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Tuesday, September 26 2017 @ 02:04 PM AST

Trinidad and Tobago gasoline prices among lowest in the world

During the last decade Trinidad and Tobago's government spending on transfers and subsidies "has followed an unsustainable path," in the opinion of the International Monetary Fund. However, the people of T&T may not share that view as they enjoy one of the lowest gasoline prices in the world. In its country report for T&T released this month, the IMF said the following.

The burden of transfers and subsidies on Trinidad and Tobago’s budget is the second highest in the Caribbean region. It has more than doubled in the past decade in percent of GDP and now represents more than half of total spending. In fiscal year 2012/13 total budgeted transfers and subsidies are above 17 percent of GDP. While fuel and pension transfers represent the largest components, the budget also contains allocations for numerous programs administered by line ministries, statutory bodies, non-profit institutions and local governments. In addition, public utilities and state enterprises receive significant transfers every year. This fiscal year, the budget contains more than one hundred allocations for specific projects, programs, or institutions.

While some programs may be justifiable on grounds of fostering equity or creating positive externalities, there is no systematic impact assessment or means testing. In some cases (e.g. temporary work programs), programs overlap with others with similar purposes but managed by different entities, with limited coordination and no overall assessment of the benefit/cost. Limited audits and cross checks create opportunities for beneficiaries to stay indefinitely in programs that are designed to be temporary, and also to receive duplicate benefits from multiple sources.

Fuel Subsidies

Fuel subsidies allow Trinidad and Tobago to keep gasoline prices fixed in nominal terms at one of the lowest prices in the world. The budget allocation for fuel subsidies for FY 2012/13 has tripled from the previous year to TT$4.5 billion (about 23⁄4 percent of GDP). In addition, the scheme for fuel subsidization has in recent times resulted in delayed payments to Petrotrin, the state oil company, which has necessitated additional transfers from the central government. The current stock of arrears amounts to 2.9 percent of GDP, which the government expects to have fully cleared over the next two budget cycles. The possibility of running such intra-public sector arrears makes the total cost of the fuel subsidy less transparent (compared to a fixed allocation in the budget) and, most importantly, to remain uncapped within the budget cycle.

The fuel subsidy is regressive. A blanket subsidy on fuel prices leads to higher income brackets of the population receiving a more than proportional share of the subsidy. A recent estimate is that almost 45 percent of direct and indirect benefits of the subsidy are enjoyed by the richest segment of the population, compared with 4 percent going to the poorest. By proportion of income, the subsidy is estimated to be equivalent to almost 8 percent of the income of the richest segment of the population, double the income share for the poorest.1 Moreover, generalized subsidies to fuel lead to waste and cause productivity- dampening traffic congestion. It is estimated that Trinidad and Tobago has 0.7 million vehicles, or 1.5 an average of about one per adult person, which is evident from the frequent 0.5 traffic congestion in urban areas and long commuting hours. Finally, from an environmental point of view, fuel subsidies favor overconsumption and raise greenhouse gas emissions.

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