Ryan Hamilton Davis
Central Bank Deputy Governor Dr Dorian Noel advised TT to start saving now that export prices are high, in case of a rapid downward trend much sooner than expected.
He gave advice during the Spotlight on the Economy held Friday at the Hyatt Regency in Port of Spain.
He said export prices are expected to remain high in the coming months, but will gradually adjust lower as geopolitical tensions such as the Russia-Ukraine war and supply chain effects s fade. He added that the volatility will remain the same for another year.
“In such circumstances, it is extremely important that we as a country immediately focus on rebuilding and strengthening our economic buffers which have undoubtedly been weakened by the pandemic and the current economic environment,” he said. said Noel.
“Having adequate financial reserves ensures that the country has the internal capacity to absorb any further macroeconomic shocks.”
He also advised the government to carefully define short- and medium-term financial policies, as bad policy decisions could slow the recovery and return to sustainable growth, or may need to be revised later.
Nevertheless, he added that goods and services will continue to grow gradually to reflect market conditions, but that the economy as a whole will benefit from the removal of the restrictions that have affected it over the past two years, as well as from favorable export prices.
In March, oil prices reached levels not seen since 2008, after plunging into negative territory in 2020 at the height of the covid19 pandemic. The oil and gas surge grew out of uncertainty resulting from the war that triggered a series of sanctions on oil and gas supplied by Russia.
WTI prices hit a high of US$130 a barrel in March, just weeks after Russia invaded Ukraine in late February – the highest prices in about 14 years. Brent reached a high of US$139.13, but the two eventually stabilized at US$119.40 and US$123.21 respectively. On Friday, WTI was at US$87.08 and Brent at US$93.25. Natural gas is also higher than expected at US$8.89/mmbtu.
Ammonia also benefited from higher prices reaching around US$1,500/tonne. These were the highest prices in TT history, according to reports.
The government based its 2021-2022 budget on an oil price of $65 a barrel and estimated its revenue for 2022 at around TT$43.33 billion, but as fuel and petrochemical prices soared from March, the government received a windfall. In its mid-year review read to Parliament in May, the Ministry of Finance estimated the additional revenue at around TT$3.081 billion from price hikes. A portion of this income was deposited in the Heritage Stabilization Fund. The ministry also paid arrears, VAT refunds and overdue tips.
Noel explained that before the pandemic, the TT was on track to slow down and reverse a deficit that had been going on since 2016.
“In 2019, the economy was on the road to recovery, following the negative oil price shock of 2014. Real GDP shrank by 2.2%. The energy sector was still operating below capacity , but the recovery of the non-energy sector solidified, with growth of 2.2%”.
He said headline inflation was low at 1.1%, unemployment at 4.3%, net reserves at around $7 billion and the repo rate at around 5%. The deficit was reduced to about 2.5 percent of GDP and the deficit stood at about 65 percent of GDP.
Noel said the government had expanded its social safety net in response to the economic fallout at the height of covid19, which came at a heavy cost.
“The budget deficit has risen to 11.2% of GDP. Adjusted public debt reached around 80 percent of GDP. Without the financial buffers such as international reserves and the Heritage and Stabilization Fund of around US$13 billion, the national economy was in danger of permanent wreckage,” Noel said.