Trinidad and Tobago WT/TPR/S/49
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I. THE ECONOMIC ENVIRONMENT
(1) MAJOR FEATURES OF THE ECONOMY
1. Trinidad and Tobago is a resource-based economy.  The economy derives most of its income
from oil and oil-based products and petrochemicals, although its dependence on this single
commodity has declined as industrial diversification has been pursued in the last few decades.  Proven
oil reserves are estimated at 534 million barrels, about 12 years' supply at current production rates.Trinidad and Tobago also has significant deposits of natural gas (proven reserves are enough to last
55 years), on which it has based its petrochemicals industry.  In addition to primary energy products,
related industrial activities include oil refining, gas processing and the production of ammonia, urea,
methanol, iron and steel.  Total GDP in 1997 was roughly US$5.8 billion (Table I.1).
Table I.1
Major features of the Trinidad and Tobago economy, 1996 and 1997
1996 1997a
Area:  5,130 square kilometres
Population (thousands 1,264.0 1,271.0
Population growth rate (%) 0.3 0.6
Labour force (thousands) 530.4 541.0
Unemployment 16.3 15.0
GDP at current prices (US$ million) 5,653.4 5,843.4
GDP per capita (US$) 4,472.6 4,597.5
Share in GDP (%)
  Agriculture 3.0 2.8
  Industry 36.3 35.6
    Petroleum sector 28.1 26.6
    Manufacturing 8.2 9.0
  Services 60.0 61.1
    Construction 7.8 8.4
    Distribution, hotel 16.1 17.0
    Government 9.1 8.3
    Financial services 11.3 11.5
    Other services 15.7 15.9
  Other 0.7 0.5
Merchandise exports f.o.b. (US$ million) 2,506.0 2,427.0
Merchandise imports c.i.f. (US$ million) 2,159.0 3,038.0
Merchandise exports to GDP (%) 44.3 41.5
Merchandise imports to GDP (%) 38.2 52.0
Non-factor services (US$ million) 245.0 213.0
Exports of goods and non-factor services GDP (%) 52.6 49.4
Imports of goods and non-factor services GDP (%) 42.2 56.3
a Estimates.
Note: All figures are based on current market prices, unless otherwise stated.Source: IMF, International Financial Statistics
, (various issues).
2. Trinidad and Tobago imports some 75% of its domestic food requirements. Agriculture
employs 9.6% of the labour force but contributes 2.3% to GDP.  The main crops are sugar, coffee,
cocoa and, more recently, citrus fruit.  Manufacturing, despite attempts at diversification, continues toWT/TPR/S/49 Trade Policies Review
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depend heavily on petroleum-related industries, and employs around 8% of the labour force.  The
service sector is the major contributor to GDP and employment, the public sector being the dominant
employer.  However, as many state enterprises have  been privatized, employment in the public sector
has fallen from 30% of the labour force in 1987 to 25% in 1997.
3. After a period of fast economic growth between 1973 and 1982, triggered by the increase in
oil prices, the economy of Trinidad and Tobago experienced a decade of contracting output andfalling per capita income.  In 1988, as a response to economic contraction, high unemployment, and
the loss of foreign exchange reserves, Trinidad and Tobago introduced a programme of structural
reform and liberalization, aimed particularly at restoring its external balance.  The programme
provided for the relaxation of price controls, impr ovement in financial intermediation, and a reduction
of the public sector deficit, particularly through expenditure-cutting measures.
4. Structural reform has been strengthened during the 1990s:  import duties have been reduced,
and the role of the private sector in economic activity has been enhanced.  However, due to the
importance of the oil sector, there remains a large participation of the State in the economy: it is
estimated that government consumption and investme nt represent between one fourth and one third of
GDP.  As a member of CARICOM, Trinidad and Tobago adopted in 1993 the Common ExternalTariff's (CET) four-phased schedule of rate reductions aimed at lowering the maximum rate for
industrial goods from 35% to 20% by 1998.
5. The economy grew at an average annual rate of 1.7% between 1989 and 1997;  population
growth averaged 1.2% a year, implying annual aver age growth in per capita income of 0.5% for the
period.  Two distinct sub-periods can be identified: the first one of low or negative growth
(1989-1993), and a subsequent s ub-period (1994-97) with growth rates above 3%.  The second
sub-period coincides with an increase in the degree of openness of the economy, as evidenced by theimplementation of the CET's four-phased tariff reduction programme, the removal of capital controls,
the floating of the exchange rate, and the privatization or liquidation of public enterprises.  GDP
growth was 3.2% in 1997, and is expected to accelerate in 1998, reflecting the effects of massive
investment in the oil/gas sector.  The recent decline in oil demand and prices may temper, however,
initial forecasts.  By the end of 1997 unemployment had fallen from its peak levels but remained highat 13.5%.
6. Apart from oil and natural gas, Trinidad and Tobago  has large deposits of asphalt, andesite,
argillite, chromium, clay, copper, fluorspar, graphite, gypsum, iron, limestone, sand, and porcellanite.
Among these, clay is the most abundant and extensively utilized.  It also has one of the largest natural
sources of asphalt in the world.  There is a large variety of agricultural crops, exports of which areconcentrated mainly in sugar, cocoa and, until recently, coffee.  The main exports of processed
products are beverages and preparations of cereals.  Tourism is not as important as in other Caribbean
islands (282,000 arrivals in 1995, and 3,874 hotel room s), but the Government plans to enhance its
contribution to economic activity.  There are two major airports - the Piarco Airport in Trinidad and
the Crown Point Airport in Tobago - which are owned and managed by the government-controlledAirport Authority of Trinidad and Tobago.  The major sea ports are Port of Spain and Point Lisas, in
Trinidad, and Scarborough in Tobago.  The supply of water is adequate and electricity is mostly
generated from domestically-produced natural gas.  Constraints to growth have arisen in the past from
a dependence on the oil sector, labour market rigidities and excessive government intervention in the
economy.  High unemployment is partly due to the capital-intensive character of some of the main
production and export activities, especially oil/gas and mining which are encouraged by investment
incentives.Trinidad and Tobago WT/TPR/S/49
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7. One of Trinidad and Tobago's recent concerns is the effectiveness of monetary policy, since
the extensive use of unremunerated high reserve requirements for banks is proving inadequate to
prevent credit expansion.  Open-market operations have been increasingly used to complement the
effectiveness of reserve management.  The strong inflow of foreign exchange as a consequence of
oil-related investments is partly behind the increase in the money supply.  Another factor is the
enhancement of financial intermediation which has led to circumvention of legal reserve requirementsand thereby to a higher money multiplier.  The surge in private consumption spending, estimated at
about 20% in 1997, is largely explained by credit expansion.
8. Imports and exports of goods and services together amount to over 100% of GDP, over 20%
of which are exports of fuels.  Foreign exchange receipts rely heavily on the oil/natural gas sector,
with investment in that sector being the major force behind the strong capital account surplus(US$837 million) posted in 1997.  The concentration of exports in the oil/natural gas sector places
Trinidad and Tobago in a vulnerable position to external shocks.  Reliance on a single market, the
United States, for almost half of its merchandise exports adds to this vulnerability.  Attempts to
diversify have resulted in a substantial increase in trade with other CARICOM countries which now
absorb almost a quarter of total exports.
(2) R
ECENT ECONOMIC PERFORMANCE
(i) GDP and employment
9. Economic performance can be divided into three phases:  the oil boom, lasting roughly from
1973 to 1982; a period of severe recession from 1982 to 1993 when per capita income fell to pre-1973
levels; and a period of growth since 1994, during which stabilization policies and an increased
openness of the economy have succeeded in attracting foreign investment, particularly in the energy
sector.
10. During the oil boom the economy grew by 5.5% a year, boosted by an improvement in the
terms of trade.  Nominal per capita income rose from US$4,200 to US$6,200; savings and investment
averaged 30% of GDP.  Meanwhile, industrial policy based on protection against imports focused on
shifting manufacturing output towards products with higher value added.  With the collapse in oil
prices after 1982, the economy suffered over the next decade an almost uninterrupted decline in output.
Per capita income fell by an average 5% per annum , returning to its 1973 level.  Gross fixed capital
formation fell from an average 22.6% in 1983-86 to 15.2% in 1987-93, having a negative effect on
labour productivity and labour demand.  Unemployment rose from 10% in 1982 to 22% in 1989.
Output decline continued in 1992 and 1993.
11. Since 1994, the economy has recorded positive growth (Table I.2).  In 1994 and 1995, export
growth and private investment fuelled the expanding economy whereas in 1996, as direct and indirect
taxes were cut, consumption overtook investment as the main impetus to growth.  The decline in
investment stopped in the early 1990s, and its share in GDP is estimated to have reached 21.8% in
1997.  Gross national savings, however, have been declining since 1995, reflecting a sharp increase in
consumer spending (estimated at over 19% in 1997) and an increase (until 1 996) in net factor
payments.  The savings/GDP ratio, which stood at over 20% between 1994 and 1996, fell to slightly
under 10% in 1997, well below the investment /GDP ratio.  The large investment/savings gap posted
in 1997 (the counterpart of which was a large current account deficit) was financed by external
savings - mainly by foreign direct investment in the fuel sector.WT/TPR/S/49 Trade Policies Review
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Table I.2
Economic performance, 1992-97
(Per cent)
1992 1993 1994 1995 1996 1997a
Percentage change (based on 1985 prices)
Real GDP at market prices -1.6 -1.5 3.6 3.8 3.5 3.2
     Private consumption -2.2 2.3 -11.6 5.4 13.0 19.4
     Government consumption -2.7 -8.9 5.1 -0.6 -2.9 -8.2
     Gross national investment -24.8 3.0 44.7 -13.9 11.5 0.0
     Exports of goods and non-factor services 13.2 -4.4 16.9 15.2 -6.9 3.9
     Imports of goods and non-factor services 4.1 3.9 -9.6 16.9 13.4 50.6
Unemployment (annual average rate) 19.6 19.8 18.4 17.2 16.3 15.0
Consumer price index (1990=100) 6.5 10.8 8.8 5.2 3.4 3.7
Government finance Percentage of GDP
     Government revenue 26.3 27.6 25.8 27.0 28.1 27.1
     Government expenditure 29.1 27.3 26.1 26.8 26.4 25.3
     Government surplus/deficit(-) -2.8 0.2 -0.3 0.2 1.7 1.8
     Government domestic debt 21.7 21.9 19.0 20.0 18.6 22.3
     Public external debt 40.7 45.8 41.6 35.9 33.2 26.1
Memorandum:
     Gross National Investment/GDP 13.8 14.3 20.2 16.0 17.2 21.8
     Gross National Savings/GDP 14.4 12.0 24.8 21.0 18.4 9.6
a Estimates.
Source: IMF, International Financia l Statistics (various issues).
12. While unemployment has been a persistent challenge for the Government, in the last few
years, the more labour-intensive segments of the economy have outperformed the petroleum sector.
By the fourth quarter of 1997, unemployment had fallen to 13.5%, the lowest level in 13 years. 1  This
rate remains high, however, and is not likely to fall significantly in the near future because growth is
expected to be concentrated mainly in the capital-intensive oil/natural gas sector.
13. The non-petroleum sector has performed in a more stable fashion, having achieved a fairly
steady average annual growth rate of around 3.8% between 1994-97.  The petroleum sector increased
at an average annual rate of  2.4% in the same period, but annual growth rates were subject to large
fluctuations (Chart I.1).  In the non-petroleum sector the fastest growing activities were hotels,
distribution, and construction. In the petroleum s ector the most dynamic area was the production of
petrochemicals.
                                                     
1 The average unemployment rate for the year was 15 %.WT/TPR/S/49 Trade Policies Review
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(ii) Prices
16. The rate of inflation has been falling since 1993, from an annual average of 13.1%  to 3.7% in
1997, mainly as the result of the positive effect of trade liberalization measures, including tariff
reductions, exchange rate stability, and the removal of the value-added tax (VAT) for certain food
items.  These positive effects have partly countered the inflationary pressure stemming from high
wage increases.
17. Monetary and fiscal policies have also helped to keep inflation under control.  The restrictive
fiscal policy applied by the Government since the beginning of the 1990s has led to several years of
central government surpluses.  The current increase in consumption added to the relative
ineffectiveness of monetary policy in curtailing cred it growth could pose a future inflationary threat.
However, tariff reductions under Phase IV of the CET (Chapter III(2)(iii)) could have a welcomeeffect in tempering inflationary pressures.
18. Since 1993, most price controls have been eliminated.  Only the prices of sugar,
pharmaceuticals and school books continue to be regulated.  Maximum retail prices for drugs
distinguish between imported and locally manufactured products (Chapter III (4) (vi)).
(iii) Monetary policy
19. The Central Bank of Trinidad and Tobago, established in 1964 by the Central Bank Act (since
amended), is in charge of monetary policy and acts as lender of last resort to the Government.  The
Bank must report to and act under the authority of the Ministry of Finance, although this authority is
seldom exercised.
4  The Government is currently considering enhancing the Central Bank's
independence.  The main policy instrument for monetary control has been the use of high legal
reserve requirements for commercial banks in order to sterilize the inflow of foreign currency
associated with foreign direct investment.  In addition, until the late 1980s, restrictions on consumercredit and a ban on borrowing by foreign corporations were applied.  Local banks were not allowed to
open foreign currency accounts for residents.  Moreover, the Central Bank encouraged banks to lend
to selected sectors at preferential rates; credit ceilings were placed on loans to state-owned enterprises.
Beginning in the late 1980s, the Central Bank started to move away from selective intervention in
credit markets while strengthening its prudential powers.
5
20. After the floating of the Trinidad and Tobago dollar and the removal of capital controls in
1993, monetary policy focused on exchange rate stability and low inflation.  By early 1994, all
selective credit controls and guidelines had been abolished.  Open-market operations were launched in
September 1996, an initiative aimed at reducing reliance on reserve requirements.  Since the transition
away from monetary controls, interest rates have become positive in real terms after many years ofnegative real rates of return on savings (which may help to explain Trinidad and Tobago's low savings
rate) (Chart I.2).
6
                                                     
4 The Minister of Finance's authority to give the Central Bank a written directive in respect of monetary
and fiscal policy has been exercised only once since 1964.
5 Clarke and Leon, 1996.
6 The spread between deposit and lending rates has been traditionally very high in Trinidad and Tobago
(Chart I.2), as the market for loans is basically local and the costs of operating high reserve requirements is passedon to the customer. In 1997, the spread between loan rates and time deposits shrank somewhat, due to a reductionin the former and an increase in the latter. The existence of high spreads my be due to inefficiencies in the bankingsystem.Trinidad and Tobago WT/TPR/S/49
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024681012141618
1 9 8 1 8 28 38 48 58 68 78 88 99 09 19 29 39 49 59 6 1 9 9 7Per centChart I.2
Deposit and lending rates, 1981-97
1995 and 1996 data for lending rates are not available.
IMF, International Financial Statistics  (various issues).Deposit rateLending rate
Note: 
Source :
21. In an attempt to keep credit expansion under control, monetary policy was tightened further in
1997.  The rate of unremunerated reserve requirements for banks was increased from 21% to 24% in
the fourth quarter (it had been reduced by 2 percentage points at the beginning of the year), while therate for non-banks was raised from 6% to 9%.
7  The increase in reserve requirements was
accompanied by open-market operations withdrawing TT$100 million (US$16.1 million) out of the
financial system.
22. Although monetary policy was tightened in 1997, broad money M3 continued to expand at a
rate exceeding 15%, well above the rate of inflation;  liabilities to the private sector increased by 23%.Domestic credit continued to be the main source of money creation, despite tight reserve
requirements, with credit extended to the private sector expanding by over 30%.  There was also a
steep increase in domestic financing of the Central Government.  The accumulation of net external
assets was another important source of money creation.  To contain the expansion of the money
supply, the Central Bank resorted heavily to open-market operations, increasing substantially (by over
70%) Treasury Bill holdings by the private sector and pushing up yields.
8  Due to negative real
                                                     
7The Central Bank estimates that the increase in reserve requirements for banks and non-banks
amounted to withdrawing TT$484 million (US$77 million) from the system.  Central Bank of Trinidad andTobago (1997b).
8The average yield for Treasury Bills issued for open-market operations in the fourth quarter of 1997
was 10.84%, while the yield for those issued for the purpose of refinancing maturing treasury debt was 10.69%;both yields are above those observed in the second and third quarters of 1997. Despite the fourth quarterincrease, however, annual Treasury Bill yields in 1997, at 9.8% on a weighted-average basis for both types ofissues, were below average yields in 1996 which stood at 10.45%.WT/TPR/S/49 Trade Policies Review
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returns, banks have tended not to keep excess reserves.9  Interest rates remained high in real terms, but
loan rates fell in the second half of the year while time deposit rates increased slightly.10
(iv) Exchange rate policy
23. Until 1993, Trinidad and Tobago maintained a fixed exchange rate regime.  In 1976, the
Trinidad and Tobago dollar was pegged to the U.S. dollar at the rate of  TT$2.40 to US$1.  A system
of exchange controls was in place, including the allocation of foreign exchange by the Central Bank.The exchange rate remained unchanged until the mid-1980s, leading to a real appreciation of the
Trinidad and Tobago dollar. In 1985, the Trinidad and Tobago dollar was devalued (to TT$3.60 per
US$1) and again in 1988 (to TT$4.25 for US$1).  From 1988, the foreign exchange regime was
gradually liberalized: net earners of foreign exchange were exempted from the allocation process
starting in 1989,  and the Government eliminated most restrictions on import payments by the end of1990.  From mid-1992, non-residents were allowed to open foreign currency accounts with local
banks.
24. On 13 April 1993 the Trinidad and Tobago dollar went on to a managed float and was
devalued by 26%.  Following passage of the Central Bank Amendment Act of 1993, remaining
exchange controls were removed and foreign investors were no longer required to obtain approval torepatriate capital, interest, dividends or capital gains.  Capital account transactions were liberalized
and Trinidad and Tobago accepted the obligations of the IMF's Article VIII, 2, 3 and 4 on
13 December 1993.  In an attempt to curtail the "dollarization" of the economy, the Government
imposed a 10% tax on interest earned on foreign currency accounts held locally by individuals.
Foreign exchange transactions are conducted through authorized dealers, requiring a licence;  foreign
exchange dealers may be commercial banks or bureaux de change .
25. A goal of the Central Bank is to achieve nominal exchange rate stability. This goal has been
largely achieved: between 1994 and 1997, nominal exchange rate fluctuations were generally less
than 2% (Chart I.3).  Due to the fact that in flation has remained subdued, movements in the real
exchange rate have been moderate in that period.  One of the Central Bank's key concerns has been to
convince the main earners of foreign exchange to keep the market supplied on a regular basis.
Insufficient supply of foreign exchange has led in the past to a trend towards depreciation of theTrinidad and Tobago dollar, with the Central Bank  intervening to stabilize the exchange rate.  In
1997, this situation changed because strong capital infl ows led to an increase in the availability of
foreign exchange.  This resulted in a real effectiv e appreciation of the Trinidad and Tobago dollar of
around 2%.
                                                     
9The average balances with the Central Bank/deposits ratio for commercial banks was 17.6 %, below
the 21% statutory cash reserve requirement applicable in most of 1997. This included special deposits in the
Central Bank, which are remunerated at 4%.
10Median loan rates were 15% in the second half of 1997, half a percentage point below rates in 1996
and three quarters of a percentage point higher than on  the first half of 1997. The median rate for time depositsended the year at 6.75%, compared to 6.44% in 1996.Trinidad and Tobago WT/TPR/S/49
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Chart I.3                                               
Selected indicators of external performance, 1992-97
020406080100120140
1992 1993 1994 1995 1996 199705001,0001,5002,0002,500
Source:     IMF , International Financial Statistics (various issues ).1990=100 US$ million
Nominal effective exchange rateReal effective exchange rateLeft hand scale: Right hand scale:Public external debt
Foreign reserves
(v) Public finances
26. During the oil boom, revenue from oil taxes provided the Government with the capacity to
intervene on a large scale.  Much of these revenues were used to subsidize public enterprises.  After
the fall in oil prices in the early 1980s, the Government tried to maintain expenditure levels despite
reduced revenues.  As a result, the public sector went into deficit, which was financed by theaccumulation of external debt.  With a further drop in oil prices in 1986 and the exhaustion of foreign
exchange reserves by 1987, a strict regime of import licensing (Negative Import List) and foreign
exchange controls was put into effect.  As a part of the structural adjustment programme launched in
1988, the Government introduced a series of austerity measures intended to control expenditures and
reduce the budget deficit: cost-of-living allowances for public servants were suspended, salaries
reduced by 10%, government subsidies and transfers were cut, and the direct tax structure was
modified.  In 1992, the pace of structural adjustment was intensified with the revamping of taxation ofthe oil and natural gas sector to encourage exploration, and large scale divestment of public
enterprises (Box I.1).
27. As a part of the programme of structural adjustment, a value-added tax was introduced in
1990 and, as a result, the revenue base has broadened.  Customs duties were reduced in 1991, when
the Common External Tariff was introduced;  they were reduced further in 1993, 1995, 1997, and1998.  Since 1993, revenue collection has been much improved and, in the last few years, the
maximum corporate and income tax rates have been lowered progressively.  In 1996, the corporate tax
rate was reduced from 38% to 35%, the same as the top marginal tax rate on individuals.  The
threshold for commercial suppliers subject to VAT was increased from TT$100,000 to TT$150,000
and the number of zero-rated foods was increased.  Between 1993 and 1997 (except in 1994), theWT/TPR/S/49 Trade Policies Review
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Central Government balance has been in surplus.11  Central Government revenue during the 1994-97
period remained stable at around 27% of GDP, of which 23 percentage points stem from non-oil
revenue;  expenditure averaged 26% of GDP in the same period. Income tax and VAT receipts
accounted for over 50% of revenue.  Customs duties accounted for 5.2% of revenue in 1996,
increasing to 6.2% in 1997 following a rise in imports (section(3)(ii)).
Box I.1:  Privatization
By the late 1980s, state-owned enterprises accoun ted for one fifth of GDP in Trinidad and Tobago.  In
May 1987, the Government appointed a team to revi ew the performance and assess the viability and
future prospects of public enterprises and make r ecommendations for their restructuring and reform.
In 1990, 49% of the telephone company, Telco, wa s sold. As of 1 January 1992, the Government's
portfolio of investments included shareholding in 87 enterprises wi th a value of TT$6.5 billion.  Of
these 37 were wholly owned, 17 majority-owne d, 2 minority-owned and 17 indirectly owned.  In
addition, the government held investmen ts in the four statutory public utilities supplying water, power,
transport and port facilities.  State enterprises have been important contributors to the economy,
accounting for 23.3% of GDP, 30.3% of capital inves tment, 9.8% of employment and 56.3% of foreign
exchange earnings in 1992.  Of the 87 entities in the Government's portfolio in 1992, 61 were slated
for divestment or liquidation, 7 for restructuring and 19 were to be retained.  As explained below, this
goal has not been attained yet.
In 1993 the Government outlined the role of state en terprises, limiting state participation to areas of
strategic importance such as oil and natural gas and to enterprises providing social services.  The
Divestment Secretariat, a unit of the Ministry of Finance but located in the Central Bank, was
established in 1993 as the executing body for the go vernment divestment programme.  In the period
1992-97, the Divestment Secretariat was engaged in  36 assignments, including the national carrier
BWIA International (51%), Fertilizers of Tr inidad, Trinidad and Tobago Urea Company, Trinidad
and Tobago Methanol Company, Iron and Steel Company, National Flour Mills (49%), Power
Generation Company of Trinidad and Tobago (49%),  Point Lisas Industria l Port Development
Corporation (49%). Other companies partly or  wholly privatized between 1993 and 1996 include
Trinidad and Tobago Packaging and Printing, Trin idad and Tobago Fruit Processors, Airline
Caterers, Trinidad and Tobago Cement, Nationa l Poultry, Trinidad and Tobago Mortgage and
Finance Company, Maritime Life, National Fi shers, National Television and Broadcasting,
Reinsurance Company of Trinidad and Tobago, Shipping Corporation of  Trinidad and Tobago, and
Telecommunication Services of Trinidad and Tobago, among others.  Much of the privatization has
been effected by sales to foreign interests.  As of 1 January 1998, the Government still had direct
equity holdings in 36 enterprises, includi ng the Petroleum Company of Trinidad and Tobago
(Petrotrin), the National Gas Company of Tr inidad and Tobago and Caroni. Petrotrin and Caroni,
both of which ran heavy losses in 1997, remained completely in Government hands.
28. Public external debt declined  between 1993 and 1997, from 45.8% of GDP to 26.1%.
External debt service fell accordingly, from 30.8% of exports of goods and services in 1993 to 15.8%in 1997.
                                                     
11The overall public sector balance was in surplus between 1993 and 1996. In 1997, it registered a
small deficit due to the losses incurred by Petrotrin and Caroni.Trinidad and Tobago WT/TPR/S/49
Page 11
(3) EXTERNAL PERFORMANCE
(i) Balance of payments
29. Until 1997, Trinidad and Tobago normally had a trade surplus, primarily from fuel exports.
Imports have, however, been expanding much faster than exports during the 1990s, and in 1997 a
trade deficit of US$610 million was posted due to a strong increase in imported consumption and
capital goods.12  The capital-intensive nature of the oil sector has created an increasingly strong
dependence on imported capital goods.  Imports of goods represented 52% of GDP in 1997, heavily
outweighing exports (41.5%) (Table I.3).  Imports of merchandise expanded by 41% in 1997, while
exports declined by 3%, mainly due to lower oil prices.  Between 1993 and 1997, imports have more
than doubled, while exports have increased by around 50%.  Fed by the investment and consumption
spending sprees and by the recent real appreciation of the Trinidad and Tobago dollar, import growthis expected to continue outpacing export growth, and a trade deficit, albeit smaller than in 1997, is
forecast for 1998.
30. Traditionally, the balance of non-factor services posts a small surplus, primarily from travel
and transportation.  The traditional deficit in investment income reflects remittances of profits and
dividends by oil companies and interest payments abroad.  In 1997, the deficit declined, partlyreflecting a reduction in interest payments on the external debt, and partly lower profit repatriation by
oil companies.
31. The current account, in surplus for most of the 1990s, recorded a deficit of US$708 million
(12.1% of GDP) in 1997.  The deficit is expected to be slightly lower in 1998. The structure of
Trinidad and Tobago's capital account is dominated by direct investment flows. Private capital
inflows which hovered between US$200-US$300 million a year during 1992-96, increased to
US$814 million in 1997.  The total stock of foreign direct investment is estimated at nearlyUS$4 billion or 75% of GDP.
13  An additional US$1 billion, related to gas exploration, is expected to
flow into the country before the end of the decade.  The capital account has registered a surplus since
1996, peaking at US$619 million in 1997, leading to a substantial accumulation of net foreign
exchange reserves, which stood at the equivalent to over four months of imports at end-1997.
(ii) Evolution, composition and direction of trade
32. Total merchandise exports in 1997 amounted to US$2.4 billion, 3% below 1996 levels.  The
share of energy products (in value terms) is still high, but declining (from close to 93% in 1980 to
52.6% by 1996) (Table AI.1).  For the same period, crude oil declined from 40% of total exports to
17.9%.  Meanwhile, processed energy products have increased in importance.  Manufactured goods,
representing only 5% of exports in 1980, grew to 38.7% in 1996, led by petrochemicals, whichaccount for two thirds of the total (Trinidad and Tobago is the second largest exporter of ammonia),
and iron and steel, which account for a quarter.  Export-to-production ratios of cement and steel,
industries privatized some years ago, have improved significantly.  Exports of chemicals more than
doubled between 1985 and 1996.
                                                     
12Imports of capital goods more than doubled in 1997, from US$652 million to US$1.4 billion, as a
direct consequence of the investment boom in the oil sector.
13UNCTAD, (1997).WT/TPR/S/49 Trade Policies Review
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Table I.3
Balance of payments, 1992-97
(US$ million)
1992 1993 1994 1995 1996 1997a
Merchandise trade balance 422.0 163.0 598.0 592.0 347.0 -611.0
     Exports f.o.b. 1,622.0 1,662.0 1,972.0 2,477.0 2,506.0 2,427.0
     Imports c.i.f. 1,200.0 1,499.0 1,374.0 1,885.0 2,159.0 3,038.0
Services, net -355.0 -264.0 -370.0 -306.0 -270.0 -103
     Non-factor services 89.0 61.0 43.0 159.0 245.0 213
     Factor services -444.0 -325.0 -413.0 -465.0 -515.0 -316.0
Current transfers, net -16.0 -7.0 -6.0 -16.0 -7.0 5.0
Current account balance 91.0 -108.0 221.0 270.0 69.0 -708.0
Capital account, net -139.0 89.0 -34.0 -36.0 36.0 619.0
Memorandum items:
     Current account balance/GDP (%) 1.7 -2.4.0 4.5 5.1 1.2 -12.2
     Direct investment, net 177.9 379.2 516.2 298.9 356.3 979.7
     Net official reserves -83.0 74.0 262.0 296.0 510.0 688.0
     Public external debt 2,214.90 2,096.0 2,058.0 1,905.0 1,876.0 1,527.0
     Public external debt/GDP (%) 40.7 45.8 41.6 35.9 33.2 26.1
     Debt service ratio (% of exports) 29.8 30.8 26.3 17.6 13.2 16.6
     Exchange rate (TT$/US$) 4.3 5.4 5.9 6.0 6.0 6.3
     Nominal effective exchange rate (Index; 1990=100) 115.0 105.1 102.2 100.5 104.4 104.9
     Real effective exchange rate (Index; 1990=100) 102.4 92.4 85.3 83.6 83.6 85.2
     Terms of trade (percentage change) -6.9 -5.5 9.3 7.0 2.5 7.9
     Trade balance/GDP 8.0 3.6 12.1 11.2 6.1 -10.5
     Exports/GDP 34.4 36.3 39.9 46.7 44.3 41.8
     Non-oil exports/GDP 18.3 19.4 24.6 26.1 22.9 24.0
     Imports/GDP 26.4 32.7 27.8 35.5 38.1 52.3
a Estimates.
Source: IMF, International Financial Statistics , (various issues).
33. Imports (c.i.f.) were US$3 billion in 1997, some 41% higher in value terms than in 1996.
Import growth in 1997 was triggered by an increase in foreign direct investment and, to a lesser
extent,  by the real appreciation of the Trinidad and Tobago dollar.  Imports of consumer and capital
goods progressed rapidly in 1997 imports of motor ca rs were particularly dynamic.  Almost two thirds
of imports are manufactures, especially machinery and equipment (one third of the total).
Trinidad and Tobago is also a large importer of agricultural goods and of fuels (for refining purposes)
(Chart I.4 and Table AI.2).
34. Trinidad and Tobago's most important trading partner is the United States, accounting for
48.3% of exports and 38.1% of imports in 1996 (Chart I.5 and Table AI.3) CARICOM, especially
Jamaica, is also an important market, absorbing almost a quarter of Trinidad and Tobago's exports,
but supplying less than 4% of its imports.  The European Union accounts for 10% of total exports and
supplies 17.2% of imports.Trinidad and Tobago WT/TPR/S/49
Page 13
Chart I.4
Product composition of merchandise trade, 1992 and 1996
1992 1996
(a)    Ex ports
Agriculture
6.3Other semi-manufactures
2.8
Chemicals
15.8
Iron & steel
7.9
Other mining
0.1Mining
63.7Manuf.
29.9Agriculture
8.4Other manufactures
2.7
Chemicals
23.6
Manuf.
38.7
Mining
52.9
Other mining
0.3Iron & steel
8.6Other semi-manufactures
3.8
Total:   US$1.9 billion Total:   US$2.5 billion
(b)    Im ports
Chemicals
12 5Iron & steel 
4.4
Other semi-manufactures
10.9Mining
13.2Other 
0.7 Agriculture
18.6
Machinery & 
transport equip.
29.2Textiles & 
clothing
3.9Other consumer 
goods
6.5
Manuf.
67.5Agriculture
14.5Other  0.4Other consumer goods
5.5 Textiles & clothing
2.8
Machinery & 
transport equip.
30.8
Chemicals
9.9Manuf.
61.8
Mining
23.3
Iron & steel
3.8
Total:   US$1.4 billion Total:   US$2.2 billion
Source :  UNSD, Comtrade database (SITC Rev.1).Per cent
Fuels
52.6Fuels
63.6Other manufactures
3.4
Other semi-
manufactures
9.1WT/TPR/S/49 Trade Policies Review
Page 14
Chart I.5
Merchandise trade by main origin and destination, 1992 and 1996
1992 1996
(a)    Ex ports
United States
48.6
Asia
2.3
EU15
5.8CARICOM
16.1
Other America
21.6United States
48.3
CARICOM
24.8
Other America
13.1Canada
2.2
EU15
9.9Other
1.7
Total:   US$1.9 billion Total:   US$2.5 billion
(b)    Imports
Other
3.7 Other America
6.0Venezuela
9.7United States
42.1
East Asia
11.2Canada
5.1
EU15
16.6CARICOM
5.6United States
38.1 Canada
3.6
EU15
17.2East Asia
8.8Other
3.5Venezuela
12.2
Other America
12.8CARICOM
3.8
Total:   US$1.4 billion Total:   US$2.2 billion
Source :  UNSD, Comtrade database (SITC Rev.3).Other 
3.7Per cent
Canada
1.8Trinidad and Tobago WT/TPR/S/49
Page 15
35. Trinidad and Tobago has a trade surplus with CARICOM.  The surplus was about
TT$3 billion in 1996, 16% higher than in 1995;  imports were TT$493.7 million, exports totalled
TT$3.5 billion.  Figures for the first half of 1997 showed a surplus of TT$1.7 billion.  The main
CARICOM trading partner is Jamaica, which absorb s almost 37% of Trinidad and Tobago's exports
to CARICOM partners and supplies around 23% of its imports.  Other important trading partners inCARICOM are Barbados and Guyana.
(4) E
CONOMIC OUTLOOK
36. Lower oil prices should temper GDP growth, limiting it to 3-4% in 1998 and 1999. Lower
growth will have an impact on consumption and imports, and will probably contribute to a reduction
in the current account deficit in both 1998 and 1999; however, lower oil prices will mean lower exportearnings, so the final effect on the trade and current account balances remains uncertain.  If the effect
on imports is larger, this will translate into lower demand for credit, which should enhance monetary
policy effectiveness.  The implementation of Phase IV of the CET will contribute to controlling
inflation.  Lower oil prices will affect oil-sector revenues and hence public finances, which are likely
to post a deficit in 1998.  Despite important invest ment inflows, unemployment is expected to remain
high.