Mariano Browne
Trinidad and Tobago’s rapid economic growth between 1998 and 2014 was driven by foreign direct investment in Liquefied Natural Gas (LNG) and petrochemicals. As a result, the economy expanded rapidly. Boom conditions do not last forever. The weak economic performance since 2014 is the result of a weakened energy sector. First, because energy prices dipped in 2014, and second, because natural gas production has declined by 40 per cent from its high point in 2010.
Since then, every government has been waiting for the proverbial turnaround, whether from new gas wells or from rising energy and petrochemical prices. This explains the emphasis on Manatee and accessing gas in Venezuelan waters. Energy and petrochemical prices increased because of the war in Ukraine, but the impetus was short-lived, lasting less than 18 months. The current war between the United States and Iran has affected energy markets but has not provided the kickstart T&T needs. The world economy has been resilient, partly because China has reduced its daily oil demand by five million barrels and countries have been drawing down their oil reserves.
Inflation has been muted, but energy, manufacturing, and transport are currently experiencing the strongest inflationary pressure due to commodity price shocks and supply chain disruptions. The longer the war continues, the greater the impact on inflation as a transmission mechanism. The world’s strategic energy reserves cannot last forever. Similarly, the ongoing war between Russia and Ukraine severely threatens global food security by reducing grain exports, driving up international food prices, and damaging crucial agricultural and port infrastructure.
The conflict between Russia and Ukraine affects the Caribbean primarily through import-driven inflation and severe supply chain shocks. The same is true of the US/Iran war, though it is likely to have a much bigger impact because it affects a larger share of trade with the Global South. T&T’s flour mills, like those in the rest of the Caribbean, depend on global commodity prices. When the war disrupts fertiliser supplies or chokes global grain supplies, international prices spike. This translates directly to higher prices on Caribbean grocery shelves for daily staples like bread, flour, cereal, and poultry.
This outlook is exacerbated by the El Niño impact, which causes hotter temperatures and drought conditions, both of which will affect domestic agricultural production. The T&T Meteorological Service has already issued a drought watch due to below-normal rainfall, higher temperatures, and a strengthening El Niño. Drier conditions during the latter half of the year threaten to extend into the 2027 dry season, prompting officials to urge water conservation.
These wars have contributed to global market instability, particularly in financial markets. This affects all financial market participants, whether they are large or small. Rising bond yields increase borrowing costs for already-indebted Caribbean governments, leaving them with little financial room to cushion the impact on citizens. Market yields are trending at five per cent and above. T&T’s Last two bonds (US$1 billion in January and US$800 million in July) were issued at rates above six per cent, costing 45 per cent more than the nominal yields of the bonds they replaced.
The foregoing suggests that the T&T finance minister faces some tough decisions when presenting the 2027 Budget Estimates. The elephant in the room is the outstanding settlements for public service unions, which were negotiated and promised in 2025. These wage settlements are for the two bargaining periods 2014-16 and 2017-19. Still to come are wage settlements for two additional periods, 2020-22 and 2023-25. Any further delays are likely to complicate the industrial relations climate and add additional uncertainty to business confidence.
Delays in VAT refunds and public sector wage payments are clear signals that the public finances are under pressure. Delays in payments to the private sector and normal purchases reduce the circular flow of incomes and affect everyone. Many businesses and the general public are feeling the pinch. What are the options?
There is little room for Keynesian-type public expenditure programmes, including infrastructure development programmes. These programmes have to be financed either by increasing taxation, by borrowing more, or by some combination of the two. There are complications in increasing public expenditure programmes. Any domestic increase in demand quickly leads to increased demand for foreign exchange.
Every dollar spent in the local economy has a 70-80 per cent foreign exchange component. For example, whilst citizens would generally agree that the road network needs improvement. Even if the equipment is available, the bitumen must be imported, as the refinery which produced the bitumen no longer operates. Asphalt from the pitch lake is used only as an additive in imported bitumen on the T&T highways. Imported bitumen is used exclusively on all other roads.
The emphasis has been on securing more gas, either from Venezuela or from new wells in T&T waters. Only “Ginger” will have any effect on the 2027 budget calculations. The largest financial contribution comes from the petrochemical sector. Methanex’s methanol plants and Nutrien’s operations at the Point Lisas Industrial Estate remain shut down. All plants still open are operating well below capacity, as is Atlantic LNG.
The Revitalisation blueprint projects are on hold. The Data Centre projects have enormous implications for the electricity grid and water supply. Another budget deficit is assured. The only issue is how the finance minister will contain the deficit within the 3-5 per cent range even after accessing the Heritage and Stabilisation Fund.
Mariano Browne is the CEO of the UWI Arthur Lok Jack Global School of Business.
