tidings
Pumping jacks along Petrotrin field road in 2018. – File photo/Jeff K Mayers
Central Bank Deputy Governor Dr Dorian Noel has advised that TT should start saving now that export prices are high, in case of a rapid downward trend much earlier than anticipated.
He gave the advice while at the Spotlight on the Economy held at the Hyatt Regency, Port of Spain on Friday.
He said export prices are expected to remain high in the coming months but will gradually adjust downward as geopolitical tensions such as the Russia/Ukraine war and supply chain effects fade. He added that volatility will remain the same for another year.
“Under such circumstances, it is extremely important that we as a country immediately focus on rebuilding and increasing our economic buffers, which were undoubtedly weakened by the pandemic and the current economic environment,” Noel said.
“Having adequate financial buffers ensures that the country has the domestic capacity to absorb any further macro shocks.”
He also advised the government to carefully set financial policies for the short and medium term, as weak policy decisions could slow the recovery and return to sustainable growth, or may have to be revised later.
However, he added that goods and services will continue to grow gradually to reflect market conditions, but the overall economy will benefit from the lifting of restrictions that have affected it over the past two years, as well as favorable export prices.
In March, oil prices rose to levels not seen since 2008, after plunging into negative territory in 2020 at the height of the Covid19 pandemic. The rise in oil and gas came from uncertainty stemming from the war which triggered a series of sanctions on oil and gas supplied by Russia.
WTI prices hit US$130/bbl in March, just weeks after Russia invaded Ukraine in late February – the highest price in about 14 years. Brent crude hit a high of US$139.13, but both eventually settled at US$119.40 and US$123.21 respectively. On Friday, WTI stood at US$87.08 and Brent at US$93.25. Natural gas is also higher than expected at USD 8.89/mbtu.
Ammonia has also benefited from higher prices reaching around $1,500/ton. According to reports, they were the highest prices in TT history.
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The government based its 2021-2022 budget on an oil price of US$65 a barrel and estimated its 2022 revenue at around TT$43.33 billion, but as fuel and petrochemical prices rose from March, the government suffered an unexpected loss. In its mid-year review read in Parliament in May, the Ministry of Finance estimated additional revenue at around TT$3.081 billion as a result of higher prices. A portion of these revenues were deposited into the Legacy Stabilization Fund. The Ministry also paid arrears, VAT refunds and unpaid bonuses.
Noel explained that before the pandemic, TT was well on its way to slowing and reversing a deficit that had been running since 2016.
“In 2019, the economy was on the road to recovery after the adverse oil price shock of 2014. Real GDP fell by 2.2 percent. The energy sector was still below capacity, but the recovery of the non-energy sector strengthened, growing by 2.2 percent.
He said headline inflation was low at 1.1 percent, unemployment was at 4.3 percent, net reserves were about $7 billion and the repo rate was about five percent. The deficit narrowed to about 2.5 percent of GDP and the deficit remained at about 65 percent of GDP.
Noel said the government expanded its social safety net in response to the economic fallout that came at the height of Covid19, which came at a huge cost.
“The fiscal deficit increased to 11.2 percent of GDP. Adjusted general government debt rose to about 80 percent of GDP. If it weren’t for financial buffers like international reserves and the Legacy and Stabilization Fund of about $13 billion, the local economy was in danger of being crushed forever,” Noel said.
