T&T’s Budget FY2025, titled “Steadfast and Resolute: Forging Pathways to Prosperity,” portrayed an outlook of cautious optimism, cognizant of the several near-term headwinds which the economy will have to navigate.
Despite ongoing global geopolitical and economic volatility, the honourable Minister of Finance (MoF) estimated real GDP growth of 1.9% for the now-concluded FY2024. FY2025 growth is also expected to be positive, underpinned by non-energy sector activity.
Increased Revenues Projected for FY2025
For fiscal year 2025, the MoF projects Total Revenue of $54.2B, or 7.5% above FY2024, led by growth in non-energy activities. Current Revenue for FY2025 is estimated to be $50.2B, relative to $47.5B in FY2024. Capital Revenue is expected to total $4.0B, with several ‘special projects’ or asset sales outlined.
Oil Revenue is projected to be $14.2B. Daily crude oil production in T&T averaged just under 50,000 barrels per day (bopd) for the 9M 2024/2025 period. The budgeted oil price for FY2025 is set at $77.80/barrel, below the EIA’s projected WTI oil price of $84.00.
The MoF indicated that Heritage Petroleum was the largest crude oil producer for eight-month period 2023/2024, with 34,326 barrels of oil per day or 68% of T&T’s production of crude oil.
Based on available data, domestic Natural Gas Production is currently averaging 2.5 billion cubic feet per day (bcfd) for 9M2023/2024 (October to June 2024). The Budgeted Natural Gas price for FY2024 is US$3.59/MMBtu, with energy revenues expecting to contribute roughly 26% of Total Revenue in FY2025.
The MoF alluded to several projects by bpTT, EOG and Touchstone Exploration that are expected to contribute towards gas production in fiscal year 2025. Over the medium term, additional projects such as the Dragon Gas Field, Cocuina-Manakin Gas field as well as Shell’s Manatee Project are expected to support natural gas production and the overall energy sector. Overall, however, natural gas production volumes are anticipated to remain relatively subdued until 2027/2028.
Non-Oil Revenue is projected to be $35.0B (roughly 65% of total revenue). The non-energy sector expanded 2.5% in 2023 and 2.2% in 2024.
Expenditure Increases
For fiscal year 2025, Total Expenditure is projected at $59.7B, reflecting a 3.9% increase from FY2024’s estimated $57.5B.
Current Expenditure (90.5% of Total Expenditure) is estimated at $54.1B, marginally higher than FY2024’s $53.1B.
Meanwhile, Capital Expenditure is forecast at $5.7B, though past estimates have often exceeded actual spending. Overall, there appears to be a focus on recurrent expenditure, with increases brought about via wage negotiations and increases to public sector minimum wages, among other sources.
Deficits Continue
The MoF anticipates an increase in revenue by $4B in FY2025 to $54.2B (in line with FY2023’s figure), despite relatively conservative prices of oil and gas and constrained energy production in the upcoming year.
Simultaneously, government expenditure is set to advance 3.9% in FY2025 to $59.7B. Funding the fiscal deficit may be challenging in the future as revenues remain volatile and reliance on the energy sector remains.
Fiscal Gap Widens
The Fiscal Deficit for FY2025 is projected to be $5.517B, or 2.9% of GDP. This figure is lower than the revised fiscal deficit for FY2024, which amounted to a larger than expected $7.142B or 3.5% of GDP. This wider deficit would have primarily resulted from lower energy revenues, as initial projections of the FY2024 deficit stood at $5.197B.
The FY2024 Review of the Economy revealed the deficit was financed through (i) Net External Financing of $7.027B, with drawdowns from the HSF accounting for $2.495B (0ctober 2023 – September 2024) of this figure and (ii) Net Domestic Financing of $115.5M.
The three typical sources utilized to fund the fiscal deficit encompass:
1. Drawdowns from the Heritage & Stabilization Fund (HSF)
2. Domestic and/or International Borrowing
3. Asset Monetization
HSF Rebounds
The Heritage and Stabilization Fund (HSF) recorded Net Asset Value (NAV) of US$6.095B as at September 2024, its highest level in five years. This gain was attributed to interest income earned over the period, notwithstanding three fund withdrawals in FY2024 amounting to US$368M, to partially finance the fiscal deficit.
The MoF also reported no deposits were made during FY2024, following a US$182M contribution in the prior year.
Growth Forecasts Positive
Real GDP growth was estimated at 1.9% by the MoF for FY2024, representing a third consecutive year of positive growth. Despite being lower than the initially projected 2.7% rate for FY2024, GDP growth is certainly welcome news against a backdrop of waning energy production. The IMF projects that T&T GDP growth will be around 2.3% in FY2025, though other more recent forecasts suggest more tempered progress.
Debt Levels Rise
Adjusted General Government Debt increased by 3% from $136.5B in FY2023 to $140.6B in FY2024. Resultantly, T&T’s Debt: GDP ratio rose from 72.1% to 75.6% in the same period, exceeding the MoF’s previously stated soft target of 75%. With a fiscal deficit projected for FY2025 and also likely for subsequent years, this ratio is likely to further exceed the proposed soft target, potentially impacting the perceived creditworthiness of T&T by rating agencies and credit market participants in general.
The adjusted debt measure composition for FY2024 remains similar to the previous FY2023 composition. Central Government Domestic Debt remains greater than half the debt at 52.6%, Central Government External Debt making up 26.1%, and Non-Self Serviced Government Guaranteed Debt at 21.2%.
T&T’s Net Official Reserves stood at US$5.5B or 7.8 months of Import Cover as confirmed by CBTT as at August 2024. This represents a decline of 12.1% from 2023’s USD$6.3B (7.8 months). Despite this lower trend, Trinidad and Tobago has sufficient import cover in the event of a worst case scenario, given the lower oil and gas price projections.
The import cover measures the number of months of imports that the country can adequately cover with the foreign exchange reserves available. The generally acceptable level of import cover is typically between 3-6 months.
Funding the Deficit (Asset Sales/Monetization)
Divestment of CLICO
The Government of the Republic of Trinidad and Tobago (GORTT) would have benefitted from higher capital revenues in FY2024 attributable to increased collections under Sale of Assets consequent to the Colonial Life Insurance Company Limited (CLICO’s) settlement of liabilities to the Government. On December 22nd, 2023, CLICO sold its 56.53% stake in its subsidiary, Methanol Holdings International Limited (MHIL).
The MoF proposed, for FY2025, the divestment of GORTT’s 49% stake in CLICO, as part of its Capital Revenue generation initiatives. As at December 31st, 2023, CLICO’s total assets based on its audited financials were approximately $12.0B, with shareholder equity amounting to $3.45B.
Sale or Lease of Point A Pierre
The divestment and subsequent restart of the Point a Pierre refinery owned by Trinidad Petroleum Company, the holding company of the former PETROTRIN is also being pursued. This is intended to be facilitated through private sector investment.
According to the MoF, three proposals received in as part of a bid process were shortlisted for further consideration. No details were provided on the expected proceeds, if any, from the sale of this asset.
Notable Fiscal Measures
Minimum Wage Increase. The MoF proposed a 9.8%, or $2.00 per hour increase in the minimum wage for all public sector workers, from $20.50 to $22.50 per hour effective November 1, 2024. The move is expected to benefit approximately 5,100 workers at MTS, 6,900 workers in CEPEP and 6,200 URP workers, resulting in an estimated $500 tax-free disposable income per month in the pockets of consumers. The estimated (recurrent) incremental cost of this measure would be $75M.
Vat Bonds Issuance. The MoF intends to issue additional interest-bearing VAT bonds in fiscal 2025. The estimated sums to $3B carded for issuance on January 31st, 2025. The bonds can be redeemed or traded on the secondary market, which could potentially create supply for both individuals and institutions should bond recipients seek to monetize these holdings on financial markets.
Tax Revenue Initiatives
As at September 20, 2024, property tax collection amounted to $91M from residential properties, reflective of the implementation of the new property tax regime. Since its initially proposed form, the Property Tax Amendment Act of 2024 reduced the tax rate from 3% of Annual Rental Value (ARV) to 2% of the ARV for residential properties. The budgeted property tax for fiscal 2025 is set at $125M. Recently, the MoF announced an extension for property tax payments from September 30th, 2024 to November 29th, 2024. No timeline has been given for the collection of Property Tax on commercial and industrial properties.
The MoF also intends to proceed with furnishing the Trinidad and Tobago Revenue Authority (TTRA) with the necessary resources to make revenue collection more efficient and establish an easier system for taxpayers to use. With an estimated tax gap (loss of revenue due to tax evasion) of as much as $10B per year, the effective implement of the TTRA could be material in bridging future fiscal gaps.
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