TWO developments last week underscore the economic precariousness of Trinidad and Tobago.
Both pertain to natural gas, the nation’s main earner of foreign exchange.
Firstly, Methanex says it will shut down its Titan Methanol plant at Point Lisas rather than sign a bad deal with the National Gas Company (NGC). This will bring more unemployment and loss of tens of millions of US dollars to the treasury. The “bad deal” stems from the Prime Minister negotiating an increased gas price to be paid by NGC to up-streamers, resulting in down-streamers like Methanex paying a higher price for natural gas, making them globally uncompetitive.
This threatens the future of the Point Lisas Industrial Estate. We have already had closure of Mittal steel, two MHTL methanol plants and Yara Ammonia. And like so many petrochemical plants, including Methanex from Chile, Titan can easily move next door to the US with its cheap, abundant gas, proven reserves alone at 341 trillion cubic feet.
Many expected the other development. Because of US sanctions against Venezuela, the Dragon Gas deal is now “on hold” and the Loran-Manatee project “rescinded”. The Rowley administration had banked almost completely on these to revive the country’s economy. It pursued no other new, diversified revenue streams. They say Shell will now develop Manatee in our waters.
But will this be as seamlessly achieved as projected? Energy analysts say that with the gas reservoirs from Loran-Manatee straddling the borders between T&T and Venezuela, new agreements, inclusive of unitisation, measurement and disposal, accounting and technical arrangements will need to be negotiated between the two countries before T&T could develop Manatee on its own.
Venezuela will require its own monitoring and regulatory arrangements to ensure its Loran reserves are not drawn down in any Manatee stand-alone development. Venezuela will therefore require extraction information from T&T to assure that its interests and resources are kept whole.
I am advised that negotiating such agreements is a very complex matter that will be an extended process before field development and platform construction can begin for the standalone Manatee field by Trinidad and Tobago. Even then, what guarantees can you have with the arbitrary, despotic Maduro regime in Venezuela? Gas production from Manatee could therefore start much later than 2025, if at all.
The country’s economic recovery has now been pushed back indefinitely. We have already had three consecutive years of negative growth—2016, 2017, 2018—and all indicators suggest it will be the same for 2019 when exports declined by $7 billion.
Will the economy survive without the new revenue badly needed now? The Prime Minister and his Finance Minister have been utterly irresponsible. Not even the drop in energy revenue from $19 billion to under $2 billion in 2016 stirred them towards new foreign earnings. Three years ago, Moody’s called for “reform that enhances economic diversification”. But the administration never heeded.
Instead, they borrowed to finance budget deficits. In its downgrade, Standard and Poor’s (S&P) cited “deterioration of the country’s debt burden and the interest burden over 2017-2020.” But the Government kept borrowing. The nation’s debt now stands at $120 billion, “33 per cent above that which is deemed sustainable”, says regional economist Marla Dukharan.
We must now add additional loans of US$200 million from the Development Bank of Latin America (CAF); and $800 million from Chinese EXIM bank. With all this, as well as the Central Bank overdraft at $40.3 billion, the highest ever, and the Petrotrin restructuring, T&T’s debt is 78 per cent of GDP! Add also borrowings by state enterprises, the contingent liabilities. We are a completely debt-ridden nation.
Dukharan thinks that, like Moody’s, S&P will “very soon” downgrade us to junk bond status. Meanwhile, without replenishment, our foreign reserves, the nation’s financial security, dwindle daily. We could be down to three months import cover by this year says the International Monetary Fund (IMF). And three months cover could evaporate in no time because it will be used for importing almost everything that we eat, drink, wear, drive, and use in our homes, hospitals, schools, factories and offices.
We also use foreign exchange to repay our external debts. And we have been borrowing mainly in US dollars, not to enhance productivity, economic infrastructure and boost growth sectors, but largely for budgetary support.
According to the Ministry of Finance, T&T borrowed over US$800 million between 2016 and 2018. Indeed, our external debt has increased by 88 per cent under this administration.
A permanent secretary in the Finance Ministry says a Government must look at the quality of its debt; that with a worsening debt-to-GDP ratio, “more of your revenue will be constrained for debt servicing. You have less to grow your economy.”
Indeed, without adequate revenue, we are now borrowing just to pay the interest on existing debt, trapped on the treadmill. Experts say our situation is aggravated by our overvalued currency which forces us to borrow in US dollars. We are subsidising imports and penalising exports, earning less US dollars but spending more “to maintain our lifestyle”.
Dukharan says, “This means that we are likely to run out of reserves faster” than if the TT dollar were not over-valued. She projects that the more we borrow in US dollars, the more we repay in this currency, the faster our reserves will be exhausted, and the sooner we will default on our obligations.
She warns, “We would then have to turn to the IMF.” Ominous.