Description
This study explores Trinidad and Tobago’s macroeconomic prospects in regards to gross domestic product (GDP) growth, monetary and fiscal policy, while also specifically covering recently implemented vehicle tax reforms. The vehicle tax reforms were announced along with other fiscal reforms during the 2018 budget statement speech.
In regards to GDP growth, the country registered negative annual growth rates in 2016 and 2017. A turnaround is expected in 2018, with Trinidad and Tobago expected to emerge from its recession with expected 1.5% growth. In fact, the energy sector started to pick up in the second half of 2017 with start of production from the Juniper gas project. Structural reforms to improve the business climate, augment economic diversification, enhance the efficiency of state-owned enterprises (SOEs) and so on are however important in order to raise the country’s medium-term growth trajectory. In the present scenario, medium-term GDP growth is expected to remain below 2%.
In regards to the monetary policy outlook, the country’s key interest rate or repo rate has remained and is expected to remain at 4.75% in 2018. Inflation is expected to pick up in 2018 amidst the country’s expected economy recovery. Lending for motor vehicle purchases had slowed down in 2016 and 2017, and the slowdown could be attributed to weaker demand for credit and not to unavailability of liquidity in the banking system. Expected economic recovery should drive higher demand for motor vehicle loans in 2018.
In regards to the fiscal outlook, the country’s fiscal deficit has widened in the recent years on account of the recession and low energy prices, with the government targeting to lower the fiscal deficit from $1.83 billion in 2016/17 to $0.70 billion in 2017/18. Major fiscal reforms, apart from vehicle tax reforms, announced during the 2018 budget statement speech include changes to used tyre import duties, fuel price hikes, and standard corporate tax rate changes (not an exhaustive list of the announced reforms). Used tyre imports for instance did not previously carry any import duties, but now carry a 30% import duty, similar to new tyre imports. Vehicle tax reforms have been made in regards to compressed natural gas (CNG) passenger vehicles with engine sizes under 1599 cubic centimeters (cc), hybrid vehicles with engine sizes over 1599 cc, private passenger vehicles with engine sizes over 1599 cc but not over 1999 cc, and motorcycles with engine sizes under 300 cc. While the vehicle tax reforms came into effect on October 20th, 2017, there was a moratorium until the end of the calendar year for private passenger vehicles that were in transit or that had reached the country.
Key Questions Answered:
1. What is the country’s medium-term GDP growth outlook?
2. What is the 2018 outlook for the monetary policy and inflation?
3. What are the focal areas of the 2018 budget? How is the fiscal deficit expected to evolve?
4. What are some of the key recently announced fiscal reforms and the impact of the same?
5. What are the recently announced vehicle tax reforms and impact of the same?
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