The budget presentation is due by October 30th. The budget is the constitutional mechanism used to finance the different branches of government to provide the environment in which citizens can live safely, exercise their rights, prosper economically and improve their quality of life. A key objective will be to build public confidence and stimulate investment to add momentum to the investment climate.
There have been positive pre-budget announcements. First, the Prime Minister met with Venezuela’s de facto President at the UN General Assembly. This provided a visible manifestation that relations between Trinidad and Tobago and Venezuela are on the mend. The National Gas Company (NGC) also said it had secured favourable gas supply arrangements from EOG’s Coconut and bpTT’s Aphrodite developments.
First gas from Aphrodite is expected in Q2 2027, and Coconut production is expected in the third quarter. In full production. These developments will add 400 million standard cubic feet to the natural gas supply and will presumably be directed to the petrochemical sector. Manatee is expected to start producing sometime in the latter half of 2027.
In sharp contrast, Proman, the largest petrochemical group in Pt Lisas, announced that despite the encouraging medium-term outlook for natural gas supply, it must undertake “routine workplace efficiency measures” and “targeted cost-saving measures.” This translates into “reduced headcount” and a “shared services” model. Nutrien’s Point Lisas nitrogen complex comprises four ammonia plants and one urea plant. The Methanex plants are closed.
Many businesses adopted similar measures over the last few years in response to the country’s declining economic performance and will continue to do so despite positive announcements about the future gas supplies. An increase in natural gas supply is unlikely to happen quickly enough to kickstart the economy or improve the budget arithmetic for 2027. Therefore, we can expect this pattern to continue in 2027.
Government expenditure will again exceed revenue, meaning another deficit that must be financed by borrowing. The difficulty is that interest rates are rising in international financial markets, and the current debt-to-GDP ratio (approximately 87%) is well above the prudential threshold of 70%.
The geopolitical situation makes borrowing more expensive and difficult. The US–Iran war is creating an asymmetric shock. The closure of the Strait of Hormuz and the Bab al Mandab straight is affecting all energy markets. These closures have also led to a tanker shortage, escalating charter rates and adding upward pressure on fuel prices. The supply reduction has driven energy prices over the US$100 barrier. Fuel is at the heart of international trade as every economy requires fuel.
While commodity exporters are getting a partial windfall, countries with weak currencies or high debt are exposed. First through energy prices and then through tighter global financial conditions. Five- and ten-year US treasuries are the de facto standard for pricing borrowing rates and serve as baseline benchmarks for pricing hard-currency (mostly US dollar-denominated) borrowing rates for emerging market (EM) sovereign and corporate issuers.
The El Niño effect is influencing weather conditions, causing floods in some areas and drought in others. This is affecting the planting season in breadbasket countries. Severe drought has also lowered water levels in the artificial lakes that feed the Panama Canal. This is affecting shipping transiting the canal, increasing freight prices and adding to inflationary pressures.
This has several implications for Trinidad and Tobago and the region. First, except for Suriname, the region is a net fuel importer. Higher fuel prices, especially diesel, increase demand for foreign currency. Second, rising fuel prices are inflationary. The IMF assesses that persistent energy-price increases raise inflation while reducing growth. This is true of all economies, but the effect is pronounced in emerging and developing economies. Third, as noted last week, the standard central bank defence against inflation is to raise interest rates. The US Federal Reserve Board increased its rate last week and is expected to do so again.
The obvious winners are countries that export oil, gas or other commodities. Unfortunately, T&T cannot benefit from these increased prices. The shortfall in natural gas production limits both Atlantic LNG and exporters of ammonia, methanol and urea from increasing production to take advantage of higher market prices. Further, higher fuel prices put the GORTT in a difficult position. Its choices are to pass on the higher pump prices or subsidise fuel prices and increase the deficit. Another complication is that rising energy prices make investing in the US market more attractive, increasing foreign exchange demand.
There are two ways to address “excess” foreign exchange demand. First, by raising domestic interest rates to make holding TT $ more attractive. The other is to allow a “managed” foreign exchange rate mechanism. Both choices have socioeconomic and political implications, but they are important adjustments to address economic realities, as the current policy framework cannot address foreign exchange. Then there is the difficult task of funding public-sector union agreements from taxation revenue if the energy-sector tax take remains depressed. How does the Finance Minister keep the budget deficit within a manageable range, i.e. -3%. How does the minister revive business confidence?
None of the choices is easy. Addressing citizens about the difficult choices that must be made requires real political tools: well-articulated policy and principles, explanation, exemplars, and persuasion.
Mariano Browne is the chief executive officer of the UWI Arthur Lok Jack Global School of Business.
