Expenditures have shifted towards COVID-19 priority areas, but overall expenditures for the current fiscal year are expected to remain flat. As the authorities have kept taxation levels in place, only limited fiscal stimulus is provided to the economy.
The government is taking a phased approach to reopening the economy. On May 8th, the Prime minister announced the rollback of COVID-19 restrictions, which is taking place in 6 phases. The first phase started on May 10, with the reopening of food establishments (no dine-in services) and the reviving of restricted outdoor activities. Phase 2 saw the reopening of the manufacturing and construction sector, while in Phase 3 the public sector returned to work on a rotational basis. In phase 4 houses of worship and service providers like hair-dressers were allowed to reopen. On June 22, the country entered in phase 5 of the reopening strategy. Beaches and malls are now open to the public, as well as all of business. Groups of up to 25 persons are allowed to congregate. The borders, however, remain closed until further notice.
Economic shock and social impact
Recent, high-frequency unemployment data are unfortunately lacking, so it is not straightforward to estimate the employment impacts of the COVID-19 crisis. Indications are, however, that the labor market in Trinidad and Tobago has been severely affected, especially for lower-income households. A recent online survey organized by the IDB in collaboration with Cornell University indicates that 68 percent of low-income survey participants suffered a job loss. For high-income households, only 23 percent lost their job (see figure 1).1 Figure 1 also indicates significant business closures due to the COVID-19 crisis. Relatedly, also labor supply is heavily affected. Over the period January-May 2020 only 180 daily vacancy announcements were advertised in the non-energy sector, almost half compared to the period January-May 2019, when 340 daily advertisements were recorded (Central Bank, 2020).
To respond to the COVID-19 crisis, the government put several measures in place to protect households from the negative economic impacts, including the distribution of food cards, a salary relief grant for the unemployed and rental assistance. The survey indicates that the coverage of such social programs has clearly expanded (see Figure 2), thus providing a cushion for affected households. Figure 2, however, also shows the potential to improve targeting, as also middle and high-income households received social benefits. At the macro-fiscal level, expenditures have shifted towards COVID-19 priority areas, but overall expenditures for the current fiscal year are expected to remain flat. As the authorities have kept taxation levels in place, only limited fiscal stimulus is provided to the economy.
The COVID-19 crisis also caused an unprecedented drop in oil and gas prices. From January to April, crude oil prices decreased by almost USD 41 per barrel, a decline of nearly 71 per cent. Natural gas prices dropped by 14.3 per cent over the same period, reflecting the weak demand due to the combination of the pandemic with mild weather conditions in importing countries. In May, crude oil prices recovered following a drop below zero,2 but prices remain far below pre-pandemic levels (As of June 22, WTI is trading at 40 USD/barrel while the natural gas price is 1.71 USD/mmBTU). The increased uncertainty in the energy sector also led to the (temporary) closing of a number of downstream petrochemical plants. Furthermore, major oil and gas companies are engaging in cost-cutting measures, which may have implications for Trinidad and Tobago’s service sector.
The above developments will reduce the export value of energy exports, with negative implications for the country’s current account. For instance, in October 2019—pre-pandemic—the IMF estimated Trinidad and Tobago would run a surplus on the current account of USD 400 million. In April 2020, however, the IMF is estimating a current account deficit of about USD 725 million. This may put additional pressure on the foreign reserves, which reached a 13-year low point in March 2020 (corresponding to 7.5 months of import cover). Since then reserves have increased due to incoming external financing and a USD 400 million withdrawal from the Heritage and Stabilization Fund. As of May 2020, official reserves stood at USD 6.8 billion, which corresponds to 8 months of import cover.
The COVID-19 crisis will likely have medium-term economic consequences, which could involve sluggish economic growth, increased unemployment, rising public debt and sustained pressure on the country’s external accounts. While Trinidad and Tobago has substantial financial buffers—the Heritage and Stabilization Fund, large public sector assets, liquid sinking funds—to maintain macroeconomic stability in the short term, these policies are no longer affordable in the medium term. Engaging in economic diversification, enhancing the ease of doing business, improving public sector governance, mobilizing non-energy revenue and streamlining government expenditures will be required going forward. At the same time there is a need to protect the poor and vulnerable from the negative economic consequences of the COVID-19 crisis.
1 For more detail see Bottan et al, 2020. IDB/Cornell Coronavirus Survey: Methodological Notes. Technical Note IDB-TN-1936. Inter-American Development Bank: Washington, D.C.
2 The WTI May 2020 oil futures turned negative on April 20th as fears arose that oil storage capacity in the US was running out.