Trinidad and Tobago experienced rapid economic growth in the 1970's largely as a result of the increase in international oil prices and the subsequent increase in domestic crude oil production and oil exports. Diversification strategies during this period focused largely on the development of petrochemical industries and the establishment of energy based companies that would benefit from the plentiful supply of natural gas in Trinidad. Trinidad and Tobago is now a major supplier on the world market for methanol, urea and anhydrous ammonia.
With the decline in international oil prices in the mid 1980's and an economy that was still heavily dependent on the income generated from this sector, the economy experienced a significant decline in its export earnings and government revenue. Government addressed these problems with tough measures aimed at restructuring the economy.
An oil rig off Trinidad's coast
The structural adjustment measures in the 1980's began with tightening of government expenditure together with improved management of expenditure and investment. This resulted in a transitional period of high unemployment particularly in the public sector.
By 1985, Government began to implement a number of specific reforms aimed at increasing private sector investment. These included:
- A tax reform programme aimed at removing the disincentives to private sector investment, which included a reduction of personal and corporate income tax levels and the implementation of Value Added Tax (VAT).
- By the 1990's, restructuring, divestment and liquidation of a number of state owned enterprises.
- Divestment was done through the sale of some companies directly to foreign investors, such as in the case of the Telephone Company of Trinidad and Tobago, Fertilizers of Trinidad and Tobago, and Trinidad and Tobago Urea Company, as well as through the issue of shares on the stock market such as in the case of Trinidad Cement Limited, the Point Lisas Industrial Port Development Company and, more recently, the National Flour Mills.
- Improvement in the incentive framework for the private sector, including a number of new incentive schemes such as the Free Zones Act.
- Improvement in a number of procedures that tended to obstruct business activity such as the removal of the licensing system and negative list for a number of imported goods, and reductions in tariffs.
- And by 1993, a change from a system of fixed exchange rates and exchange control, to a system of a managed float of the dollar and removal of the restrictions on the sale and purchase of foreign exchange.
These reforms were implemented almost simultaneously with a world-wide move towards trade liberalisation and a global economy.
The Government recognised early that the fast pace of change could have a negative impact on local producers in the short-term, if the appropriate support was not available. It, therefore, took the steps to ensure that it has in place the appropriate network of support services required to facilitate investment and promote international trade.
Since the 1990's, the results of Government's reform programme appear to be positive as reflected by the key economic indicators:
Trinidad eventually became the second, after Cuba, most planned economy in the Western Hemisphere (Meditz and Hanratty, 1987). The oil prices largely declined in 1982 while and the state faced deficits in funding its enterprises. When problems became apparent the government decided to gradually withdraw and leave the market powers liberally regulate the economy. The new ordinances concerned the restriction of credit and the reduction of subsidies to state-owned enterprises, reduction of officials’ wages, divestments, less price control (Harisson, 1999). In respect to monetary policies the TT dollar got devaluated by thirty-three percent in 1985, seventeen percent in 1988 and thirty-five percent in 1993. The government amended its trade polices by bravely reducing the tariffs and removed duties for the CARICOM countries (Meditz and Hanratty, 1987). On the other hand the liberal reforms worsened the livelihoods of the Trinidadians; in 1987 seventeen percent of the national workforce was unemployed and the financial conditions worsened. In informal conversations It held the locals reported that the social problems created in this period are slum areas like Lavantille and Morvant and the gradual increase of criminality. In 1988 IMF and World Bank issued loans to fund the reforms and proceed with the structural adjustments it commanded. The consequences of imbalanced policies and social disintegration brought for first time the United National Congress in power after an intrigued pre-election period.
In addition, a tax reform pro- gram introduced a 15% value-added tax and reduction of personal and corporate taxes, tighter control of public expen- diture and reduction of the fiscal deficit, and increases in public utilities tariffs. In 1994 the GNP was US$ 3,740. The currency value has remained fairly stable since the floating of the dollar in 1993 (from TT$ 5.40 to TT$ 6.30= US$ 1). There has been, however, slippage of about 10% be- tween mid-1996 and mid-1997.
Inflation rates, as measured by the change in the index of retail prices, declined to about 3.2% for 1996. In keeping with this economic recovery, there has been a reversal of the unemployment trends because of increases in the non-oil sectors of tourism and other service industries. The labor force is growing (521,000 in 1995 from 467,700 in 1990),with declining unemployment rates (17% in 1995 from 20% in 1990) and growing participation rates (60% in 1995 from 56% in 1990). Among women, unemployment rates are higher (23% compared with 19% for men), and par- ticipation rates are lower (45% for women compared with 75% for men), probably due to lower levels of education, sociocul- tural factors, and a difficult employment situation. Approxi- mately 22% of households have no employed participant.
Trinidad and Tobago has earned a reputation as an excellent investment site for international businesses and has amongst the highest growth rates and per capita incomes in Latin America. Growth has been fueled by investments in liquefied natural gas , petrochemicals, and steel. Additional petrochemical, aluminum, and plastics projects are in various stages of planning. Trinidad and Tobago is the leading Caribbean producer of hydrocarbons, and its economy is heavily dependentpon these resources.
From 2000 Trinidad experiences another golden decade; in only five years the GDP per capita almost doubled from 6.479 in 2000 to 11.711 US dollars in 2005 (CSO: 2008a). The next two years the growth rate continued increasing spectacularly until today chiefly due to oil-related reasons; the overall value of the petroleum industries product increased from sixteen billion to fifty-one billion TT dollars (CSO: 2008b). As the oil sector allows more surplus the government implements focused social relief programs and sets guidelines to promote a competitive manufacturing industry although it abstains intervening actively in the enterprises. After years of direct, actual support from the state the manufacturers receive no subsidies (CSO: 2008c) and the trade barriers and tariffs have been extendedly lifted (Harrison, 1999). In 2002 the government’s share in spending was twenty-four percent; significantly less than in 1980s records of thirty-six percent (Verrest, 2007:61).
Real GDP Growth (%)
YEAR ALL SECTORS PETROLEUM
1986 -4.3 -2.2 -5.0 1987 -5.2 -7.6 -4.2 1988 -3.9 -0.9 -5.0 1989 -0.7 -0.9 -0.6 1990 -0.1 2.4 -1.1 1991 2.6 -1.8 4.3 1992 -0.5 -6.1 1.6 1993 -1.3 -7.1 0.8 1994 4.8 8.3 3.7 1995 2.3 1.1 2.7
* 1995 data shows growth rate between January to June of 1995 and the same period in 1994.
A positive growth rate for the economy as a whole was registered in 1994 and 1995. But even prior to this, since 1991, the growth rate in the non-petroleum sector has been positive.
Source: Central Bank of Trinidad and Tobago
Unemployment Rate (%)
Source: Central Statistical Office
The unemployment rate declined from a high of 22.3% in 1987 when the reforms began to 18.4% in 1994 and continued to fall during the first and second quarter of 1995. A slight increase occurred in the third quarter of 1995, bringing the rate to 17.8%.
Inflation Rate (%) (January to December)
Source: Central Statistical Office
Inflation tended to fluctuate somewhat during the period of reform but has been contained under a high of 11.4% since 1989. In 1994, the inflation rate fell to 8.8% and in 1995, to 5.3%.
Balance of Payments
Balance of Payments (US$Millions)
MERCHANDISE TRADE SURPLUS SERVICES
CAPITAL ACCOUNT BALANCE BALANCE OF PAYMENTS 1986 1,357.7 1465.1 (107.4) (486.4) 18.8 (663.2) 1987 1,396.9 1174.5 222.4 (433.0) 28.9 (254.4) 1988 1,454.8 1173.8 281.0 (369.1) 21.7 (167.5) 1989 1,534.6 1202.5 332.1 (374.2) (143.9) (136.0) 1990 1,935.2 1108.8 826.4 (371.1) (520.6) (190.0) 1991 1,751.3 1410.3 341.0 (348.0) (261.9) (332.2) 1992 1,661.9 1167.9 494.0 (355.4) (172.5) (116.8) 1993 1,480.3 1165.2 315.1 (241.1) (91.5) 151.3 1994 1,678.9 1005.8 673.1 (297.0) (49.6) 186.5
Source: Central Bank of Trinidad and Tobago
In the Balance of Payments accounts, a merchandise trade surplus (exports - imports) has consistently appeared since 1987. On the other hand, net services received by this country as well as the capital account, which reflects government liabilities to foreign lenders, have affected the Balance of Payments position negatively from 1986 to 1992. Since then, the deficit has declined considerably and the Balance of Payments has been in surplus for the years of 1993 and 1994.
Exchange Rate Status
Exchange Rate Stability
On April 7, 1993, the Government of Trinidad and Tobago took a decision to float the TT dollar with effect from April 13, 1993. Removal of official foreign exchange controls was also announced simultaneously with the floating of the currency. The country's rate is now determined by the demand and supply for foreign currency at the commercial banks. Some degree of influence is exerted, however, by the Central Bank through its monetary policy on bank reserves and interest rates, as well as by the commercial banks, through their discretion in the sales of foreign exchange. Such measures make the system tantamount to a managed float.
Average Exchange Rate
YEAR AVERAGE EXCHANGE RATE TO US DOLLAR MONTH
AVERAGE EXCHANGE RATE TO US DOLLAR TT$ TT$ 1986 3.60 January 5.88 1987 3.60 February 5.91 1988 3.84 March 5.92 1989 4.25 April 5.92 1990 4.25 May 5.89 1991 4.25 June 5.87 1992 4.25 July 5.86 1993 5.34 August 5.88 1994 5.87 September 5.88 1995* 5.89 October 5.88
Source: Central Bank of Trinidad and Tobago
* 1995 data is the average exchange rate over the 10 months January to October 1995.
Prior to 1993, the TT dollar was pegged to the US dollar. Shortfalls in the supply of foreign exchange in the commercial banking system were met by drawing down from the Central Bank's foreign reserves. The two devaluations which occurred during this period of a fixed exchange rate system, in 1985 and 1988, were policy decisions taken to respond to trends in the economy or a policy aimed specifically at influencing the economy to behave in a certain way.
When the policy decision was made to float the exchange rate in 1993, the immediate effect was a depreciation of the currency to reflect its true position from TT$4.25 = US$1.00 to TT$5.60 = US$1.00. This was followed by a large inflow of foreign currency, much of which was from the surrender of previously unauthorised holdings by domestic residents, sold to take advantage of the higher rate of exchange.
In the three years since the exchange rate has been floated, the exchange rate has remained just under TT$6.00 =US$1.00. This is a considerable achievement so far when compared to the experiences of Jamaica and Guyana, since the floating of their exchange rates.
In the case of Jamaica, exchange rates rose from J$8.00 in September 1990 to J$32 in 1994 to US$1.00. In the case of Guyana, exchange rates rose from G$45 in February 1991 to G$120 by September 1991 to US$1.00.
The Government recognises that in order to maintain the stability of the Trinidad and Tobago currency, the inflation rate would have to be contained as close as possible to the country's main trading partner, the United States. The Government has also recognised that avoiding persistent fiscal deficits as well as having a sound macroeconomic policy framework, are means to curbing the pressure on the exchange rates of this country.
2009 - 2010
Economy (2009 est.)
GDP: U.S. $28.6 billion (current prices).
Annual growth rate: 2.5% (2010 est.); -3.5% (2009).
Per capita income: U.S. $18,800 (2009 est., The Economist); U.S. $25,705 (2009 est., World Bank).
Natural resources: Oil and natural gas, timber, fish.
Petroleum (oil, natural gas, petrochemicals): 42.5% of GDP.
Financial services: 13% of GDP.
Distribution including restaurants: 10.6% of GDP.
Manufacturing (food and beverages, assembly, chemicals, printing): 8.4% of GDP (excludes oil refining and petrochemical industries).
Construction and quarrying: 7.7% of GDP.
Transport/storage/communication: 7.6% of GDP.
Government services: 4.6% of GDP.
Education, cultural community services: 2% of GDP.
Electricity and water: 1.4% of GDP.
Agriculture (sugar, poultry, other meat, vegetables, citrus): 0.4% of GDP.
Hotels and guesthouses: 0.2% of GDP.
GDP: $27.1 billion PPP (2010 est.)
GDP growth: -0.6% (2010 est.)
GDP per capita: $22,100 (2010 est.)
GDP by sector agriculture: 0.5%; industry: 59.6%; services: 39.9% (2009 est.)