability of the balance of payments.
He explained that the balance of payments is the central monitor of a nation’s economic relationship with the rest of the world and for open economies like T&T, its stability is not optional, it is essential to survival and sustainability.
He added that the balance of payments serves both as a mirror of international competitiveness and as a guide for policy shaping exchange rate adjustments, trade strategies, and financial regulation. Persistent disequilibria, whether deficits or surpluses, undermine growth, weaken employment prospects, strain reserves and risk unsustainable debt.
“A credible budget must therefore begin with the balance of payments and its projections. Only by keeping external accounts — exports, imports and capital flows—in balance can the economy secure reserves, strengthen competitiveness, and lay the foundation for sustained growth.”
Sustainable finance framsworks
Dookeran believes that another important area that the Government must deal with in trying to stabilise the economy is a sustainable finance framework.
“A sustainable finance framework aligns fiscal and monetary policies with national revenue and investment capacity, ensuring that growth is not dependent on excessive debt or short-term inflows. It should incorporate innovative instruments, such as diaspora bonds and currency swaps, which provide the opportunity to raise ten-year financing at minimal or zero cost of capital, while also addressing structural challenges such as the actuarial financing gap of the National Insurance Board.”
Another step the Government must take is raising the country’s savings rate.
“Increasing national savings requires both domestic incentives and the engagement of foreign-based nationals to channel net inflows of funds. By raising the proportion of national income saved by households, firms, and the state, the economy can create a robust pool of resources to finance domestic investment rather than relying heavily on foreign borrowing. Low-cost, accessible, and technologically efficient instruments — including cash apps and diaspora bonds, supported by the technical expertise of institutions such as the World Bank — can be adapted to Caribbean conditions to mobilize savings effectively.”
Tackling the exchange rate must be another top priority for the Government, he said.
“T&T should pursue diplomatic initiatives to arrange currency swaps under facilities such as the FEMA Repo Arrangement with the US Federal Reserve Bank, as well as similar agreements with other major trading partners, including China and India. These swaps, combined with managing the exchange rate within a flexible band, enhance foreign currency liquidity during periods of market stress, mitigate volatility and reduce speculative pressures on the domestic currency, thereby supporting overall financial stability.”
He then said encouraging investments with net inflows of funds is also important.
“Investment efficiency, measured by the Incremental Capital-Output Ratio (ICOR), reflects the additional capital required to generate a unit of output. Improving this efficiency requires targeted inflows directed toward technological progress, increasing economic complexity and linking financing to growth. Attracting foreign direct investment (FDI) and portfolio flows that bring new capital and technology — rather than speculative short-term funds that deplete reserves — is essential to raising the marginal efficiency of investment and supporting sustainable development.”
Another step the Government should take is targeting the warranted growth rate.
“Achieving a warranted growth rate requires identifying the ‘balanced’ rate consistent with savings, investment, and external stability, and aligning national income growth with the economy’s capacity for sustained investment and full employment. Catalytic fiscal and institutional measures — including targetted spending, taxation, and structural reforms — are essential, with the state acting as a strategic catalyst.”
He concluded by saying that effective governance is the cornerstone of any policy framework and that institutional reform must align goals with measurable performance, establish clear rules, and strengthen transparency and accountability.
“By creating more capable and responsive state and regulatory institutions, policies can be implemented efficiently, sustained over time, and achieve their intended outcomes. These measures gain additional clarity when viewed through the lens of contemporary growth theory — the knife-edge dynamics of capital efficiency, the tectonic shifts in global trade and technology, and the geopolitical determinants of national success or failure.”
