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High Energy Prices Support Economic Recovery in Trinidad and Tobago in 2022
Trinidad and Tobago achieved a successful economic recovery in 2022. Energy prices were higher than expected, contributing to increasing exports, boosting the fiscal outturn, and reducing the debt to GDP ratio. Although growth in the energy sector has moderated, the non-energy sector has spearheaded overall recovery with the services sector in particular experiencing dynamic growth.
The country achieved a 2.5% GDP growth in 2022, according the IMF. This is lower than their 4% previously forecast, but nonetheless higher than the Government’s 2% projection. The non-energy sector pushed overall recovery with manufacturing and selected services sectors experiencing an average growth rate of 18% and 6.4%, respectively. According to official data, non-energy sector growth in 2022 surpassed that of the energy sector.
High levels of overall deficits receded in 2022, contributing to a reduced public debt to GDP ratio. After two years of fiscal deficits averaging almost 10% of GDP in 2020 and 2021, high energy prices resulted in a fiscal surplus of 0.6% in 2022. This, combined with higher levels of nominal GDP and stable debt, decreased the debt to GDP ratio from 79.5% in 2021 to 66.5% in 2022.
The Heritage and Stabilisation Fund played a significant role for pandemic response. It received deposits as a result of higher-than-expected revenues in 2022 and supported government efforts during the pandemic. 40% of the deficit was financed by the HSF in 2020, and a further 50% financed in 2021. However, due to energy windfall revenues, US$345 million was paid back into the HSF in 2022.
The labour force also made strong progress during the economic recovery. Unemployment fell to 4.7% in 2022 Q4 which is faintly just above the pre-pandemic rate. Additionally, the female unemployment rate has surpassed the male rate by 1.6 percentage points at the end of March 2023.
Price levels were mainly influenced by external factors that affected food and transportation costs. Annual inflation rose to 8.7% in December 2022 before cooling to 5.7% in May 2023. The government reduced fuel subsidy in 2022 which may have contributed to price increases. Furthermore, private sector credit growth increased from 3% in January 2022 to 6.7% in November that year, before subsequent declines.
Overall, energy prices were crucial to Trinidad and Tobago’s success in economic recovery in 2022. But recent global trends in asset prices as well as declining natural gas and crude oil prices, suggest that further efforts are needed to sustain the country’s GDP growth and debt targets. The authorities have therefore introduced several incentives to promote exploration, invest in digitalisation and renewable energy projects in order to encourage diversification