Raphael John-Lall
Senior lecturer at the University of the West Indies’ Institute of International Relations of the University of the West Indies (UWI) and financial economist Dr Dave Seerattan has highlighted several positive indicators in the domestic economy, while cautioning against major changes to the country’s exchange-rate regime as the government seeks to address foreign-exchange challenges.
Speaking at a pre-budget seminar hosted by the Institute of International Relations of the University of the West Indies entitled “From Stabilisation to Growth” last week Wednesday, Seerattan said the country had gone through a lengthy period of economic adjustment and was now at a point where greater attention should be placed on growth.
He said T&T had several important sources of economic resilience, including low inflation, sustainable debt levels, strong foreign-exchange buffers and a well-regulated banking sector.
“I want to focus on some of the positives. So, in T&T we have very low inflation. When you look at the last 10 years, T&T has one of the lowest average inflation rates in the whole of Latin America and the Caribbean, and that is because of the policy choices of successive ministers of finance across different administrations have taken.”
Seerattan also pointed to the country’s debt position, noting that although public debt is approximately 84 per cent of Gross Domestic Product (GDP), the International Monetary Fund’s assessment places the debt within a sustainable range.
He said the structure of the debt is also important, particularly the maturity profile and the relatively low level of external debt.
Seerattan said T&T’s external debt is about 21 per cent of GDP, well below international benchmarks at which external debt becomes a greater concern. He also noted that debt servicing was around five per cent of exports, compared with a benchmark of 50 per cent.
He said the country’s foreign exchange position was another important source of strength. The reserves of the Central Bank, combined with the Heritage and Stabilisation Fund, provide approximately 13.4 months of import cover, compared with a benchmark of three months.
Turning to the exchange rate, Seerattan defended the existing managed approach and warned that allowing the currency to move more freely could have serious consequences in the current environment.
“The point is that T&T, the IMF classifies us as a stabilised exchange rate country. Stabilised means that whatever system you have, it doesn’t generate any major changes in the nominal exchange rate. And our exchange rate, the formal part of the exchange rate, has not changed for the last 10 years. It is 6.799 TT dollars for the longest time.”
Seerattan said policymakers should consider other measures before resorting to a major exchange rate adjustment, which he described as the “nuclear option.”
“There are many things we could do to solve our foreign exchange problem,” he said, arguing that several policy options had not yet been tried.
He argued that T&T could address some of its foreign exchange difficulties through measures including changes to taxes on imported goods, reforms to the foreign exchange market and incentives encouraging greater investment in TT dollar assets.
Seerattan ultimately stressed that the country’s economic challenges should be viewed alongside its existing strengths, rather than through a solely negative lens.
Uncertain international environment
Economist Dr Indera Sagewan, who also spoke at the forum, urged policymakers and the public to assess Budget 2027 against the increasingly precarious global economic environment, arguing that its success should be measured by whether it strengthens T&T’s productive capacity.
“We need to ask a more fundamental question: What can this budget do to strengthen the productive capacity of T&T? This budget cannot simply be judged by how much money is allocated or how many programmes are announced. We need to manage today’s pressures without sacrificing tomorrow’s possibilities.”
Sagewan added that the country could no longer rely on the predictable economic conditions that shaped traditional policy thinking.
She pointed to geopolitical conflicts, disruptions to energy and shipping, changing trade policies, higher tariffs, shifting global supply chains and climate change as factors creating significant uncertainty for small open economies such as T&T.
Turning to the domestic economy, Sagewan stressed that T&T was largely a “price taker,” with little control over the prices of its major exports, shipping costs or international interest rates.
While acknowledging signs of economic recovery, she said the central challenge was managing the transition from an economy heavily dependent on energy.
That transition, however, must take place amid fiscal constraints, including rising public debt, persistent deficits and limited financial reserves.
Sagewan said Budget 2027 should therefore be judged by whether it encourages investment and exports, improves productivity, develops skills, strengthens local firms and provides social protection while maintaining fiscal stability.
She said the ultimate measure of the Budget would not be what is announced on budget day, but the results achieved over the following year.
“The test will not be what is announced on budget day. The test will be whether 12 months from now, T&T is producing more, exporting more, attracting more investment, creating better jobs, and becoming less vulnerable to the next external shock.”
New strategies needed
T&T needs to rethink the way its budgets are designed, moving beyond short-term economic stabilisation towards a broader development strategy focused on investment, productivity, exports and social inclusion, former Central Bank governor and finance minister Winston Dookeran has said.
Dookeran proposed three major changes to the country’s economic policy framework.
He called for the National Insurance System (NIS) to be converted into a universal social security programme, arguing for a broader approach to social protection.
He also proposed redesigning the Heritage and Stabilisation Fund (HSF) to include a permanent buffer by separating its heritage and stabilisation functions.
His third proposal is the construction of a Development Analytic Frame to guide budgetary measures and provide a stronger analytical basis for determining whether individual budget initiatives are contributing to the country’s required growth path.
Dookeran said these changes should be considered within the wider question of how T&T can move from economic stabilisation to sustained development.
“The link between stabilisation and growth – stabilisation policies are about protecting the conditions for growth rather than creating the main engines for growth.
“Stabilisation is primarily a ‘short term phenomenon’ to maintain a stable environment – in a low- or high-level equilibrium – all economies are in a state of permanent equilibrium; the real question is are they caught in a ‘disequilibrium trap’?”
He said the objective should be to determine whether budget measures can help the economy achieve what he described as a “warranted growth rate” — a rate of growth that can be sustained without recreating the economic imbalances that have constrained the country.
Dookeran also questioned whether consumption should continue to be a major driver of economic expansion in T&T.
He said an economy can grow through consumption, but consumption-led growth in a small open economy can generate substantial demand for imports. If imports rise faster than the country’s capacity to generate foreign exchange, external pressure can result.
Dookeran said T&T needs to reconsider the relationship between consumption, imports, foreign exchange and the balance of payments and move toward savings, investment, productivity, production, exports and growth.
