Dec 2014 Financial News

Economist: Oil prices may not hurt T&T badly

Dec 03, 2014

Plunging global oil prices may not hurt the Trinidad and Tobago economy as much as many seem to think, a leading economist in the banking sector has said.

Speaking to members of Rotary Trinidad East Clubs at their dinner at the Centre of Excellence, Macoya last week, RBC Caribbean group economist Mala Dukharan said based on the fact that natural gas accounts for more than 50 per cent of fiscal revenue, there is a chance that the “softening” of oil prices will not hurt the economy here.

She said the country should also take comfort in RBC’s forecast of an increase in West Texas Intermediate (WTI) crude prices in 2015 and 2016.

“RBC has put out some forecasts that the WTI is supposed to average US$86.50 next year and US$85 in 2016 so we should be OK because our budget is pegged on a level that is lower than that.”

Trinidad and Tobago’s budget is based on oil price of US$80 per barrel. Dukharan added:

“Based on the current assumption of where oil prices are versus where our budget is and where we see the focus of oil prices going, it doesn’t seem likely that we’re going to have a tremendous hit to the fiscal revenue, but that depends on where oil prices go and if the forecast continues to hold.”

She noted that according to her calculations a US$1 drop in the price of crude oil translates to a $25 million decline in revenue over a one year period.

“It doesn’t sound that bad because the $10 fall in oil prices over the past month or so would have translated into a $250 million decline in fiscal revenue from the supplemental petroleum tax, which is the tax that applies to oil production alone,” she said.

Last week Finance Minister Larry Howai said due to the falling oil prices Trinidad and Tobago’s initial projected deficit for 2015 of $4.3 billion or 2.3 per cent of the Gross Domestic Product (GDP) is expected to climb by $1.3 billion or 3.2 per cent of the GDP.

He said this increase could mean an expenditure cut of $45 million in each Ministry.

Meanwhile Dukharan stressed on the point that many have been making which is the critical need for this economy to diversify away from oil and gas.

“We still have a high level of dependence on the energy sector and there is very little diversification to speak of. We have a long way to go in terms of harnessing our resources to improve our global rankings,” she said.
On another note, Government’s high level of spending has led to major improvements on the United Nations World Happiness Index but has failed to impact the country’s ratings on other critical indices, Dukharan warned.
“The only one we seem to be doing well in is happiness. It’s a good thing that we’re happy but the problem is that if we are too happy, that suggests that we may not be as eager to agitate for change.” Dukharan raised concern that Government may not be reaping the benefits of its investments.

“Trinidad and Tobago moved up three spots to 89 on the Global Competitiveness Index this year but Jamaica and Barbados remained more competitive this country and they do not have a fuel subsidy to the extent that we do, so it gives you a sense of whether or not we’re getting a return on investment on this spending that goes towards the fuel subsidy,” she said.

She noted that although there is free healthcare and education, Trinidad and Tobago lags behind Cuba, the Bahamas and Antigua when it comes to human development.

“Our human development levels have shown almost no improvement since 2009,” said.

While noting the improvements on the Ease of Doing Business scale and the reduction in crime here, Dukharan said the country’s corruption level had increased.

“We saw no improvement on the index in 2013 but our score deteriorated by one point. We are also outranked by all countries in the region except Suriname, Guyana and the Dominican Republic,” she said.

Interestingly, Dukharan noted that the country placed 31 out of 156 countries on the World Happiness Index in 2013, and saw the 13th biggest improvement for the period 2005 to 2007 and 2010 to 2012.

“Venezuela actually ranked 20th on the index which I thought was interesting because as we know in Venezuela they lack some of the very basic amenities. The vast reason we, like Venezuela, ranked so high is the high level of Government spending.”

 

Source:
Trinidad Express
Wednesday December 3, 2014

http://www.trinidadexpress.com/business-magazine/Economist--Oil-prices-may-not-hurt-TT-badly-284557821.html