T&T’s 2019 BUDGET – THE TURNAROUND PT. 1

A Firstline Securities Limited Blog by: Mike

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Introduction

On the 1^st October 2018 the Minister of Finance delivered the 2019 National Budget for the Republic of Trinidad and Tobago. This is the fourth budget presentation from the current PNM administration.

The Minister announced that after several years of economic stagnation the Trinidad and Tobago economy is projected to grow in real terms by 1.9% in 2018. Against this backdrop the theme chosen for the budget reflects the unfolding economic situation – that Trinidad and Tobago has experienced a genuine “Turnaround”.

Vision 2030 and the Nine Policy Areas

Vision 2030 is a successor to and extension of Vision 2020 which was initiated in 2002.

Vision 2030 is supposed to represent a compelling response to the extraordinary challenges facing Trinidad and Tobago, and in accordance with that revised vision, nine active policy areas underpin the 2019 Budget.

The nine active policy areas are:

1. Expanding exports and increasing foreign exchange earnings and employment.
2. Solving and preventing crime.
3. Reversing non-progressive values, attitudes, and work ethics.
4. Undertaking constitutional and institutional reform.
5. Addressing the impact of shale gas, alternative energy, and lower gas reserves and production.
6. Discouraging a culture of dependency and a sense of entitlement.
7. Ensuring effective and efficient public service delivery and the implementation of development interventions and the measurement of results.
8. Transforming the existing growth model into one that is environmentally friendly, addresses climate change, reduces emissions, and builds resilience to adverse impacts.
9. Protecting and sustainably using Trinidad and Tobago’s environmental resources.

Six game-changers that should make us all feel more confident about the future

The Minister of Finance identified six game changers that should make citizens more confident in respect of the future of Trinidad and Tobago.

The six game-changers are:

1. The improvement of the gas economy by the signing of an agreement with Venezuela on the 18^th August 2018 that would supply natural gas from Venezuela’s Dragon Field. The supply of this gas – which potentially could rise to 300 million cubic feet per day – will return Trinidad and Tobago’s petrochemical centre to full production, making that sector more attractive to new investment.
2. The success of the National Investment Fund launched on the 9^th August 2018 represents a declaration of trust in the current administration’s policies.
3. The reform of Petrotrin announced on the 28^th August 2018 would ensure that further losses at Petrotrin are curtailed and would put Petrotrin on a path to sustained profitability.
4. The Sandals Golden Grove Tobago Project and the upgrading of the A.N.R. Robinson Airport would transform the economic prospects of Tobago.
5. A new dry dock and ship building facility in La Brea, in partnership with the Chinese, would generate 2,700 direct jobs and 13,000 indirect jobs, thereby re-energising the oil-based communities in the south-west of Trinidad.
6. Two new state-of-the-art ferries would revitalise the Trinidad – Tobago sea bridge.

The Global Economy

Global growth is expected to reach 3.8% in 2018 and 3.9% in 2019 with rising oil prices improving the outlook of commodity producers like Trinidad and Tobago.

Oil prices are expected to remain stable at or around the current price.

The US Department of Energy expects West Texas Intermediate (WTI) to average US$67.36 in 2019, while the World Bank estimates WTI will average US$67.40.

Potential sanctions against Iraq and a further decline in Venezuela’s production capacity may increase prices above these levels.

Economic Growth in Trinidad and Tobago

Trinidad and Tobago’s return to growth is driven by improved macro-economic factors and developments in the energy sector.

According to the Minister of Finance there are numerous signs that the economy is improving:

1. Inflation remains below the average for the region (2018: 4.5%).
2. The energy sector is growing with a growth rate of 2.2% in 2018. Gas production levels are expected to rise from 3.37 billion standard cubic feet per day in 2017 to 3.80 billion in 2018.
3. The manufacturing sector grew by 7.3% in 2018. This saw a rise in non-oil revenue of TT$2.3 billion to TT$35.2 billion.
4. The unemployment rate of 5% is not substantially different to the rates experienced from 2011-2015.
5. Net public sector debt – standing at 60.9% of GDP remains at a sustainable level.
6. Liquid assets held as external reserves of US$7.7 billion, and funds in the Heritage and Stabilisation Fund of US$6.0 billion more than cover external central government debt of US$3.7 billion.
7. Reserves cover 8 months of imports of goods and services.
8. The availability of foreign exchange is improving, and the exchange rate has been protected and has not been allowed to devalue.

The National Investment Fund and National Investment Bond Mark 2

The Minister trumpeted the success of the TT$4 billion asset backed National Investment Fund (NIF) Bond launched on the 9^th August 2018.

The NIF bond has enabled the Government to monetise assets previously held by the CLICO group together with the Government’s total shareholding in Trinidad Generation Unlimited (TGU).

According to the Minister, 7,436 investors including 667 corporate and institutional investors are now benefiting from a stream of income with investment tenors of 5, 12, and 20 years.

For each of the 20 years of the fund, investors are paid a fixed interest rate. After the payment of interest, any excess cash earned by the NIF will be transferred to a redemption reserve fund that will accumulate and be used to redeem the bonds at maturity.

After all the bonds are redeemed, the assets of the NIF will still belong to the people of Trinidad and Tobago.

The Minister intends to offer a second National Investment Bond in 2019 similar in nature and structure to the 2018 bond.

Coming tomorrow

Tomorrow we continue our narrative with the second part of our blog series on the 2019 National Budget of the Republic of Trinidad and Tobago.

What are your thoughts on the 2019 National Budget?

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