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What Are the Main Drivers of Trinidad and Tobago’s Economy?

What Are the Main Drivers of Trinidad and Tobago’s Economy?

Posted by Shanelle Weir on February 27, 2015

Trinidad and Tobago (T&T)  has enjoyed great economic success over the last decade, primarily because of  the rapid growth in its natural gas production and the country's substantial exports of petrochemicals. Income earned through the energy sector constitutes a large percentage of Trinidad's total GDP, government revenues, and foreign exchange earnings.

Although Trinidad and Tobago has been heavily reliant on energy-based revenue-earners, however, they have also been implementing initiatives to diversify their economy. Specifically, the T&T manufacturing sector stands to benefit immensely from a suite of government incentives directed at reducing costs and the hurdles to doing business. The Government has also gotten increasingly friendly towards foreign and local investors who are interested in tourism-based enterprises.

Trinidad’s Success

Over the last decade, Trinidad and Tobago (T&T) has enjoyed growth rates that have been in excess of 4 percent per year, according to data from the Central Bank of Trinidad and Tobago (CBTT). The rapid growth of T&T allowed the nation to have income per capita growth rates in excess of 4 percent, to recordcurrent account surpluses above US$4Bn, and to grow foreign exchange reserves to US10Bn—the highest in the Caribbean & almost 1 year of import cover— by 2013.

T&T's fiscal profile has thus improved dramatically. Today the country enjoys  a Debt-to-GDP ratio of 40 percent, a fiscal deficit-to-GDP ratio of -3 percent, and an ‘A’ rating from Standard and Poor’s.  The country's excess fiscal surplus over the years has allowed it to build a Heritage and Stabilization Fund of approximately US$5.6Bn.  

 

Energy’s Contribution

The great success of the T&T economy is due mainly to the rapid growth in the energy sector. Energy-related output has contributed over 40 percent of Trinidad and Tobago's GDP over the last decade, and the energy sector is over two times the size of the second largest sector in Trinidad and Tobago. The contribution of energy is also heavy on the fiscal side.

Total energy-related revenues account for over 50 percent of total central government revenues for Trinidad and Tobago. Additionally, revenues from the sale of energy-based products to the rest of the world represent 80 percent of all trade receipts. The strong inflows from the sale of energy-related goods to the rest of the world in fact helped to push Trinidad and Tobago's net international reserves from approximately US$2.2Bn in 2003 to US$10 Bn by 2013.

Trinidad today has the largest current account balance in the Caribbean. The extent of the contribution of energy to T&T's financial standing is also evidenced by the recent currency market tensions that arose, partly because of a slowdown in the country's earnings from gas exports, prompting its central bank to pump unprecedented amounts of US dollars into currency markets. 

Trinidad and Tobago has proven crude oil reserves of approximately 728 million barrels as at 2013, according to the Energy Intelligence Agency (EIA). Proven, probable and possible natural gas reserves total 25.4 trillion cubic feet. The twin island republic engages in a range of energy and petrochemical activities.

They produce liquefied natural gas (LNG) and crude oil, which account for over 50 per cent of total exports, and which constitute the largest share of energy-based production in Trinidad.

In the past, most of the LNG produced (over 90 percent) was sold to the US market. Since the shale revolution in the USA, Trinidad has had to find other areas in Latin America and the Caribbean to which to sell LNG, of which the most notable markets are the Dominican Republic, Panama and Costa Rica.

Additionally, T& T produces large amounts of ammonia, urea ammonium nitrate -- used as fertilizer -- and urea. They are also one of the largest exporters of methanol in the world.

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