government which is facing this rush of energy sector revenues,
and that has so many demands for infrastructure enhancement,
poverty alleviation, social programmes...it is a challenge
to contain expenditure and, therefore, we need to keep making
the point that we recognise the challenge, but its
in the long-term interest of the economy that we chart a
path for a gradual decline in government expenditures to
a more sustainable level.
Central Bank Governor
Ewart Williams on government spending
(Business Guardian January 3)
By the close of the 2007-2008 fiscal year, the Government
would have deposited US$9 billion in the Heritage and Stabilisation
The global oil price see-saw has produced some windfalls
for T&T and its daily production of 120,000 barrels
of oil a day.
Meanwhile, the natural gas price has been creeping up in
the last year, up to US$7.65 per million metric British
thermal units (mmbtu), and the Government has also been
earning revenue from the downstream industries; fertiliser
and methanol prices are at all time highs.
Energy Minister Conrad Enill and bpTT chief executive Robert
Riley have both expressed optimism that the natural gas
price will go higher.
This can only bode well for T&Ts energy future
as recent gas finds by Canada Superior and PetroCanada did
not register in Ryder Scott 2007s audit.
The upcoming budget, scheduled to be presented next Monday,
will not address the concerns expressed by the countrys
top energy executivesbpTTs Riley, BHP Billitons
Vincent Perreira and BGT&Ts Dereck Hudsonthat
T&T should revise its tax incentives for energy exploration.
Prime Minister Patrick Manning had said that, What
is needed now is a new fiscal regime of incentives to stimulate
further drilling in the deep marine areas of the east coast,
marginal fields, heavy oil and farm in and farm out arrangements.
We propose to introduce this new regime in fiscal 2008.
By these new arrangements we confidently expect, as has
happened in the past, new discoveries of oil and gas and
the preservation of T&Ts position as an industrial
centre in the region.
That was before the years two big gas finds.
Enill said that the revision was unfinished so it would
not be included in this years budget.
new tax regime. We are not ready as yet.
So, whats the hold up?
not a question of keeping it back but trying to understand
exactly where the industry is at this time.
His ministry is in a favourable position compared to 2007
when the Government called a two-day energy conference to
allay fears about energy security.
Yet, it still halved the number of downstream projects it
will bring on board at the last budget.
The ministry has internationally marketed its two blocks5d
and 4bfor bidding which should take place in November.
And at a time when governments around the world have slashed
their fuel subsidies, Enill said the local gas subsidy would
not be touched in this years budget.
Enill has consistently maintained that the fuel subsidy
is one way the population is benefitting from this countrys
oil-and-gas wealth. He said that the Government was reviewing
the subsidy but was being careful to consider how it affected
the transport grid.
Finance Minister Karen Nunez-Tesheira, who will deliver
the budget on Monday, had said the Governments fuel
bill was $6 billion. Meanwhile, Manning said at a rally
in Woodford Square last Friday that 40,000 new cars have
been sold so far this year.
The price of fuel for State carrier, Caribbean Airlines
(CAL), is included in Nunez-Tesheiras $6 billion.
The price CAL pays for fuel is fixed and Enill said this
allows the airline to remain a viable carrier despite global
oil price challenges.
Is the Government going to continue bearing the burden?
Enill said the discussion was centered on how to improve
the situation but reduce the cost to the Government. He
noted that the Ministry of Works was reviewing two options
of travel: water taxis and a rapid rail service to make
public transportation efficient.
And while the world economy has garnered its fair share
of blows in the past 12 months: a subprime mortgage crisis
in the US and UK which has sent several major companies
into bankruptcy, and a probable recession in the US and
UK, T&Ts economy has remained unscathed.
The Central Bank estimated that growth in 2008 will be 6.0
per cent. Construction has continued apace and the retail
sector has remained strong.
T&Ts economic challenge has been inflation.
The depreciation of the TT dollar in line with the US dollar
against non-US dollar currenciesthe euro and the poundis
another factor as it puts cost pressures on the exchange
Then theres the domestic sector: agricultural production
has not been increasing.
Inflation now stands at 11.9 per cent fueled by sharply
escalating food prices which has plagued the population
over the past year.
Central Bank governor Ewart Williams has envisaged that
the only way to reduce food price inflation on a sustainable
basis is by increasing domestic agricultural supply and
expenditure to revenue ?
As the PNM-led Government embarks on its seventh budget,
being touted as the biggest fiscal package to date, there
are concerns that the spending proposed in the budget will
do nothing to quell double-digit inflation.
The Central Banks monthly repo rate statements have
laid the blame on food prices.
What can a budget do to stem rising food prices thereby
Last year, Manning ambitiously proposed an agricultural
policy after a two-day national food consultation. Fourteen
initiatives were earmarked to be implemented at a total
cost of $1.2 billion.
Fewer than half of the proposals have been implemented and
those which have been undertaken have not succeeded in making
a dent in prices.
The torrential rains, in the last two months, have not helped.
Farmers have been left with rotting vegetables and a slump
in the market in the short term has lead to higher prices.
An initiative by National Flour Mills (NFM) to buy bulk
staple products in non-traditional international markets
and sell those items at cheaper prices locally was abandoned
after racking up losses for NFM.
Last year, the Ministry of National Security received the
second highest allocation: $4.4 billion.
Consider that the murder rate, at the time of this writing,
is now 377 with three months to go to the end of the year.
Manning had proposed that the 2007 fiscal year would be
a major turning point in the countrys fight against
crime, but naysayers and critics have been less than kind
to the Governments measures intended to ease the crime
However, even the murder rate and a high level of crime
generally has not stifled investment.
Last week, the Government inked a deal for the development
of an integrated polypropylene complex with LyondellBasell
and Lurgi. At US$2.3 billion, its the largest energy
investment in the country.
So what to expect in this years budget?
Last year, the trend appeared to be to match expenditure
Revenue: $40,381.2 million. Expenditure: $40,292.0 million.
A surplus of $89.2 million.
With its coffers brimming, the Government expects to continue
that trend on Monday.
Minister: Govt assessing global financial meltdown
Minister Karen Nunez-Tesheira last Tuesday issued a statement
on the implications for T&T of recent developments in
the international financial market.
Following is the text of the ministers statement:
A number of significant events have unfolded over the past
weekend. In a fundamental sense the changes taking place
in the international financial system are unprecedented.
To have in short order the collapse of two of the worlds
largest investment banks (Lehman Brothers and Merril Lynch)
and the worlds largest insurance company (AIG) being
given a lifeline of US$20 billion all over the same weekend,
implies a major restructuring in the international financial
It is the cumulative effect which is significant, since
this weekends events follow upon the bail-outs of
Bear Stearns a few months ago and, more recently, of Fannie
Mae and Freddie Mac.
At this juncture, it is extremely difficult to anticipate
exactly how the ongoing turbulence in financial markets
will impact T&T.
The Central Bank is still examining how these developments
could impact on the economy of T&T. The Governor has
informed me that the bank has no holdings of paper issued
by any of these institutions. The very small proportion
of the banks foreign assets that were being managed
by these institutions are ring-fenced since they are not
on the balance sheets of these institutions.
The Central Bank is now in touch with the commercial banks
and the insurance companies to clarify whether these institutions
had any direct exposures to the failed investment banks.
Our preliminary indication is that it is minimal.
If there is any message that the current turmoil brings
it is the critical importance for T&T to tighten the
regulatory regime for all financial institutions. And for
all financial institutions, banks and insurance companies,
the message is the need to put in place adequate risk management
strategies to protect from adverse developments.
Amendments to the Financial Institutions Act (FIA) and a
new Securities Act are to be brought to Parliament immediately
after the 2009 budget presentation.
The proposed amendments to the FIA clarify the Central Banks
supervisory mandate, strengthen the office of the Inspector
of Financial Institutions, and establish new prudential
requirements to provide more effective oversight of significant
The new Securities Industry Act provides for a more effective
and encompassing regulatory regime in greater alignment
with international best practice as set out by the International
Organisation of Securities Commissions (IOSCO).
Essentially, the new Securities Act will make T&Ts
capital market significantly more attractive to both foreign
and local investors.
The price of oil has fallen to US$95. As of now, the experts
suggest that this decline is temporary but we would need
to wait and see.
We fully expect oil prices to moderate as global growth
subsides, but this decline in oil prices will be limited
to the extent that current high prices reflect increasing
production costs and market fundamentals.
Volatility has always been a characteristic of the oil market
and our budgeting processes recognise this and it is for
this reason that the oil price for the budget is determined
on a moving average basis. It is our assessment that oil
prices will align to market fundamentals over the medium
term and therefore we do not believe that there is any need
to revise the assumptions on which our budget is based.
It is perhaps heartening that T&T is facing this difficult
situation with significantly less macroeconomic vulnerabilities
that in past episodes of financial market disruption. In
general, T&T has been operating on fiscal surpluses
or near surplus positions for the past five years.
In addition, we have been constantly reducing our sovereign
debt as a percentage of gross domestic product (GDP) and
our exchange rate arrangements provide additional flexibility
for such a situation.
economic performance has been remarkable in a regional context
and in comparison to other energy producing economies.
This was the view expressed by the International Monetary
Fund (IMF) following its 2007 Article IV consultation with
More recently, Standard & Poors Ratings Services
raised T&Ts long-term foreign currency sovereign
credit rating from A- to A, affirmed its A+ long-term local,
its A-2 short-term foreign, and its A-1 short-term local
currency sovereign credit ratings.
Standard and Poors cited the continued strengthening
of the republics fiscal and external accounts on the
back of an economy that had grown at an average of 9.3 per
cent annually since 2003 and which according to the agency
was expected to grow a further 7.0 per cent in 2008.
It is also worth remembering that while our financial system
is quite robust by any standard, it is still at an early
stage of development.
Perhaps that is our strength in this particular situation
as our exposure to the international financial system is
not yet large enough to make us vulnerable to such contagion