## 1ttoea2024002

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### Energy sector: structure, recent performance, and vulnerabilities
- Energy sector contribution and composition:
  - In 2022, the energy sector, including petrochemicals, accounted for about 36 percent of GDP, 86 percent of total exports, and 56 percent of total central government revenue.
  - Sector composition (energy sector GDP shares): exploration and production of crude oil, condensate, and natural gas: 53.1 percent; petrochemicals: 25.1 percent; refining: 14.3 percent; services: 7.5 percent.
- Production trends and shocks:
  - Between 2010 and 2019, natural gas production fell by 17 percent; crude oil and condensate production fell by 40 percent.
  - Real GDP example: Real GDP growth declined by 7.5 percent in 2016, offsetting the average growth of 2.8 percent observed over 2013-15.
  - Business cycle synchronization: energy sector tightly correlated with global oil price cycles.
- Fiscal sensitivity and recent fiscal outcomes:
  - Fiscal balance correlation with oil prices: 0.8.
  - Fiscal swing example: surplus of 0.1 percent in FY2010 to deficit of 10.4 percent of GDP in FY2017.
  - Standard deviation of energy revenue (percent of GDP) exceeded 5 percent over FY2000-17.
  - COVID-19 impact: overall fiscal deficit reached 11.8 percent of GDP in FY2020; central government debt rose to 60.6 percent of GDP in FY2020; debt reversed its increasing trend in FY2022 due to higher energy revenues but remained above pre-pandemic levels.

### Commodity price volatility: magnitudes and policy implications
- Price dynamics and magnitudes:
  - Example: oil prices increased from a low of US$23 per barrel in April 2020 to a peak of US$115 per barrel in June 2022.
  - Energy price fluctuations can range between 40–80 percent over a decade.
  - Energy prices display long-term trends and are difficult to forecast.
- Policy implications:
  - Volatility complicates fiscal management and budgetary planning.
  - Volatility induces boom-bust cycles and a procyclical fiscal spending bias.
  - Intertemporal trade-offs arise from exhaustibility of non-renewable resources and the green energy transition reducing global demand for fossil fuels and fossil-fuel revenues.

### Heritage and Stabilization Fund (HSF) and current fiscal targets
- HSF details:
  - Established in 2007 to stabilize the economy and save/invest energy revenue exceeding budgetary projections.
  - HSF assets reached 19.2 percent of GDP at end-September 2023.
- Government fiscal targets and integration gaps:
  - Soft-debt target: 75 percent of GDP (previous soft-debt target was 65 percent of GDP).
  - Intended medium-term fiscal balance: around 3 percent of GDP.
  - Gaps: fiscal balance and debt targets not articulated in a medium-term fiscal framework (MTFF); lack of short-term operational rule(s) on fiscal aggregates linked to the main objective of fiscal policy; need to ensure consistency between goals, budget, and near- and medium-term forecasts.

### Rules-based fiscal framework: rationale and design guidance
- Two-pillar structure:
  - (i) a fiscal anchor linked to the final objective of fiscal policy (debt-to-GDP ratio commonly used);
  - (ii) one or more operational rules on fiscal aggregates (budget balance, expenditure, or revenue rules).
- Selection criteria and desirable features:
  - Sustainability, stabilization, simplicity, controllability, resilience, ease of monitoring/enforcement, and flexibility (debt brakes and pre-established escape clauses).
- Operational rule types and trade-offs (overview preserved):
  - Budget balance rules (overall fiscal balance; golden rule; cyclically-adjusted rule; structural balance rule; over-the-cycle balance): advantages include link to debt dynamics and stabilization; disadvantages include difficulty of monitoring/enforcement and potential procyclicality.
  - Expenditure rule: easy to communicate and monitor; may change composition of spending or reduce revenue mobilization incentives.
  - Revenue rule: can raise revenue but may complicate macro stabilization and have no direct link to debt sustainability.
- Cross-country lessons:
  - Need strong public finance management, legislative support, political buy-in; balance simplicity/flexibility/enforceability; cover broad fiscal activities; incentivize buffers during upturns and adequate support during downturns; many countries rely on two or more fiscal rules.

### Escape clauses and enforcement mechanisms
- Well-defined escape clauses should:
  - Precisely define conditions for suspension (nature and size of shocks).
  - Require return-to-targets rules and specify institutional responsibilities for suspension and monitoring.
- Many countries used escape clauses during COVID-19; over 30 countries activated them.
- Enforcement/correction mechanisms should specify actions and a path back to fiscal targets within a defined timeframe.

### Energy production, exports, and domestic consumption (2021 data)
- Physical quantities (2021):
  - Natural gas produced: 923,000 terrajoules (TJ).
  - Crude oil produced: 130,000 TJ.
  - Natural gas liquids (NGLs) produced: 27,500 TJ.
  - Energy exports: 510,000 TJ.
- Domestic oil products (2021):
  - Domestic production: 27,511 TJ; imports: 81,561 TJ.
  - Of total oil products supply: 56,050 TJ reexported; 7,482 TJ used to refuel international shipping and aviation; domestic end-use consumption: 38,885 TJ (primarily road transport).
- Final energy consumption by sector:
  - Industry: just under 50 percent.
  - Transport: 30 percent.
  - Households, businesses, and agriculture: 19 percent.
  - Industry fuel mix: 55 percent natural gas; 37 percent electricity; 11 percent oil products.
  - Road and air transport: 100 percent oil products.
  - Households and commerce: 62 percent electricity; 17 percent natural gas; 20 percent oil products.

### Electricity generation, efficiency, and implications for exports
- Electricity generation and fuel use (2021):
  - Electricity generation: 33,332 TJ.
  - 99 percent produced via natural gas generators.
  - Natural gas used to produce electricity: 89,826 TJ.
  - Electricity production efficiency in 2021: 37 percent.
- Efficiency benchmark and export implications:
  - If electricity efficiency had remained at 2005 level of 26.6 percent, natural gas consumption to generate the same electricity would have been 35,000 TJ higher in 2021.
  - Assuming this 35,000 TJ was diverted from LNG exports, it would have lowered LNG exports in 2021 by 11 percent, and total goods exports by about 2 percent, or $220 million.
- Efficiency improvements example: replacement of single-cycle turbines with combined-cycle turbines (Penal power plant upgrade in 2016 increased power output by 34MW).

### Options to rebalance the energy matrix and quantified impacts
- Reduce domestic consumption of natural gas and oil products via efficiency and renewables to free volumes for LNG and petrochemicals.
- Renewable examples and illustrative impacts:
  - BP-Shell utility-scale solar project: intended to generate 1,089 TJ per year — about 3.3 percent of current electricity production; would free about 3,000 TJ of natural gas for export; potential boost to LNG exports: 0.9 percent (compared to 2021 levels), or around $18 million annually at 2021 prices.
  - Achieving 30 percent electricity from renewables by 2030: could increase natural gas exports by about 8 percent each year (relative to 2021 levels), or just under $170 million.
- Reducing domestic oil product consumption:
  - 2022 partial fuel price liberalization expected to increase incentives for efficient fuel use, reduce oil imports, and provide fiscal savings.
  - Electric vehicle uptake and fuel efficiency standards can reduce oil imports; net balance-of-payments effects depend on electricity generation source.

### Green hydrogen and downstream green products
- Authorities unveiled a 35-year roadmap to produce green hydrogen (GH2) and downstream products (ammonia, methanol).
- Potential benefits:
  - Replace natural-gas-based feedstocks with renewable electricity to produce green hydrogen for petrochemicals, freeing natural gas for export.
  - Reduce carbon intensity of petrochemicals, improving competitiveness in markets with carbon pricing.
  - Green methanol could allow domestic refueling of ships rather than relying on imported oil products.
- Requirements to realize roadmap:
  - Sharp and sustained increase in renewable energy capacity.
  - Policy tools (subsidies or potentially a carbon price) and regulatory frameworks (e.g., feed-in tariffs) to incentivize renewable investment.
  - Grid expansion, storage, and substantial investment to support increased electricity demand from green hydrogen production and electrification.

### Emissions profile, NDCs, and exposure to carbon pricing and CBAM
- Emissions and intensity:
  - Trinidad and Tobago’s contribution to global GHG emissions: 0.075 percent.
  - Population: about 1.5 million.
  - Emission intensity: 1.6 kg CO2-equivalent per US$ in 2021.
  - Over the past decade emissions peaked in 2010 and were one third lower in 2021 than the 2010 peak.
- Nationally Determined Contribution (NDC) (2018 submission):
  - (i) overall reduction of emissions from industrial, power generation and transport sectors by 15 percent of cumulative emissions by 2030 relative to a BAU baseline, equivalent to 103 million tons of CO2 equivalent (MtCO2eq), conditional on external financial support;
  - (ii) an unconditional 30 percent reduction of cumulative emissions from the public transportation sector or 1.7 MtCO2eq compared to 2013 levels by 2030.
- Carbon pricing context:
  - Carbon pricing schemes introduced in 49 advanced and emerging market economies; at least 23 additional countries plan to start pricing emissions soon.
  - EU ETS examples: carbon prices have reached as high as 100 euro per ton of CO2-equivalent.
  - Carbon pricing can incentivize renewables, CCUS, and green hydrogen, but design must consider competitiveness and WTO compliance (domestic carbon tax to be applied universally to exports as well as domestic consumption to be WTO-compliant).
- CBAM design and timeline:
  - Transitional phase until 2025; fully operational in 2026 (transitional phase requires reporting of embedded emissions without payment until 2026).
  - Initial covered products: iron and steel, aluminum, cement, fertilizers, electricity, and hydrogen.
  - CBAM applies to CO2 and, where relevant, nitrous oxide and perfluorocarbons; applies to direct emissions for all covered imports and to indirect emissions for cement and fertilizers.
  - Methane excluded from CBAM; oil and gas importers will need emissions monitoring standards equivalent to EU by 2027; suppliers may be required to limit methane intensity by 2030.
- Current and potential exposure to EU CBAM:
  - About 5.1 percent (US$ 446 million) of Trinidad and Tobago’s total exports of goods are exposed to EU CBAM (estimates based on 2018-2022 averages).
  - Sixteen percent of Trinidad and Tobago’s total exports of goods are destined to the EU, equivalent to 5.7 percent of GDP or US$ 1.4 billion.
  - Exports exposed could double if CBAM sectoral coverage widens to petroleum products and petrochemicals (including methanol).
  - By early 2030s, up to 15 percent of current total exports of goods could be subject to emissions regulation at the border once EU methane restrictions on hydrocarbon imports are introduced.
- Main CBAM-exposed exports to the EU (average 2018-22; selected figures preserved):
  - Methanol (methyl alcohol): Total exports to EU US$ 399.5 Mill.; Percent share of exports to EU 29.0; Percent share of total exports 4.6.
  - Anhydrous ammonia: Total exports to EU US$ 288.9 Mill.; Percent share of exports to EU 21.0; Percent share of total exports 3.3.
  - Liquefied Natural gas: Total exports to EU US$ 254.5 Mill.; Percent share of exports to EU 18.5; Percent share of total exports 2.9.
  - Mixtures of urea and ammonium nitrate in aqueous or ammoniacal solution: Total exports to EU US$ 152.5 Mill.; Percent share of exports to EU 11.1; Percent share of total exports 1.8.
- Fertilizer industry carbon-intensity findings and worst-case CBAM impact:
  - Carbon intensity of Trinidad and Tobago’s anhydrous ammonia production exceeds the EU’s average.
  - Carbon intensity of mixtures of urea and ammonium nitrate almost doubles the EU’s level and is one third higher than the weighted average level of carbon intensity of the EU’s imports.
  - IMF staff worst-case scenario (no global redirection of trade, ceteris paribus): CBAM-related payments incurred by European importers of Trinidad and Tobago’s fertilizers could exceed 40 percent of total fertilizer annual exports to the EU, or about 0.8 percent of Trinidad and Tobago’s GDP.
  - These costs would increase if CBAM coverage is extended to other petroleum products and chemicals or methanol.
- Trade redirection caveat:
  - Worst-case estimates are an upper bound; strategic behavior by global petrochemical firms and redirection of exports to non-EU markets could mitigate adverse effects. Feasibility of redirection differs across products.

### Policy recommendations to manage transitional risks and decarbonization
- Energy and petrochemicals:
  - Continue support and incentives to upgrade and increase efficiency of petrochemical infrastructure.
  - Further reduce carbon intensity of most exposed industries, particularly the fertilizer industry.
  - Prioritize reductions in direct manufacturing emissions; indirect emissions in fertilizer industry are low.
  - Embrace greener manufacturing technologies and develop Carbon Capture, Utilization, and Storage (CCUS) and respective legislative framework.
  - Secure natural gas supply and improve production efficiency to avoid higher emissions at low operating capacity (corporate evidence: reduction from full capacity to minimum operational threshold can increase emissions per unit by more than 10 percent for certain petrochemicals).
- Energy matrix and renewables:
  - Continue reducing domestic natural gas consumption via energy efficiency and renewables to maintain supplies for LNG and petrochemicals.
  - Finalize electricity tariff adjustments (expected to be finalized in 2024) to promote efficient energy usage and relieve fiscal pressures.
  - Support BP-Shell solar project and other renewable installations toward the 30 percent by 2030 target.
  - Integrate intermittent renewables carefully; accelerate wind power and incentivize storage (batteries); plan grid expansion for green hydrogen and electrification.
- Carbon pricing and emissions data:
  - Consider introducing a carbon pricing mechanism (ETS or carbon tax) to stimulate diversification and reduce exposure to CBAM; design must consider WTO compliance and macroeconomic, fiscal, and trade implications.
  - Enhance measurement and collection of emissions data; strengthen MRV systems (National Climate Mitigation MRV system set in 2021).
  - Consider revising NDC to reflect higher ambition given transition risks.
- Fiscal and institutional:
  - Develop a strong rules-based fiscal framework (MTFF, fiscal rules, fiscal responsibility law, independent fiscal institutions, fiscal risk management) to delink expenditure from resource revenues and smooth consumption over time.
  - Deepen public finance reforms and fiscal institutions prior to adopting fiscal rules: formal MTFF, improved budget process, enhanced spending execution, improved transparency and accountability.

### Digitalization, fintech, and payments modernization
- Digital economy metrics and objectives:
  - In 2022, ICT services contributed 2.9 percent to real GDP.
  - Authorities aim to use internet, cloud computing, big data, and 5G to boost e-commerce, grow local software industry, and promote Fintech as non-energy growth drivers.
- Financial access and inclusion:
  - 2017: 80.8 percent of residents had accounts in financial institutions (FIs); LAC average was 53.9 percent.
  - Financial system depth: assets at 179.1 percent of GDP as of 2022.
  - 2023 Financial Inclusion Survey: share of households with a formal financial account declined to 76 percent.
  - Authorities’ medium-term goal: banked population over 90 percent.
- Fintech and EMI developments:
  - Joint Regulatory Innovation Hub established October 2020; as of February 26, 2024, authorities engaged with 78 entities: received 11 EMI applications and 67 queries.
  - E-Money Issuer (EMI) regulatory updates: three EMIs with full licenses as of September 1, 2023—PayWise Limited, the TSTT, and PESH Money Limited (PESH); one provisional EMI licensee MyCash (Trinidad and Tobago) Limited granted October 2, 2023 for six months.
  - CBTT introduced Simplified Due Diligence Requirements (2021) for basic bank accounts.
  - Regulatory gaps: fragmented legal base (CBA, FIA, EMI Order, guidance); need comprehensive Payments System Bill (2021 CBTT PPD supported by IMF TA).
- Payments system and retail/wholesale trends:
  - 2022: retail electronic payments (ACH) increased; cheque use declined but large cheques still comprise over a quarter of wholesale transactions; large cheques (>500,000 TTD) remain manual and take three days to settle.
  - Need to modernize settlement, reduce cheque usage, and consider settlement guarantee mechanisms.
- GovTech and public digital services:
  - GTMI rating improved from “C: Some Focus” to “B: Significant Focus”.
  - Initiatives: government cloud and data center; interoperability framework; national e-ID; cybersecurity roadmap; Enhanced TTBizLink launched July 18, 2023 improving 36 services; Companies Registry Online System (CROS) launched February 1, 2023.
  - Transition to online payments for government services requires legal/regulatory updates and institutional assessment.

### Cybersecurity, incidents, and resilience measures
- Incidents and scope:
  - CBTT reported 147 cybersecurity incidents between 2019-22 (phishing, data breaches, website defacement, denial of service, business email compromise, ransomware, two malicious insider events).
  - About 57.1 percent of incidents affected the private sector.
  - No incidents to date were of a systemic nature.
  - Global Security Index (2020) score: 22.18/100; ranked 125th globally and 20th in LAC; 314 secure servers per 1 million people as of 2020 (eight times less than LAC average).
- Policy and institutional responses:
  - CBTT strategy (2021): strengthen incident reporting/investigation, advance cybersecurity capacity, enhance business continuity planning, liaise with national/external institutions.
  - GoRTT: National Cybersecurity Strategy (2012) and National Cybercrime Policy (2013); Cybercrime Bill (2017) lapsed.
  - MDT cybersecurity unit and Strategic Security Action Line; Cybersecurity Investment Tax Allowance up to $500,000 for qualifying investments from January 1, 2024 through December 31, 2025.
  - CBTT releasing Cybersecurity Best Practices Guideline (September 2023) and strengthening supervision of FIs’ cybersecurity.
- Financial-sector cyber risk management guidance (selected instruments):
  - Corporate Governance Guideline (Board skills incl. IT); Guideline for the Management of Outsourcing Risks; Guideline for Security Systems for Safeguarding Customer Information; Market Conduct Guideline (report material incidents); ICAAP Guideline (include severe cyberattack in stress tests).
- Consumer protection and coordination:
  - Need to review financial consumer protection for digital finance models; formalize collaboration between financial and telecom regulators; expand private sector engagement; build data infrastructures and stakeholder engagement to improve digital finance resilience.
- Policy priorities:
  - Identify financial inclusion gaps and implement roadmaps; modernize payments system and prioritize RTGS for large public transactions; finalize Payments System Services Bill; enhance national cybersecurity framework and compliance with robust cybersecurity and risk management procedures.

*Source: IMF staff chapter (1ttoea2024002).*

### 1. Energy Sector ________________________________________________________________________ 4

### 1. Energy Sector

### Introduction and context
- Trinidad and Tobago’s economic activity, and its external and fiscal revenues are heavily dependent on its oil and gas.
- In 2022, the energy sector, including petrochemicals, accounted for about 36 percent of GDP, 86 percent of total exports, and 56 percent of total central government revenue.
- The sector composition (energy sector GDP shares): exploration and production of crude oil, condensate, and natural gas: 53.1 percent; petrochemicals: 25.1 percent; refining: 14.3 percent; services: 7.5 percent.
- Between 2010 and 2019, declining production from maturing fields and lower energy prices weighed down the sector’s contribution to economic activity and government revenues; momentum was regained following Russia’s invasion of Ukraine but structural and cyclical challenges remain.

### Commodity price volatility and implications
- Energy price fluctuations are often large, persistent, and asymmetric.
- Example price movement: oil prices increased from a low of US$23 per barrel in April 2020 to a peak of US$115 per barrel in June 2022.
- Energy prices display long-term trends and are difficult to forecast.
- Energy price fluctuations can range between 40–80 percent over a decade.
- Policy implications:
  - Volatility complicates fiscal management and budgetary planning.
  - Volatility induces boom-bust cycles, fostering procyclical fiscal spending bias.
  - Policymakers face intertemporal trade-offs because the exhaustibility of non-renewable resources and the green energy transition are expected to reduce global demand for fossil fuels and fossil-fuel revenues.

### Macro-fiscal linkages and recent performance
- Business cycle synchronization: Trinidad and Tobago’s business cycle has been highly synchronized with global oil price cycles.
- Real GDP example: Real GDP growth declined by 7.5 percent in 2016, offsetting the average growth of 2.8 percent observed over 2013-15.
- Fiscal sensitivity:
  - The fiscal balance is highly sensitive to oil price volatility—displaying a correlation of 0.8 with oil prices.
  - Fiscal swing example: fiscal balance moved from a surplus of 0.1 percent in FY2010 to a deficit of 10.4 percent of GDP in FY2017.
  - The standard deviation of energy revenue in percent of GDP exceeded 5 percent over FY2000-17.
  - Total central government expenditure increased with oil prices but proved sticky when oil prices declined (as observed between FY2001 and FY2015).

### Fiscal shocks and policy responses
- Fiscal adjustment 2015–19:
  - Authorities reformed the energy tax regime, boosted non-energy revenues, and reduced fuel subsidies.
  - Measures included standardizing royalties on energy production and increasing the base corporate tax rate.
  - Fuel subsidies were gradually removed with protections for vulnerable groups.
  - Result: overall fiscal deficit was reduced to 3.8 percent of GDP by FY2019.
- COVID-19 impact:
  - Overall fiscal deficit reached 11.8 percent of GDP in FY2020.
  - Central government debt rose to 60.6 percent of GDP in FY2020.
  - Debt reversed its increasing trend in FY2022 due to higher energy revenues but remained higher than pre-pandemic levels.

### Sovereign Wealth Fund (HSF)
- The Heritage and Stabilization Fund (HSF) was established in 2007 to stabilize the economy and strengthen long-term fiscal management by saving and investing energy revenue exceeding budgetary projections.
- HSF objectives include stabilization, intergenerational wealth transfer, and strategic investments.
- HSF’s assets reached 19.2 percent of GDP at end-September 2023, becoming the largest SWF in the region.

### Current fiscal targets and gaps in integration
- The government has set a soft-debt target of 75 percent of GDP and intends to maintain a fiscal balance of around 3 percent of GDP over the medium term.
- Previous soft-debt target was 65 percent of GDP.
- Gaps:
  - Fiscal balance and debt targets are not articulated in a medium-term fiscal framework (MTFF).
  - Lack of short-term operational rule(s) on fiscal aggregates linked to the main objective of fiscal policy.
  - Need to ensure consistency between goals, the budget, and near- and medium-term macroeconomic forecasts.

### Role and design of a rules-based fiscal framework
- A well-designed rules-based fiscal framework can:
  - Limit fiscal policy procyclicality by delinking expenditures from resource revenues.
  - Smooth government consumption over time and preserve fiscal sustainability and intergenerational equity.
- Main elements of a rules-based framework include: a medium-term fiscal framework (MTFF), fiscal rules, a fiscal responsibility law, independent fiscal institutions, and fiscal risk management.

### Objectives, benefits, and selection criteria for fiscal rules
- Purposes of fiscal rules:
  - Commitment device: impose numerical limits to limit fiscal discretion.
  - Signaling effect: enhance transparency and reveal government priorities.
- Benefits:
  - Build and preserve financial buffers.
  - Encourage countercyclical policy and savings during good times to create fiscal space in bad times.
  - Empirical evidence: fiscal rules are, on average, correlated with better fiscal performance, but effectiveness depends on design.
- Operational aspects and desirable features for selecting fiscal rules:
  - Sustainability: compliance should ensure long-term debt sustainability.
  - Stabilization: the rule should not increase economic volatility and should allow automatic stabilizers or discretionary countercyclical measures.
  - Simplicity: easily understood and translatable into operational guidance in the annual budget.
  - Controllability: target aggregates should be under policymakers’ control.
  - Resilience: rule should be maintained for a sustained period and not easily abandoned after shocks.
  - Ease of monitoring and enforcement: compliance should be verifiable and deviations accountable.
  - Flexibility: ability to modify in case of permanent economic shocks; debt brakes and escape clauses can provide flexibility but should have pre-established triggers and clear criteria to distinguish temporary from permanent shocks.

*Source: 1. Energy Sector*

### 19.      The design of a rule-based fiscal framework tends to be structured around two pillars.

### 19.      The design of a rule-based fiscal framework tends to be structured around two pillars.

### Framework pillars
- Two pillars:
  - (i) a fiscal anchor linked to the final objective of the fiscal policy.
  - (ii) one or more operational rule on a fiscal aggregate (IMF, 2018).
- The debt-to-GDP ratio is usually a natural fiscal anchor because it:
  - provides a guide for medium-term fiscal expectations,
  - creates an upper-limit for repeated fiscal slippages,
  - allows for a threshold that can be calibrated to ensure long-term fiscal sustainability.
- Short-term operational rules under direct government control and closely linked to debt dynamics include:
  - (i) a budget balanced rule (e.g., ceiling on the headline deficit or expenditures limit, some sort of cyclically-adjusted, structural, or over-the-cycle fiscal balance target),
  - (ii) an expenditure rule,
  - (iii) a revenue rule.

### Use of Fiscal Rules: Global Trends
- Adoption trends:
  - As of end-2021, about 105 economies had adopted at least one fiscal rule.
  - This is up from 94 countries in 2015 and 9 countries in 1985.
- Emerging markets and developing economies (EMDEs):
  - The number of EMDEs with fiscal rules has risen rapidly since the late 2000s.
  - As of end-2021, there were more than twice EMDEs with fiscal rules than advanced economies (Davoodi et al., 2022).
- Regional trend:
  - The number of fiscal rules in force at the national level in Latin America and the Caribbean (LAC) increased from 2 in 2000 to 25 in 2022 (Ulloa-Suarez and Valencia, 2022).
- Natural resource-rich countries:
  - The number of natural resource-rich countries with fiscal rules increased from five in 2000 to 23 by 2021.
  - Motivations for resource-rich countries adopting fiscal rules include:
    - reduce the procyclicality of fiscal policy (e.g., Russia, Chile),
    - limit Dutch disease risk (e.g., Norway),
    - save for future generations (e.g., Norway, Timor-Leste),
    - reduce debt levels (e.g., Chile, Peru) (Apeti and others, 2023).

### Overview and assessment of operational fiscal rules (Table 1: Rule types, advantages, disadvantages)
- Budget balance rules:
  - a) Overall fiscal balance (ceiling on the headline deficit, in nominal terms or in percent of GDP)
    - Advantages: Easy to communicate, compute, and monitor; Closely linked to debt dynamic.
    - Disadvantages: Can lead to procyclicality; Can reduce the quality of the budget composition.
  - b) Golden rule (ceiling on the overall deficit net of capital expenditures, also called current balance)
    - Advantages: Promotes and protects capital expenditures; Consistent with intergenerational equity.
    - Disadvantages: Difficult to monitor and enforce; Can lead to excessive borrowing; Weak link to debt sustainability.
  - c) Cyclically-adjusted rule (limits on the overall balance, correcting for business cycle, measured in relation to potential output)
    - Advantages: Enhances economic stabilization; Good operational guidance.
    - Disadvantages: Difficult to monitor and enforce; Requires timely and reliable estimates of the output gap; Prone to frequent ex-post revisions resulting from measurement errors.
  - d) Structural balance rule (extension of cyclically-adjusted rule, adjusting beyond the business cycle for one-off fiscal measures and other cycles such as asset or commodity prices)
    - Advantages: Provide greater economic stabilization by preventing spending of one-off revenues or revenues related to an asset price boom, reducing volatility of spending.
    - Disadvantages: Difficult to compute and monitor; Can create numerous technical complications because of the difficulty in identifying nonstandard cycles.
  - e) Over-the-cycle budget balance rule (attainment of a given nominal budget balance ceiling on average over the cycle)
    - Advantages: Good for economic stabilization.
    - Disadvantages: Difficult to monitor and enforce; May entail too loose/tight stance.
- Expenditure rule (target on total, primary, or current spending, set in levels, growth rates, or percent of GDP)
  - Advantages: Easy to communicate and monitor, with clear operational guidance; Allows for macroeconomic stabilization; Ensures debt sustainability.
  - Disadvantages: Could lead to changes in expenditure composition to comply with rule; May reduce incentive to mobilize revenues.
- Revenue rule (floor or ceiling on the government’s income proceeds)
  - Advantages: Raises revenue; Prevents an excessive tax burden.
  - Disadvantages: Can complicate macroeconomic stabilization; Might requires tax hikes in bad times; Can limit revenue mobilization and government saving in good times; No direct link to debt sustainability; Can lead to procyclicality.

### Lessons learned from cross-country experience
- Key design principles:
  - A strong public finance management framework, legislative support, and political buy-in.
  - Strike a balance between simplicity, flexibility, and enforceability.
  - Cover a broad range of government fiscal activities to reduce scope for:
    - allocating spending to arrears that are not covered, or
    - playing accounting tricks.
  - Incentivize building fiscal buffers during upturns and allowing for adequate fiscal support during downturns (i.e., ensuring rules are countercyclical).
  - Calibrate fiscal rules in line with sustainability and stabilization objectives (e.g., deficits consistent with a stable or falling debt-to-GDP ratio).
  - Many countries rely on two or more fiscal rules; using a combination can help address trade-offs and gaps.

### Considerations in designing a rule-based framework in resource-rich countries
- Two important characteristics to consider for Trinidad and Tobago:
  - (i) the volatility and uncertainty of energy prices which complicates macroeconomic and fiscal planning.
  - (ii) the exhaustibility of energy resources which raises long-term sustainability and intergenerational allocation issues.
- Box 1 categorization of fiscal rules for natural resource-rich countries:
  - Rules to cope with price volatility and achieve macroeconomic stability:
    - 1. Revenue split rules: set aside a certain percentage of revenues using ad hoc criteria; save revenues above a certain threshold (e.g., the amount initially budgeted) or require saving a predetermined percentage of commodity revenues.
    - 2. Price smoothing rules: split revenues using a reference price; save differences when actual resource revenues exceed reference-price-consistent revenues for use in periods of shortfall.
    - 3. Structural balance rules: correct both economic and commodity price cycles.
    - 4. Expenditure rules: limit government spending growth in nominal or real terms or in percent of non-resource GDP.
  - Rules to ensure fiscal sustainability and intergenerational allocation:
    - Aim to determine amount of savings and sustainable spending for current and future generations given exhaustibility of resources.
    - The permanent income hypothesis (PIH) approach is commonly used.
    - Examples:
      - 1. The non-resource primary balance (in percent of non-resource GDP) target.
      - 2. “Bird-in-hand” policy rule: resource revenues are saved completely and only the return accruing from accumulated financial assets (interest income) is spent.

### Other operational considerations
- Legislative support:
  - Depends on country-specific circumstances and objectives.
  - Fiscal responsibility laws have become popular permanent institutional arrangements to enhance credibility and transparency.
  - As of 2021, over 40 percent of fiscal rules were supported by fiscal responsibility or budget framework laws (e.g., specifying numerical rules and setting out procedural and transparency requirements) (Davoodi and others 2022).
  - Rules can also be established solely through political commitments to speed adoption and implementation.
- Institutional framework:
  - A strong institutional framework for fiscal policy is key for successful implementation.
  - Trinidad and Tobago could benefit from deepening ongoing reforms before adopting a fiscal rule, including:
    - having its fiscal strategy within a formal medium-term fiscal framework,
    - further improving the budget process and fiscal institutions,
    - enhancing spending execution,
    - improving transparency and accountability.
  - These reforms are prerequisites for successful implementation of a fiscal rule (IMF, 2015).

### Escape clauses and enforcement mechanisms
- Well-defined escape clauses:
  - Allow temporary and exceptional suspension of the fiscal framework in the event of serious shocks.
  - Escape clauses are common across fiscal rule frameworks; over 30 countries with a fiscal rule activated an escape clause following the COVID-19 pandemic (Davoodi and others 2022).
  - To preserve credibility, escape clauses need to be clearly defined at adoption, including:
    - precise definition of conditions for suspension (e.g., nature and size of shocks),
    - requirements to return to targets once the clause is terminated,
    - institutional responsibilities for suspension and monitoring (IMF, 2020).
- Enforcement and correction mechanisms:
  - Frameworks should contain formal enforcement and correction mechanisms guiding the return to fiscal rules after deviations.
  - Unexpected macroeconomic shocks can breach fiscal rules (e.g., significant revenue declines after budget approval due to an energy price collapse).
  - Correction mechanisms should specify actions and a path back toward fiscal rule targets within a defined timeframe.
- Box 2: Selected escape clause examples:
  - Colombia: escape clause allows temporary suspension of fiscal targets on debt and structural primary balance in event of extraordinary events that compromise macroeconomic stability; activation by internal council on fiscal policy headed by finance minister, subject to non-binding opinion by Autonomous Committee of the Fiscal Rule; government to regulate maximum duration, magnitude, and path of return.
  - Peru: fiscal rules (ceiling on real expenditure and 1 percent fiscal deficit ceiling) may be suspended for up to three years when real GDP is declining, with the deficit ceiling raised up to 2.5 percent of GDP and a minimum annual reduction of 0.5 percent of GDP until the 1 percent deficit ceiling is reached; suspension also possible in other emergencies declared by Congress at Executive request.
  - Jamaica: debt and fiscal balance rules can be put on hold due to national security, national emergency, or other exceptional events as specified by finance minister subject to affirmative resolution; has a correction mechanism where annual deviations are stored in a notional account and, when exceeding a threshold, annual adjustment must be implemented to return to the fiscal rules.
  - Source: IMF Fiscal Rules dataset (2021).

### Conclusion
- Key conclusions for Trinidad and Tobago:
  - The country would benefit from developing a strong rules-based fiscal framework to guide fiscal policy.
  - Increased volatility and uncertainty of energy prices underscores the importance of strengthening fiscal planning to support smooth fiscal operations.
  - Eventual depletion of oil and gas reserves and lower global demand for fossil fuels due to the transition to a low-carbon environment require accumulating adequate savings for future generations.
  - A well-designed fiscal rule can help address these challenges.
  - Effectiveness of fiscal rules depends on several factors, including:
    - strong fiscal institutions,
    - active and sound macroeconomic forecasting and analysis,
    - strong and sustained political commitment to a medium-term fiscal goal.

*Source: IMF staff chapter (excerpt).*

### 3.      Trinidad and Tobago produces significantly more energy than it uses, so it is a net

### 3.      Trinidad and Tobago produces significantly more energy than it uses, so it is a net exporter of energy

### Energy production and exports
- In 2021, Trinidad and Tobago produced:
  - 923,000 terrajoules (TJ) of natural gas
  - 130,000 TJ of crude oil
  - 27,500 TJ of natural gas liquids (which includes propane, butane, and natural gasoline)
- Energy exports in 2021: 510,000 TJ.
- Long-term trends (2010-19):
  - Natural gas production fell by 17 percent.
  - Crude oil and condensate production fell by 40 percent.
- Domestic production of oil products (mainly NGLs) in 2021: 27,511 TJ; imports of oil products: 81,561 TJ.
  - Of total oil products supply: 56,050 TJ reexported; 7,482 TJ used to refuel international shipping and aviation; domestic end-use consumption: 38,885 TJ (primarily road transport).

### Final energy consumption by sector
- Sector shares of domestic final consumption:
  - Industry: just under 50 percent
  - Transport: 30 percent
  - Households, businesses, and agriculture: 19 percent
- Within industry, metal refining (including iron and steel) is the largest consumer.
- Road transport is the main source of transport demand.
- Use of fuels in final energy consumption:
  - Oil products: 39 percent of final energy consumption
  - Natural gas: 31 percent
  - Electricity: 30 percent
- Sectoral fuel mixes:
  - Industry: 55 percent natural gas; 37 percent electricity; 11 percent oil products.
  - Road and air transport: 100 percent oil products.
  - Households and commerce: 62 percent electricity; 17 percent natural gas; 20 percent oil products.

### Electricity generation and efficiency
- Electricity generation in 2021: 33,332 TJ.
  - 99 percent produced via natural gas generators.
  - Very small amounts from oil generators and renewables.
- Natural gas used to produce electricity in 2021: 89,826 TJ.
- Electricity production efficiency in 2021: 37 percent.
- Historical benchmark: if electricity efficiency had remained at its 2005 level of 26.6 percent, consumption of natural gas to generate the same electricity would have been 35,000 TJ higher in 2021.
  - Assuming this 35,000 TJ was diverted from LNG exports, it would have lowered LNG exports in 2021 by 11 percent, and total goods exports by about 2 percent, or $220 million.
- Efficiency improvements driven by replacement of some single-cycle turbines with combined-cycle turbines (example: Penal power plant turbines replaced in 2016 increased power output by 34MW).

### Carbon emissions and energy intensity
- Energy consumption per capita: 124 megawatt hours (MWh) in Trinidad and Tobago (the 6th highest in the world).
  - ECCU average: 17 MWh.
- Trinidad and Tobago had the 15th highest carbon emissions in 2019; global share of CO2 emissions: 0.075 percent.
- Higher per capita energy use reflects greater share of manufacturing and energy-intensive industries, and potentially lower energy efficiency given cheaper energy prices.
- Policy actions affecting energy use and emissions:
  - Partial fuel price liberalization in April and September 2022.
  - Adjustment of electricity tariffs expected to be finalized in 2024.

### Options to rebalance the energy matrix (quantified potential impacts)
- Reduce domestic consumption of natural gas and oil products to free up volumes for LNG and petrochemicals.
  - Improvements in electricity efficiency and increased renewable electricity can free natural gas for export.
- Renewable energy contributions and illustrative impacts:
  - BP-Shell utility-scale solar project intended to generate 1,089 TJ of electricity per year—about 3.3 percent of current electricity production.
    - This would free about 3,000 TJ of natural gas for export as LNG (or petrochemicals).
    - Potential boost to LNG exports: 0.9 percent (compared to 2021 levels), or around $18 million annually at 2021 prices.
  - Achieving the authorities’ target of 30 percent of electricity generation from renewables by 2030:
    - Could increase natural gas exports by about 8 percent each year (relative to 2021 levels), or just under $170 million.
- Reducing domestic oil product consumption:
  - 2022 liberalization of fuel prices expected to increase incentives for more efficient fuel use, reducing oil imports and providing significant fiscal savings.
  - Increasing fuel efficiency standards and encouraging electric vehicles can reduce oil imports, with net balance-of-payments effects depending on electricity generation source.

### Green hydrogen and downstream green products
- Authorities unveiled a 35-year roadmap to produce green hydrogen (GH2) and downstream products (ammonia, methanol) leveraging petrochemical capabilities.
- Potential benefits:
  - Use renewable energy to produce green hydrogen instead of natural gas for petrochemicals, freeing natural gas for export.
  - Reduce carbon intensity of petrochemicals—improve competitiveness in markets with carbon pricing.
  - Green methanol as a shipping fuel could allow refueling ships domestically rather than with imported oil products.

### Policy implications and recommended measures
- Near-term priorities:
  - Continue reducing domestic natural gas consumption via energy efficiency and renewables to maintain supplies for LNG and petrochemicals.
  - Finalize electricity tariff adjustments to promote efficient energy usage and relieve fiscal pressures.
  - Support BP-Shell utility-scale solar project and other renewable installations toward the 30 percent by 2030 target.
- To realize the green hydrogen roadmap:
  - Achieve a sharp and sustained increase in renewable energy capacity.
  - Use policy tools (subsidies or potentially a carbon price) and ensure regulatory frameworks (e.g., feed-in tariffs) to incentivize renewable investment.
- Grid and integration challenges:
  - Carefully integrate intermittent renewables; accelerate wind power to diversify generation timing and incentivize storage (batteries).
  - Expect expanded electricity grid and substantial investment to support increased electricity demand from green hydrogen production or electrification (electric vehicles, heat pumps).

### Data and comparability
- Main data source: United Nations’ Department of Economics and Social Affairs energy database (energy expressed in terajoules for fuel equivalence).
  - Conversion factors (from TJ) reported in 2021 comparison:
    - Natural gas: 0.998 million standard cubic feet per day (UN database: 2524; MEEI: 2579)
    - Crude oil and condensates: 166.778 barrels per day (UN database: 59335; MEEI: 59850)
    - NGLs: 220.264 barrels per day (UN database: 16602; MEEI: 16747)
- Differences between UN database and MEEI likely arise from conversion factor choices and cross-country compilation challenges.

*Source: 1ttoea2024002 (IMF).*

### 1.      Trinidad and Tobago’s contribution to global greenhouse gas (GHG) emissions is very

### 1ttoea2024002 - 1.      Trinidad and Tobago’s contribution to global greenhouse gas (GHG) emissions is very

### Key findings on emissions and exposure
- Trinidad and Tobago’s contribution to global greenhouse gas (GHG) emissions is very small—0.075 percent—yet the country is substantially exposed to global low-carbon transitional risks.
- Population: about 1.5 million.
- Emission intensity: 1.6 kg CO2-equivalent per US$ in 2021.
- Most emissions in the country are direct (i.e., arising during manufacturing processes); indirect emissions (i.e., originating from electricity generation used in manufacturing) have only a marginal share for key export sectors such as fertilizers.

### Global policy context: carbon pricing and border measures
- Carbon pricing (carbon tax or emissions trading system (ETS)) is a main policy tool to achieve decarbonization targets and support the energy transition.
- Number of jurisdictions: carbon pricing schemes have been introduced in 49 advanced and emerging market economies; at least 23 additional countries plan to start pricing emissions soon.
- Examples and magnitudes:
  - EU ETS covers 30 countries.
  - Carbon prices in developed ETSs have reached as high as 100 euro per ton of CO2-equivalent.
- Countries are exploring linking ETSs (example: Swiss ETS linked with the EU ETS).
- Divergences in carbon pricing across countries have increased interest in border carbon adjustments (BCAs) to safeguard competitiveness and address carbon leakage.

### EU Carbon Border Adjustment Mechanism (CBAM): design and timeline
- Transitional phase: entered a transitional phase which will last until 2025 and become fully operational in 2026.
  - During the transitional phase, EU importers must report emissions embedded in their imports with no payment obligations until 2026.
- Covered products in initial scope: iron and steel, aluminum, cement, fertilizers, electricity, and hydrogen.
- Pricing and certificates:
  - EU importers will have to buy CBAM certificates at the price set in the ETS market to cover the carbon footprint of imported goods.
  - CBAM payments can be reduced if the carbon price is paid in the country of origin for the declared embedded emissions.
  - CBAM is aligned with the phase-out of free allowances under the EU ETS (free allocation phased out over a nine-year period from 2026 to 2034 for sectors covered by CBAM).
- Emissions covered:
  - CBAM will apply to CO2 and, where relevant, nitrous oxide and perfluorocarbons.
  - It applies to direct emissions for all covered imports and to indirect emissions (electricity used in manufacturing) for cement and fertilizers.
  - Methane emissions are excluded from CBAM and will be covered by supplementary mechanisms; EU law will require companies importing oil and gas to demonstrate emissions monitoring standards equivalent to the EU by 2027, and eventually require oil and gas suppliers to limit methane emissions to stay below maximum methane intensity values by 2030.
- Verification and default values:
  - Embedded emissions will be verified based on EU importers’ declarations and calculated pursuant to methods set out by the European Commission.
  - Default values will apply when emissions cannot be appropriately determined through importers’ declarations.

### Trinidad and Tobago’s exposure to EU CBAM: current and potential
- Current exposure:
  - About 5.1 percent (US$ 446 million) of Trinidad and Tobago’s total exports of goods are exposed to the EU’s CBAM (estimates based on 2018-2022 averages).
  - Sixteen percent of Trinidad and Tobago’s total exports of goods are destined to the EU, equivalent to 5.7 percent of GDP or US$ 1.4 billion.
- Potential future exposure:
  - Exports exposed to the EU’s CBAM are likely to double if CBAM’s sectoral coverage is widened to include petroleum products and petrochemicals (including methanol).
  - By the early 2030s, up to 15 percent of Trinidad and Tobago’s current total exports of goods could be subject to emissions regulation at the border once the EU introduces restrictions on methane intensity embedded in hydrocarbon imports to the EU.
- Main CBAM-exposed exports to the EU (average 2018-22) include:
  - Methanol (methyl alcohol): Total exports to EU US$ 399.5 Mill.; Percent share of exports to EU 29.0; Percent share of total exports 4.6; May be covered by CBAM at the later stage (√).
  - Anhydrous ammonia: Total exports to EU US$ 288.9 Mill.; Percent share of exports to EU 21.0; Percent share of total exports 3.3; Covered by EU CBAM (√).
  - Liquefied Natural gas: Total exports to EU US$ 254.5 Mill.; Percent share of exports to EU 18.5; Percent share of total exports 2.9.
  - Mixtures of urea and ammonium nitrate in aqueous or ammoniacal solution: Total exports to EU US$ 152.5 Mill.; Percent share of exports to EU 11.1; Percent share of total exports 1.8; Covered by EU CBAM (√).
  - Other items listed with values include petroleum oils crude US$ 115.5 Mill.; other petroleum oils US$ 28.1 Mill. (may be covered later), melamine US$ 21.0 Mill. (√), and smaller-value items down to urea US$ 4.6 Mill. (√).
- Fertilizer industry exposure:
  - Carbon intensity findings: carbon intensity of Trinidad and Tobago’s production of anhydrous ammonia exceeds the EU’s average level.
  - Carbon intensity of mixtures of urea and ammonium nitrate almost doubles the EU’s level and is one third higher than the weighted average level of carbon intensity of the EU’s imports from numerous countries.
  - IMF staff worst-case scenario (no global redirection of trade, ceteris paribus): CBAM-related payments incurred by European importers of Trinidad and Tobago’s fertilizers could exceed 40 percent of the total fertilizer annual exports to the EU, or about 0.8 percent of Trinidad and Tobago’s GDP.
  - These costs would increase if CBAM’s coverage is extended to include other petroleum products and chemicals or methanol.
  - The EU fertilizer market is competitive; in the worst-case scenario Trinidad and Tobago could lose some EU market share.
- Trade redirection and mitigation:
  - The worst-case estimates are a ceiling: adverse effects are likely to be mitigated in the near term by strategic behavior of global petrochemical firms that could redirect some exports to non-EU markets.
  - The feasibility of redirecting exports differs across products: more likely for commodities where the EU has a smaller share in global imports (e.g., urea and ammonia), and limited for products where the EU holds a significant share (e.g., mixtures of urea and ammonium nitrate).

### Policy implications and recommendations for Trinidad and Tobago
- Strategic priorities to address transitional risks:
  - Continue support and incentives to upgrade and increase the efficiency of petrochemical infrastructure to mitigate transitional risks.
  - Further reduce the carbon intensity of most exposed industries, particularly the fertilizer industry, to maintain access and competitiveness in the EU market.
  - Prioritize reductions in direct emissions (manufacturing process emissions) since indirect emissions are low in the fertilizer industry and reductions in renewable electricity supply will only marginally help.
  - Embrace greener and more efficient manufacturing technologies, develop Carbon Capture, Utilization, and Storage (CCUS) technology, and advance the respective legislative framework for CCUS development.
  - Assess and manage transitional risks to the iron and steel industry given it accounts for 9 percent of overall exports and is important for economic diversification toward non-energy sectors.
- Existing national initiatives and progress:
  - Submitted Nationally Determined Contribution (NDC) to UNFCCC in 2018 with targets:
    - (i) an overall reduction of emissions from the industrial, power generation and transport sectors by 15 percent of cumulative emissions by 2030 relative to a BAU baseline, equivalent to 103 million tons of CO2 equivalent (MtCO2eq), conditional on external financial support; and
    - (ii) an unconditional 30 percent reduction of cumulative emissions from the public transportation sector or 1.7 MtCO2eq compared to 2013 levels by 2030.
  - Issued strategic documents including the Roadmap for a Green Hydrogen Economy.
  - Renewable policy developments:
    - Increasing generation capacity with a project under construction to install a 92 MW solar power plant.
    - Developing a feed-in tariff policy to allow small scale residential and commercial customers to co-generate electricity and sell it to the grid.
  - Joined the Global Methane Pledge aiming to reduce anthropogenic methane emissions, representing 21 percent of the country’s total emissions.

### Scenarios and limitations noted
- The worst-case CBAM impact scenario assumes no global redirection of trade (ceteris paribus) and is an upper bound; strategic behavior of firms and market reallocation may partially offset costs.
- A comprehensive assessment of CBAM impacts would require a more granular analysis using a global general equilibrium modeling framework to analyze trade implications and global trade pattern adjustments.
- Expansion of CBAM coverage involves tradeoffs between enhanced protection against leakage and increased regulatory complexity and reporting burden; later-stage CBAM may include coking coal, asphalt bitumen, petroleum products, chemicals, glass and ceramics, Non-ferrous metals.

*Prepared by Ilya Stepanov and Diego A. Gutiérrez. Sources and data drawn from the provided IMF text.*

### 14.      Stepping up the measurement and collection of emissions data would also help

### 14.      Stepping up the measurement and collection of emissions data would also help

### Emissions data, transparency, and MRV
- Emissions data transparency and business accountability are critical for mitigating transitional risks and for supporting national manufactured goods facing the EU’s new requirements on imports’ carbon footprint.
- Trinidad and Tobago is encouraged to continue scaling up efforts on gathering data on GHG emissions and emissions intensities of production processes.
- National Climate Mitigation Monitoring, Reporting, and Verification (MRV) system was set in 2021.

### Securing natural gas supply and production efficiency
- Recent challenges in gas supply have led to certain petrochemical facilities operating near their minimum capacity, compromising production efficiency.
- Evidence from the corporate sector suggests that for certain petrochemical products, the reduction from full capacity to a minimum operational threshold can lead to an increase of more than 10 percent in emissions per unit of product.
- Securing gas from bordering projects with Venezuela and other deep water gas projects that will materialize in the medium term should contribute to securing the necessary investment to increase petrochemical plant efficiency and reduce the carbon footprint.
- Stable revenues from the energy sector are a key prerequisite for successful energy transition, including financing renewable energy development.

### Emissions pathway and NDCs
- Over the past decade, Trinidad and Tobago has experienced a decline in GHG emissions. The peak in emissions occurred in 2010.
- Emissions have steadily decreased, reaching a level one third lower than the 2010 peak in 2021.
- Transition risks from climate actions by advanced and emerging economies justify considering a more ambitious emissions reduction pathway, formalized in a revised NDC submission to the UNFCCC.
- NDCs are submitted every five years to the UNFCCC secretariat; successive NDCs should represent a progression compared to the previous NDC and reflect highest possible ambition. Parties were requested to submit the next round of NDCs by 2020 and every five years thereafter (e.g., by 2020, 2025, 2030).

### Carbon pricing as a tool to support decarbonization and competitiveness
- Trinidad and Tobago could consider introducing a carbon pricing mechanism (ETS or carbon tax) to stimulate economic diversification and help reduce exposure to the EU’s CBAM.
- Carbon pricing could:
  - boost investment in renewable energy generation;
  - accelerate implementation of the roadmap for a green hydrogen economy;
  - set economic incentives to increase energy sector efficiency;
  - scale up use of CCUS and other low-carbon technologies.
- A carbon price can help reduce exposure to the EU’s CBAM, although coverage may need to extend beyond EU-oriented exports to be compliant with WTO rules.
- For WTO compliance, a domestic carbon tax would need to be applied universally to all exports (as well as domestic consumption) of CBAM-covered products, with wider macroeconomic, fiscal and trade implications.
- The design of a carbon price mechanism needs to carefully account for possible adverse domestic macroeconomic effects, including potential negative impacts on the global competitiveness of carbon intensive industries.
- A well-designed carbon price introduced in a timely manner and complemented by offsetting policies can help increase economic resilience and develop comparative advantages in a greener global economy.

### Box 1 — Considerations in Designing a Carbon Pricing Mechanism (high-level findings)
- Carbon taxes and ETSs contribute effectively to emissions reduction and incentivize low-carbon technologies, but can have negative impacts on growth, industrial competitiveness, and household consumption.
- Design choices matter: level and rate of price increase, emissions coverage, revenue recycling, point of regulation (upstream vs. midstream/downstream), and use of offsets.
- Offsetting adverse effects can include revenue recycling or simultaneous reductions in existing taxes (example: British Columbia’s revenue-neutral carbon tax paired with reductions in corporate and personal income taxes).
- Intensity-based caps (example: China’s ETS) can alleviate impacts on growth by adjusting depending on actual output level.
- One possible option for Trinidad and Tobago: exploring a fiscally neutral carbon tax accompanied by a partial reduction in existing taxes (for example, royalty or other production-based taxes like Green Fund Levy), subject to further investigation.

### Comparative country carbon-pricing and targets (selected figures preserved from source)
- United States (share of global petrochemical market 11.6) — 2030 emissions reduction target: -41%5; Subnational ETSs implemented; Level of carbon price, USD per tCO2e: 41.0 / 11.2 (entries as presented).
- South Korea (8.75) — 2030 emissions reduction target: -36%; National ETS implemented (2015); Level of carbon price, USD per tCO2e: 74.0 / 11.2.
- China (4.75) — 2030 emissions reduction target: -11%; National ETS implemented (2015) and 8 subnational ETSs; Level of carbon price, USD per tCO2e: 41.3 / 8.2.
- Canada (2.91) — 2030 emissions reduction target: -38%; National ETS and 8 subnational ETSs; Level of carbon price, USD per tCO2e: 71.2 / 45.3.
- Netherlands (5.67) — 2030 emissions reduction target: -46%; EU ETS (2005), and CT implemented (2021); Level of carbon price, USD per tCO2e: 48.8 / 99.8.
- Germany (5.31) — 2030 emissions reduction target: -38%; EU ETS (2005) and National ETS (2021); Level of carbon price, USD per tCO2e: 86.6 / 66.9.
- Trinidad and Tobago (1.34) — values listed as 31% / 54% in table (entries preserved as presented).

*Source: IMF staff summary of content from the Trinidad and Tobago country chapter.*

### 5.      High digitalization allows the country to

### 5.      High digitalization allows the country to 

### Digital economy and enabling sector
- In 2022, the ICT services contributed 2.9 percent to the country’s real gross domestic product (GDP).
- Authorities’ objectives:
  - Capitalize on internet, cloud computing, big data, and 5G to boost e-commerce, grow the local software industry, and promote Fintech as new engines of non-energy growth.
- Recent initiatives:
  - Established in mid-2023 the Government Campus Plaza Developer’s Hub (D’Hub)—a virtual collaborative space to create open-source mobile and web applications.
  - Developing the National E-Commerce Strategy 2024-29 to help local businesses access domestic and foreign markets.
  - Assisting local technology entrepreneurs with getting international accreditation and information technology.

### Improving Financial Access, Inclusion, and Literacy
- Financial access indicators:
  - In 2017, 80.8 percent of domestic residents had accounts in financial institutions (FIs), compared to 53.9 percent in the LAC region.
  - Financial system depth: assets standing at 179.1 percent of GDP as of 2022.
- Gender and comparative access:
  - Example: 73.6 percent of females owned an account in FIs, and 51.7 percent had a debit card, compared to 57.6 and 46.0 percent for an average LAC male.
- Recent trends and targets:
  - 2023 Financial Inclusion Survey by the TT International Finance Center (TTIFC) found the share of households with a formal financial account declined to 76 percent, reflecting COVID-19 impacts, fees, POS, and source of funds requirements.
  - Authorities’ medium-term goal: achieve the share of banked population over 90 percent (Imbert, 2023a).
  - TTIFC is developing strategies and roadmaps to address identified gaps and barriers.
- Financial literacy and SME usage (CBTT findings):
  - National Financial Literacy Program (NFLP) education topics: financial system, debt management, budgeting, financial fraud, and cyber risks.
  - Latest survey: share of citizens with medium and high financial literacy levels increased substantially by 2021.
  - About 7 in 10 SMEs have a bank business account and use more digital banking.
  - About 6 in 10 SMEs use online banking and prepare financial statements.
  - CBTT introduced Simplified Due Diligence Requirements (2021) for basic bank accounts with companion guidance.
  - Authorities aim to leverage high mobile penetration to enhance financial access and inclusion promoting Fintech payments solutions.

### Reducing the Use of Cash, Adopting Fintech, and Modernizing Payments
- Use of cash and ATM trends:
  - In 2022, the population withdrew 65.1 billion TTD, more than in 2021.
  - Banks increased ATM installations; the share of ATM cash withdrawals has increased.
  - Banks’ digitalization (mobile apps, online banking, new POS) helped gain share in retail bill payments, replacing cash transactions.
- Fintech strategy and institutional setup:
  - CBTT’s Strategic Plan 2021/26: study legislative, institutional, and behavioral barriers to Fintech adoption and propose solutions for safe adoption and required legislative/regulatory/supervisory changes.
  - IMF provided technical assistance (TA) supporting these efforts.
  - Joint Regulatory Innovation Hub (the Hub) established October 2020 as a portal on websites of CBTT, TTSEC, and FIUTT for Fintech guidance and regulatory engagement.
    - As of February 26, 2024, authorities engaged with 78 entities on Fintech matters: received 11 EMI applications and 67 queries focusing on E-Money, crypto currency, and payment service providers (PSP).
  - TTIFC established the One Fintech Avenue and launched the Fintech Sprint for Financial Inclusion with the European Union and UNCDF.
  - Note: the authorities introduced a regulatory sandbox; IMF (2022) does not consider this a priority.
- E-Money Issuer (EMI) developments:
  - E-Money Issuer Order of 2020 extended eligibility to issue e-money beyond FIs licensed under the Financial Institutions Act, 2008 (FIA), including a “provisional license” initially obtained for 6 months (and for additional periods of 6 months).
  - EMIs may issue e-money accounts, cash-in, cash-out, provide payment services, and conduct money transfers.
  - EMI must register with FIUTT within 5 days of provisional registration by CBTT.
  - Government relaxed transaction and wallet limits with EMI via the Amendment Order of 2023.
  - CBTT monitors EMI operations and regulatory compliance and coordinates with MDT, the FINTECH Association, and TTIFC.
  - As of September 1, 2023, three EMIs operate with full licenses—PayWise Limited, the TSTT, and PESH Money Limited (PESH). One EMI—MyCash (Trinidad and Tobago) Limited—has a provisional license, granted on October 2, 2023, for a period of six months.
- Crypto and broader Fintech:
  - Growing interest in crypto and virtual asset services requires legislative amendments; Security Act 2012 does not cover some new Fintech developments.
  - Fund TA advised on evaluating costs and benefits of legal and regulatory action and targeted amendments/regulation of crypto asset activities (IMF, 2023a).
- Payments system structure and oversight:
  - NPS components: (i) CBTT operating RTGS and clearance of large cheques; (ii) InfoLynk operating debit card payments (LINX system), ACH/EFT, and ACH/ECC; (iii) five PSPs; (iv) four EMI; and (v) an EMI service (Endcash) provided by Republic Bank. Payment System Council (PSC) led by CBTT supports NPS.
  - From 2020 to 2022, retail electronic payments (ACH transactions) increased while cheque use declined; debit and credit card usage rose.
  - Wholesale payments grew in 2022 after some slowdown. Large cheques (mainly from the public sector) still comprise over a quarter of wholesale transactions.
  - Large cheques are defined as wholesale transactions exceeding 500,000 TTD and remain largely manual and take three days to settle.
  - No provisions exist to reduce cheque usage, expedite settlement, or establish a settlement guarantee fund.
- Legislative and policy gaps; reform needs:
  - Current legislative base is fragmented: Central Bank Act (CBA), Financial Institutions Act (FIA), EMI Order, and four guidelines establishing licensing and oversight for Systemically Important Payment Systems (SIPS).
  - Deficiencies: legislation does not give CBTT explicit powers to designate payment systems as systemic, or to license, regulate, and supervise new PSPs and instruments; EMI Order limits eligibility to join sector.
  - 2021 CBTT Policy Proposal Document (PPD) for a Payments System Bill (supported by IMF TA) aims to design a single comprehensive payments legislation clarifying definitions and CBTT mandate, allowing licensing for a wide range of PSPs and Fintech participants, treating all payment systems, and addressing systemic risks.
  - Urgent need to adopt a comprehensive NPS Act and develop an enhanced oversight policy to modernize the payments system.

### Deploying Digital Government Technologies (GovTech)
- GovTech progress and GTMI rating:
  - World Bank’s GovTech Maturity Index (GTMI) shows progress in supporting core government systems, service delivery, citizen engagement, and GovTech enablers.
  - Country’s rating improved from “C: Some Focus” to “B: Significant Focus”.
- Digital government goals:
  - Increase online accessibility of public services, enhance quality and efficiency, improve citizens’ experience, and facilitate doing business.
- MDT initiatives:
  - Establishing the government cloud and data center for secure national digital transformation infrastructure.
  - Building an interoperability framework to link public agencies, integrate functions, enable secure data sharing, and support citizen–public sector interactions.
  - Creating a national e-ID to identify citizens online, improve public administration, facilitate social and health services, and enable efficient, transparent, and secure government–individual payments.
  - Developing a strategic cybersecurity roadmap and implementation plan.
  - Sought international cooperation (e.g., with Estonia on interoperability, and with India on capacity building).
- Digital public services and platforms:
  - Trinidad and Tobago launched a single Electronic Window (SEW) for public services—TTBizLink in 2013; on July 18, 2023, MTI launched the Enhanced TTBizLink platform improving 36 services across seven Ministries and other agencies, allowing download of signed and stamped approval documents and online payments for permits and licenses.
  - Companies Registry Online System (CROS) launched February 1, 2023, enabling electronic transmission and signing of documents; online applications for immigration services also introduced.
- Transition to online payments for government services:
  - Current monetary transactions involve complex documentation and long waiting times, negatively impacting less tech-savvy and socially vulnerable groups.
  - Ministry of Finance approved instructions for using the registered Payment Service Providers Retail Payment Network (PSPRN) to enable tax revenue collection through a network of agents and ease access to public services, especially for vulnerable groups like the unbanked and underbanked.
  - Government enabled electronic payment systems within the judiciary system.
  - Online tax payments require reviewing/adapting legislation and regulations of the national payment ecosystem, assessing institutional needs, and providing recommendations for security and resilience of the supporting digital ecosystem.
  - Objective: simplify tax payments, introduce new payment options, improve tax administration efficiency, and ease doing business.

*Source: IMF staff summary of chapter content.*

### 22.      The country’s digitalization has come along with a rise in cybersecurity incidents. The

### 22.      The country’s digitalization has come along with a rise in cybersecurity incidents. The

### Incidents and impacts
- CBTT (2023a) reported 147 cybersecurity incidents between 2019-22, including phishing attacks, data breaches, website defacement and denial of service, reports of business email compromise, ransomware incidents, and two malicious insider events.
- About 57.1 percent of these incidents affected the private sector.
- Some cyberattacks affected public and private institutions and the delivery of financial services; although disruptive, none were of a systemic nature.
- Fourteen new e-services are expected to launch in FY2024.
- According to the Global Security Index (2020), Trinidad and Tobago scored 22.18/100, ranking 125th globally and 20th in the LAC region.
- As of 2020, Trinidad and Tobago had only 314 secure servers per 1 million people, which is eight times less than the LAC average.

### Policy and institutional responses
- CBTT strategy (CBTT, 2021) includes:
  - strengthening incident reporting and investigation;
  - advancing cybersecurity capacity;
  - enhancing business continuity planning; and
  - liaising with national and external institutions in countering fraudulent financial activities.
- The GoRTT has a National Cybersecurity Strategy (2012) and National Cybercrime Policy (2013). Over 2016-2020 the country significantly improved its cybersecurity framework, with largest improvements in:
  - legal and regulatory frameworks;
  - standards, organizations, and technologies; and
  - cybersecurity education, training, and skills.
- The Cybercrime Bill (2017) was laid in Parliament but was not fully debated and lapsed.
- The MDT has established a cybersecurity unit and a Strategic Security Action Line to build cybersecurity by design in all digital government services and to raise public awareness.
- GoRTT introduced a Cybersecurity Investment Tax Allowance of up to $500,000 for companies investing in cybersecurity software and network security and monitoring equipment from January 1, 2024 through December 31, 2025 (GoRTT, 2023).
- The CBTT is:
  - strengthening its own cybersecurity and identity management;
  - strengthening supervision of cybersecurity of the FIs it regulates, with support from the IMF; and
  - releasing Cybersecurity Best Practices Guideline for supervised entities (released in September 2023).

### Financial-sector cyber risk management (CBTT guidance highlights)
- Existing CBTT regulatory instruments covering ICT or cyber risk management include:
  - Corporate Governance Guideline (Board to have special skills including information technology);
  - Guideline for the Management of Outsourcing Risks (evaluate risks and materiality of outsourcing arrangements, including cyber risk);
  - Guideline for the Security Systems for Safeguarding Customer Information (management responsible for developing and documenting operating manual of information security program);
  - Market Conduct Guideline (reporting of material incidents to the CBTT); and
  - ICAAP Guideline (need to conduct stress tests with severe cyberattack as one of the scenarios).

### Consumer protection and digital finance resilience
- Review of the financial consumer protection framework can identify risks posed by emerging digital finance business models; once analyzed, risks can be prevented or mitigated by adapting existing rules, reporting requirements, or processes.
- Collaboration mechanisms between the financial sector and telecom regulators must be formalized to increase the cyber resilience of digital finance.
- Collaboration should be expanded to the private sector to embrace a holistic security assurance framework.
- Establishing relevant strategies, building adequate data infrastructures, and strengthening stakeholder engagement will foster cooperation, boost the economy, and improve access to digital financial services for everyone.

### Conclusions and policy considerations
- Continue efforts to maximize benefits and minimize risks of digitalization, including:
  - identifying financial inclusion gaps and developing and executing strategies and roadmaps to address them, complemented by promoting digital and financial literacy;
  - modernizing the payments system by promoting e-payments, prioritizing the RTGS for large public transactions, and improving the reach and convenience of banking services (e.g., increased merchant base and more POS);
  - finalizing the Payments System Services Bill, and more generally putting in place adequate regulatory framework for new developments (e.g., crypto assets);
  - continuing to improve the national cybersecurity framework and ensuring compliance with robust cybersecurity and risk management procedures.

*TRINIDAD AND TOBAGO — INTERNATIONAL MONETARY FUND (section content 22)*

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_Source: https://www.imf.org/-/media/files/publications/cr/2024/english/1ttoea2024002.pdf_