Trinidad and Tobago’s 2025 Deficit Is Surging, And What Comes Next?

Trinidad and Tobago is walking a fiscal tightrope in 2025. As our Deficit Tracker illustrates, the first 5 months of the 2025 fiscal year have seen the government rack up a cash shortfall of TT$4.42 bil, placing the country on course to breach TT$11 billion in annual deficit the highest since the TT$17.3 billion collapse in 2020.

The current UNC government blames an “empty treasury” left behind by its predecessor and as the data shows a combination of revenue collapse, spending rigidity, and policy retreat as the core drivers. Without course correction, the result will be slower growth, rating downgrades, and economic displacement concentrated in the most vulnerable sectors

Source - MOF

The Deficit Tracker: 2025’s Red Line Signals Fiscal Distress

Compared to previous years, 2025’s deficit is accumulating faster, and steeper than the 2021- 2024 post-COVID cycles. Only 2020, triggered by a once in a century pandemic, surpasses the current trajectory.

In a recent press briefing the current PM of Trinidad and Tobago, Kamla Persad-Bissessar, gave an update of the situation as of May 2025,

• Cash Outflows: TT$6.38B

• Unpaid Cheques Rolled Over: TT$500M

• May 2025 Deficit: TT$4.42B

• Projected FY2025 Deficit: ~TT$11B (~6% of GDP)

T&T is nearing several critical fiscal thresholds, as flagged in both the IMF’s 24 Consultation and CariCRIS’ March 25 rating rationale. While debt levels remain sustainable under current assumptions, growing concerns surround the country’s fiscal trajectory. The erosion of buffers like the Heritage and Stabilisation Fund (HSF), mounting debt service costs, and persistent primary deficits all point to rising vulnerability. Four key indicators, debt/GDP ratio, primary balance, debt servicing burden, and interest/revenue ratio are either breaching or approaching stress levels. The IMF has issued a clear warning, without meaningful fiscal consolidation and protection of financial buffers, further credit downgrades and adverse market repricing are likely. Although some fiscal consolidation occurred before 2025, helping reduce the debt/NGDP ratio from its 2020 highs, the current trend of rising recurrent expenditure and HSF withdrawals threatens to reverse those gains.

Source - MOF

However, the spread between actual and estimated debt servicing costs in T&T reveals a persistent challenge in fiscal forecasting, primarily due to the country’s heavy reliance on external economic forces and volatile energy revenue streams. In 2019, actual costs overshot estimates by 7%, reflecting refinancing pressures and underestimated debt obligations. In contrast, 2021 saw a 10% overestimate likely tied to conservative assumptions post-pandemic. By 2023, a modest 3% overshoot reappeared, underscoring ongoing weaknesses in fiscal planning.

Source - MOF

Another indicator of where T&T's debt currently stands, is in its debt servicing capacity ratio (DSCR), which has trended lower from 2018 to 2024, revealing the stress accumulating in the country's fiscal structure. After peaking in 2022 at 5.7 reflecting a temporary revenue rebound and strong fiscal space the ratio has steadily weakened, declining to 3.6 in 2023 and hovering at 3.7 in 2024. This decline signals a shrinking buffer to meet debt obligations through available revenues, especially as debt service costs grow faster than income. A DSCR below 4 suggests mounting repayment risk, particularly in a country highly exposed to external shocks and energy price volatility.

Source - MOF

What's driving this?

1. Rising Principal Repayments

Local principal repayments are projected to surge by 92.0% in 2025, reaching TT$2.21 bil as a wave of maturities comes due. These include clustered redemptions from 2020-2023 floating rate bonds, VAT refund bonds, and older FRB tranches, creating intense rollover pressure. While foreign principal repayments are expected to ease to TT$1.45 bil in 2025 down from TT$3.4 bil in 2024 they remain highly volatile and sensitive to FX reserve levels, particularly given rising global interest rates and limited concessional financing options. This front loading of obligations forces the government to refinance constantly, adding to the debt stock even as old liabilities are repaid.

2. Short-Term Liquidity Reliance

The government is relying heavily on short term financing tools to stay afloat, having fully drawn down its Central Bank overdraft facility, TT$2.74 bil as of early 2025 to meet routine operating expenses. In addition, Treasury bill rollovers and new local bond issuances are projected to exceed TT$10 bil this year alone. This means T&T is increasingly using debt not for capital investment or infrastructure development, but to cover day to day expenditures like wages, subsidies, and arrears. Such a financing pattern is unsustainable, as it compounds interest burdens without generating future growth or fiscal return.

3. High Interest Costs + Yield Curve Repricing

T&T’s new government bond issuances are now priced between 6.15% and 6.80%, a sharp increase compared to previous cycles. This uptick reflects two key dynamics, the global environment of elevated UST yields and domestic credit risk repricing. As the US Fed maintains a high policy rate well into 2025, averaging above 4.25% with slow-paced cuts projected through 2026, local investors demand a higher yield premium on T&T sovereign debt, especially in the 5-10 yr range (due to better than expected US hard data). This repricing directly raises the cost of fresh borrowing and reduces available fiscal space for infrastructure and development.

Source - CME

To remain attractive to investors, T&T’s bonds must provide a yield premium over USTs. With the US 10yr Treasury yield hovering around 4.5% to 4.7%, T&T is compelled to offer an additional 200 to 250 bps, pushing bond yields into the 6.5% to 6.8% range. If this spread narrows or fails to reflect relative risk, domestic investors, especially institutional holders, may increasingly divert capital into US dollar or USD linked instruments, accelerating capital outflows and further pressuring domestic borrowing costs. T&T's revenue growth is stagnating, energy revenues have collapsed by 51% yoy due to declining output and delays in projects like the Dragon Field, while energy still underpins nearly 40% of government revenue. At the same time, rigid recurrent expenditures debt servicing, wages, pensions consume roughly TT$5 billion monthly, compounded by a new wage hike and legacy arrears. Crucially, fiscal discipline has weakened, the repeal of the TTRA slashed compliance revenue, HSF drawdowns are being used for operating expenses, and the government has maxed out its TT$2.74 billion Central Bank overdraft, exposing Trinidad to deep liquidity risk. With rising interest and principal costs, fewer discretionary dollars remain for infrastructure, education, healthcare, or economic diversification.

So What's The Current Government Getting Right & Wrong?

The government has taken limited but notable steps to reduce symbolic waste. Spending controls such as the freeze on state funded housing and the cap on MP vehicle privileges are expected to yield between TT$80-100 million annually. They also made announcements pertaining to transparency on cash flows and HSF drawdowns. However, the repeal of the property tax which was estimated to generate TT$500 - 700 mil annually undermines medium term revenue resilience and weakens the fiscal base at a time when broader tax reform is essential. Futhermore, the repeal of the Trinidad and Tobago Revenue Authority (TTRA) has left a vacuum in tax enforcement, weakening the state’s ability to recover compliance revenue at a time of urgent need. This policy reversal alone is estimated to cost the government between TT$1.5 bil and TT$3.0 bil annually in lost compliance related revenue, equivalent to as much as 27% of the 2025 projected deficit. The ongoing use of the HSF to fund recurrent spending undermines long-term fiscal resilience and depletes reserves intended for shocks, not shortfalls. Wage increases (such as the 10% proposed increase) while politically popular, are expected to be implemented without offsetting cuts or revenue measures, adding an estimated TT$2 bil annually in structural costs. Failure to implement fuel subsidy reform has also left up to TT$4 bil in potential savings untapped, continuing a distortionary and regressive expenditure pattern. Additionally, the government's growing reliance on shorter dated debt instruments suggests a shortening of the average maturity (ATM) of the debt portfolio. This shift exposes the country to higher refinancing risks and interest rate volatility, increasing rollover pressure and reducing long term fiscal flexibility. Added to that, the budget becomes more volatility and less flexible, as interest and principal repayments come due faster.

Source - MOF

Trinidad and Tobago stands at a critical fiscal juncture. As Prime Minister Kamla Persad Bissessar acknowledged, persistently high deficits and rising debt levels threaten the country’s credit standing. Without a clear fiscal anchor or credible medium term adjustment, agencies like Moody’s and S&P could downgrade T&T to non investment grade by 2026. Such a move would raise borrowing costs, restrict access to international markets, and intensify pressure on FX reserves, ultimately putting the TT$/USD peg at risk. The time for credible, rules based fiscal reform is narrowing.