PORT-OF-SPAIN, Trinidad, Saturday November 29, 2014, CMC – The Trinidad and Tobago government Friday said it did not expect “significant” changes to the country’s economy as a result of a decline in oil prices, but said some belt tightening will have to be undertaken by the Kamla Persad Bissessar administration.
Finance Minister Larry Howai in a statement to Parliament said that the “country’s financial coffers remain strong and foreign exchange reserves have increased to over 11 billion (One TT dollar =US$0.16 cents) from TT$8.9 billion in 2009.
“The country’s overall fiscal position and revenue flows also remain healthy. We are confident therefore that even with these conservative assumptions regarding the expected trajectory of oil and gas prices this year that it will result in very marginal changes to the overall programmes of government.
“There is however no room for complacency and the Ministry (of Finance) would continue to monitor what is happening in the global environment and to refine our remedial fiscal measures to ensure that the country can respond appropriately to changes in the market for oil and gas,” Howai told legislators.
Howai said that over the past few months oil prices had dropped from a high of US$102.90 cents a barrel in July to US$74 a barrel as of November 26 this year.
He said the outcome of the Organization of Petroleum Exporting Countries (OPEC) meeting this week and the failure of that organization to arrive at an agreement to reduce production quotas had ‘resulted in the predictable further decline in the price of crude to below US$70 per barrel as of yesterday and continuing”.
Howai said there were other ‘dynamics” affecting the global oil prices including the introduction of new technology which has led to an increase in oil and gas production in the United States as well as the global economic slowdown “which has reduced the demand for oil.
“This economic slowdown is likely to be aggravated further by the fact that several oil producing countries including Saudi Arabia and Russia need prices in excess of US$90 per barrel in order to balance their budgets”.
He said the change in geo political environment has led to countries like Iraq, Libya and South Sudan coming back into production in a big way and that market traders were also affecting the global price for oil.
Howai said that Trinidad and Tobago is of the view that the overall price for oil will remain below the level for which it had budgeted for the 2014-15 fiscal year.
The 2015 budget is based on a reference price of US$80 per barrel and a gas price of US$2.75 cents per mnbtu.
“These assumptions produce a total revenue of TT$60.3 billion or 32.4 per cent of GDP (gross domestic product) of which the revenue derived from the energy sector is expected to amount to TT$28.4 billion with non energy sector projected at TT30.3 billion with a difference representing revenue generated on the capital account”.
He said that of the total expected from the energy sector, taxes and royalties from oil and gas companies is expected to contribute TT$21.5 billion.
“On the basis of this estimated revenue we are projecting a budget deficit of TT$4.3 billion, representing 2.3 per cent of GDP. It should be noted that in 2014…the government had projected revenue of TT$55 billion with an anticipated deficit of TT$6.4 billion.”
But he said based on preliminary figures at the end of the last fiscal year, September 2014, the actual outturn was a deficit of TT$2.7 billion or approximately 1.5 per cent of GDP, “some TT$3.5 billion better than the project outcome at the start of the year.
“This is mainly as a result of the fact that revenue was higher than budgeted by TT$3.2 billion,” he said noting that the increased revenue came from the high end level of gas prices which prevailed last year.
“For 2015 the experience is expected to be different,” he said, noting that the government had worked out several scenarios regarding the drop in oil and gas prices.
He said at the present time Trinidad and Tobago is averaging bette4r than projected gas prices and these prices have negated the effect of the lower oil prices./
“Trinidad and Tobago is today more of a gas than an oil economy as we said before producing approximately 800,000 barrels of oil a day of which only 10 per cent is petroleum”.
He said if oil prices recover to US$75 per barrel and assuming that gas prices remain where they are, will result in better than project revenue for this year.
He said the government had also worked out a scenario where oil was selling at US$60 per barrel and gas price of US$2.75 mnbtu and this would result in a reduction in total revenue of TT$2.4 billion on an annualized basis.
“This will be partially offset by savings on the fuel subsidy which will be reduced by TT$667 million so that the overall fiscal balance for 2015 will move from 2.3 per cent of GDP to 3.2 per cent”.
But he said the government’s own expectation is for the price of oil to be closer to US$60 per barrel and eventually averaging between US$65 and US$70 per barrel and that the price of gas will come down in tangent with this decline even though they are hoping it remains above the US$2.75 cents mnbtu.
He said using the scenario of US$65 per barrel for oil, and US$2.75 cents for gas “the reduction in total revenue will be TT$1.8 billion on an annualized basis. This will be offset by saving on the fuel subsidy of TT$507 million. The overall deficit will increase by TT$1.3 billion to a 0.7 per cent of GDP”.
He said in budgetary terms this represents an increase in the overall reduction in budgeted revenue of 2.1 per cent.
“While this does not pose an immediate risk to the 2015 budget, prudence would suggest that appropriate action should be taken to maintain a level of fiscal balance given the medium term trajectory of oil and gas prices.
“Ministries will therefore be required to review their budgets to determine areas where expenditure can be suppressed to make up the shortfall. We do not expect that the expenditure reductions will be major reductions in the case of most ministries,” he said.
Howai said that the oil price situation could also affect the state-owned oil company, PETROTRIN which already has a debt of TT$14 billion.
He said the government has already engaged PETROTRIN to “identify immediate and medium term response to the impact of the fall in oil prices”.