TRINIDAD and Tobago’s economy is poised to recover from a six-year slump in 2022, but is still facing a balance of payments crisis, according to a report from Marla Dukharan, an economist based in the twin island republic.

The International Monetary Fund (IMF) forecasts Trinidad and Tobago’s economy will expand by 5.5 per cent this year after declining for each of the last six years (2016 to 2021) by between -0.02 per cent and -7.4 per cent. Next year the growth is expected to be three per cent before averaging one per cent into 2027. With the projected growth rate over the next few years, Trinidad and Tobago’s economy is expected to return to its 2016 size in 2025. Only sanctions-hit Venezuela has been in a longer economic slump in the region.

At the same time, Trinidad and Tobago’s total debt is expected to increase steadily to at least TT$113.5 billion by 2027, and is currently estimated at 88 per cent of gross domestic product (GDP), with no balanced budget in sight. Inflation in the twin island republic is now projected at 5.5 per cent this year and 3.1 per cent in 2023.

“Once the recovery is firmly in place, policy attention should focus on reducing public debt levels and rebuilding fiscal buffers, supported by a credible fiscal framework,” the IMF said in notes accompanying its recent assessment of the country’s economy. The fund also urged the central bank to remain vigilant to any build-up of financial vulnerabilities, arguing for structural reforms to support sustainable and inclusive growth. Dukharan argues that the statement suggests that significant fiscal and other structural reforms are necessary to maintain stability.

However, while things are looking up for Trinidad and Tobago’s economy, Dukharan who has been scathing in her assessment over the last few years, continued to slam the Government for what she calls “the often shocking manifestations of economic mismanagement by the current and previous administrations” governing the country.

She pointed to the IMF highlighting that “risks to the outlook are tilted to the downside”, outlining that it means that the situation is more likely to deteriorate than improve.

Another point of concern highlighted is the exchange rate situation in the country.

“We believe central bank intervention in the foreign exchange market will also keep weighing on reserves,” Standard and Poor’s, a rating agency, said in its own assessment of the Trinidad and Tobago economy. Reserves in that country remain near 2007 levels at US$6.6 billion in March 2022. That is down by US$4.8 billion since December 2014 with only US$171 million of the total decline coming since the onset of COVID-19.

Concerns were also raised about the gross external financing needs of the country which it is believed will average 67 per cent of current account receipts and usable reserves from 2021-2024. Trinidad and Tobago’s external accounts depend greatly on the energy sector, given that such exports account for over 80 per cent of the total. This concentration exposes the country to volatility in terms of trade. A heavily managed exchange rate and a small open economy effectively limit the role of monetary policy. The central bank has sustained a quasi-fixed exchange rate since 2016. Since then, US dollar shortages have constrained economic activity, weakening local businesses’ ability to pay suppliers and obtain key imports. As mentioned also by the IMF, the limited availability of foreign exchange has had a negative effect on the non-energy sector for several years. By continuing a policy framework that has proven damaging to the non-energy sector, the Government has contributed to an increased dependence on the energy sector (especially for exports), a recovery in which Standard and Poor’s believes will not significantly improve the economy on a sustained basis, according to Dukharan.