Home' Trinidad and Tobago Guardian : December 14th 2014 Contents December 14 • 2014 www.guardian.co.tt SUNDAY BUSINESS GUARDIAN
COVER STORY | SBG5
scenario and not worst case scenario for a protracted price
war between OPEC and the US, namely, "a sustained period
of further price collapses to US$45 a barrel and the natural
gas netback to US$1.75 a unit."
An informal poll on the streets of Port of Spain, shows that
many people are aware of the situation with oil prices, even
if they are not clear on the circumstances surrounding the
impact of a decline on the country's revenue. Most of them
are also cognizant that it affects them, even if they are not
sure how it will, particularly if there is a further decline in
the oil price over a prolonged period.
Time a factor
Economist, Dr. Ronald Ramkissoon said even with the fall
in government revenues, time was still a major factor in deter-
mining what the potential fallout could be for the public.
"It is important to distinguish between a short-term fall in
the price of oil and let's say a long-term or a sustained change.
If the fall in the price of oil is for a month, two months or
less, as you would imagine, that is less of an issue, compared
to if there is a sustained decline for six months, 12 months."
If the decline in oil prices is for the medium to long term,
Ramkissoon said he sees the resulting reduction in government
spending, which he said made up between 30 to 35 per cent
of GDP, having several spin-off effects.
"If government then spends less on goods and services and
employment or wage increases for example, then there is less
flow of income and business, to those who depend on the
government for business. If government is buying less con-
struction materials, then the private sector may have to consider
reducing the number of its employees."
He also foresaw problems with foreign exchange as he said
lower energy prices would mean less revenues coming from
energy sector companies, who make the largest contributions
of foreign exchange to the country.
"If the inflow of foreign exchange slows and the demand
remains strong at the existing exchange rate or price, then
you either have to allow your reserves to be depleted or you
are going to have to adjust the price of foreign exchange."
Ramkissoon emphasised that both scenarios were dependent
on how long oil prices remained depressed. He also said that
there were steps government could take, including borrowing
to sustain spending to prevent a slowdown in the economy,
draw down on foreign reserves, as well as allowing an exchange
depreciation in the foreign exchange market to curb demand
for US currency.
"We are not there yet." cautioned Dr. Ramkissoon.
Economist and UWI lecturer, Dr. Roger Hosein said he also
did not expect much to change within the short term.
"The decline in oil prices would not lead to dramatic changes
as it is an election year and the government would strive to
preserve the transfers and subsidy spending which is one of
the main conduits through which the economic rents are
passed onto to the man in the street."
In this election atmosphere, Hosein said, that items like
GATE and CDAP would be left untouched, the fuel subsidy
marginally affected and current unemployment rates maintained
by "fiscal expenses".
Hosein said the real challenge with low oil Oil outlook uncer-
tain for T&T
Experts advise wait and see, watch gov't spending oil stabilises
at US$75 and that anyone assuming government after the 2015
elections would have to seriously commit to "downsizing the
size of the state" in the economy. The UWI lecturer again
made a call for diversification of the economy as this was the
only way to protect the "man in the street" from the " vagaries
of the petroleum market".
Watch government borrowing
Acknowledging that the man in the street could face among
other things, a cutback in his ability to spend, save and invest,
that businesses could see reductions in production, eventually
leading to job losses and that the foreign exchange situation
could worsen if oil prices remain low, economist and Opposition
senator, Dr. Lester Henry characterised all of these as pointing
to a further deterioration of T&T's investment climate.
"People would become less optimistic about future prospects.
The investment climate hasn't been good anyway."
He was more concerned though, that the government would
borrow, a solution outlined earlier by Dr. Ramkissoon, to
finance the additional deficit created by falling oil prices, even
though the finance minister has said that this would not be
done (Trinidad Express November 29).
In Henry's view the government would not have a choice,
since it had no buffers in terms of savings, after four years
of running budget deficits. He said that all that remained were
the country's foreign reserves. Henry said the public should
be worried about the potential cost that could be passed on
to the country from this borrowing.
"What we need to do is to pose the question to the finance
minister and ask him: What is the quantum of borrowing that
has been taking place. Because they can borrow very quietly
without the public knowing and it shows up six months later.
We need to get some kind of transparency to the extent of
government borrowing during this period in the run up to an
He contrasted this with the previous administration's position
of being able to draw down on deposits at the Central Bank.
"If you go back to 2002 to 2007, there was surplus of revenue
that had been accumulated at the Central Bank, so when the
crisis hit in 2009, it mainly affected us in 2009, the then gov-
ernment drew down on those balances at the Central Bank,
to help cover the shortfall in revenue. I don't think any such
thing exists right now."
Bad news for energy investors
Brent Salvary of KSBM Asset Management Ltd said: "Equity
investors in the US energy sector have felt the pain with the
exchange traded fund, (ETF), XLE, that tracks publicly traded
companies in the Energy Select Sector Index, down 12.5 per
cent for the year thus far and down 24 per cent from its June
While recognising that Trinidad and Tobago's situation was
not as bad as Venezuela which he said is now "facing mounting
pressures mounting pressure to maintain spending on subsidised
programmes that are more populist in nature than they are
economically viable...The savings aspect of our economy as
transfers to the Heritage and Stabilization Fund would most
likely be the same as last year: zero. On the flip side investments
in exploration by the major oil and gas companies may be put
on hold or considerably scaled back.
"We have seen companies like Conoco reducing their capital
spend by 20 per cent worldwide while Schlumberger is reducing
its global workforce as it takes a related US$200 million charge
due to the dramatic fall in oil prices. This would have a similar
effect on both oil producers and service companies in the
energy sector and we can look forward to lower investments
in the local economy at least for the short-term."
This echoes warnings to energy sector stakeholders during
an Energy Chamber discussion on the implications of falling
oil prices last Tuesday. In a Guardian report on the meeting,
Roger Packer of Tucker Energy Services told those in attendence
to learn from the mistakes of history as all indicators pointed
to T&T heading for a "serious economic downturn".
But at this point, all views remain speculative. At this point,
no one can tell how low prices will descend, what steps the
government will take and how these will eventually end up
affecting the stakeholders, including John Public.
Ultimately, it is time that will tell how these low oil prices
will affect T&T. And, it is only through time that the com-
mentators for this article will be proven right, or wrong.
Continued from Page 4.
Cut spending, experts say
Brent Salvary of KSBM Asset Management Ltd
Economist, Dr. Ronald Ramkissoon
Economist and UWI lecturer, Dr. Roger Hosein
Economist and opposition senator, Dr. Lester Henry
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