Home' Trinidad and Tobago Guardian : January 9th 2015 Contents A13
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T&T is in a grave crisis, former Trade
Minister Mariano Browne said yesterday in
an analysis of the country s economic sit-
Browne, whose comments were posted on
Facebook hours ahead of Prime Minister
Kamla Persad-Bissessar address to the nation
on Government s response to falling oil prices,
said the framers of the 2015 budget had "egg
on their faces" for their expressions of cautious
optimism about a projected economic growth
of 2.5 per cent.
"They ignored the warnings of the IMF in
their annual projections who advised "cau-
tion" as there were more risks on the down-
side and the new normal was increased
volatility and uncertainty. In addition, in its
Article IV consultation in 2014, the IMF again
warned of the inadequacies of the CSO (Cen-
tral Statistical Office) and the lateness and
unreliability of its data.
Browne said the budget was based on the
assumptions of an oil price of US$80 per
barrel and US$2.75 per mmcf for natural gas---
the same assumptions used in the last six
"The difference is that the base expenditure
has increased from $45 billion in 2009 to
roughly $60 billion on average over the last
four years. Subsidies and transfers have risen
from 40 per cent of the lower number to
approximately 50 per cent of the bigger figure.
"In short, subsidies and transfers account
for virtually all of the expenditure increases
in the budget. The increased revenues came
from increased prices, not supply, masking
a critical weakness. And the HSF (Heritage
and Stabilisation Fund) has moved marginally
in the last four years. The windfall was spent."
Browne said in less than 90 days the base
assumptions of the budget were "brutally
undermined by the sharp fall in world energy
. He said T&T had been in such a sit-
uation before, in 2008, but neither the country
nor the administration learnt any lessons.
"Had we done so, the pace of expenditure
growth would have been more measured, the
election promises less expansive, the fiscal
strategy more conservative. But that is behind
us. Public expectations remain high and man-
aging the transition will require a great deal
of political capital and robust communication
skills," he said.
He said the challenge facing the country
was not only that prices had fallen but that
world supply conditions had changed and
there were more new producers.
"At the same time, our capacity to supply
even the T&T domestic producers is doubtful.
We have been experiencing gas shortages for
the last four years, but have hidden this under
various euphemisms such as "gas curtail-
ments" and "scheduled maintenance." And
these shortages took place at a time when
prices were buoyant, affecting foreign investors
doubly hard; by increasing their costs and
turning a profit into a loss," he said.
"Investors understand risk, but avoid uncer-
tainty. If the supply of natural gas is uncertain
and subject to unscheduled outages, Trinidad
and Tobago will lose its status as an attractive
investment destination. What is worse, it is
quite possible that some firms could consider
relocating to other jurisdictions."
According to Brown, the fall in the price
of gas complicates the situation since increas-
ing production requires more investment in
fields which are in deeper waters and more
expensive to develop. Maintaining production
at existing levels also requires increased expen-
ditures, he added.
"In other words, marginal costs are rising
whilst marginal revenues are falling. Why is
this important? Businesses invest where the
prospect of reward is greatest and the cost
lowest. Multinational companies in times of
budgetary constraints choose the countries
that have the best possibilities. We are simply
one alternative amongst many," he said.
Browne added: "We do not know how long
this fall in prices will last. No one does. But
it comes at a time when we are most vul-
nerable. To continue producing at the same
level of output, Trinidad and Tobago needs
substantial additional investment, the full
benefits of which will not be seen for the
next 5-7 years.
"In the meantime, we need to exercise dis-
cipline, forbearance, and leadership all of
which, like natural gas, have been in short
The price of crude oil was relatively
stable yesterday after falling to its lowest
in nearly six years earlier this week. The
plunge in oil the past three months has
unnerved markets because it suggests
weakness in the global economy. Part of
the fall, however, is due to oversupply as
energy companies maintain production
levels to avoid losing market share.
In early trading, West Texas
Intermediate (WTI) was little changed at
US$48.63 a barrel on the New York
Mercantile Exchange, after rising 72 cents
Wednesday. However, later in the day it
fell 49 cents, or 1 per cent, to US$48.17 a
barrel on the New York Mercantile
Exchange. Brent crude on London's ICE
Futures exchange declined 87 cents, or 1.7
per cent, to US$50.32 a barrel.
Natural gas rose 5 cents, or 1.7 per cent,
to US$2.91 per million British thermal
Earlier yesterday, the US Energy
Information Administration (EIA) reported
a larger-than-expected decline in
inventories of the product. Natural-gas
inventories declined by 131 billion cubic
feet in the week ended January 2.
WTI falls again---now at US$48.17
Browne on falling oil and gas prices:
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