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About 18 months ago, most of T&T’s petrochemical exports of oil, natural gas, steel, ammonia and methanol were at their highest levels ever. The country was flush with tax revenues from the big energy companies and the inflation rate was in double-digit territory with the Central Bank pushing up interest rates as it sought to slow down the growth in credit to the private sector. Then, the unemployment rate was on its way to an historic low of 4.5 per cent—which made it almost impossible for any private citizen to hire a carpenter, plumber or mason—while the foreign contractors on Government projects imported labour from China, Malaysia, the Philippines, Mexico and from throughout the Caribbean.
In June/July 2008, the sale of new cars, appliances and food of all kinds was just about peaking at an historic high and real estate valuations were spiraling to astronomical levels. This December, following the financial meltdown which started in the US sub-prime housing market about two years ago, the Government has been forced to borrow money from the local capital market by selling bonds, in order to keep the economy from falling off a cliff. Demand by residents of T&T for everything—including food, cars, appliances and new homes—has fallen dramatically and, as a consequence, the rate at which prices in the economy are rising has plummeted, falling from a peak of 15.4 per cent in October 2008 to 2.7 per cent in October 2009. There has been a small rise in the rate of unemployment but, for those of us with jobs, it has become much easier to source carpenters, masons and plumbers as well as construction materials like gravel and steel.
The complaints about inflation have vanished like the morning mist over the Maracas Valley, but there are still many commentators who argue that the Government’s spending on the Fifth Summit of the Americas and the 20th Commonwealth Heads of Government meeting was ill-advised and extravagant! And, by the way, isn’t it interesting that many of those same commentators now hate French President Nicholas Sarkozy, and are doing their best to vilify the poor man, because he spoke the truth as he sees it? So, today’s question is this: Would you prefer to live in a T&T that resembles July 2008 or December 2009? As the ophthalmologists say when you are having your eyes checked: Is the economy better through Lens 1 or through Lens 2? Are you more comfortable with June 2008 or December 2009? Or do you prefer something that is closer to this year than last year.
I can hear some people going: That’s not a fair choice. We would prefer an economy with strong growth, fiscal discipline, low inflation, low unemployment, low taxes and lots of disposable income. But, as the Jamaican villain in the movie Marked for Death told Steven Seagal: “Everybody want to go to Heaven, but nobody want fi dead.” I know which Lens I would prefer to look through, but the question that needs to be studied is how did we get from there (June 2008) to here (December 2009). In January, the rate of inflation was 11.65 per cent. In October, the inflation rate had plunged to 2.69 per cent, which was the lowest rate recorded by the Central Bank since January 2003, more than six years ago.
October was the first time that the rate of increase in food prices had been measured at below four per cent in ten years, according to the Central Bank. It is also interesting to note that in the 2009 fiscal year, which ran from October 2008 to September 2009, the Government collected an estimated $38 billion, but spent a projected $46.4 billion, which meant that for the first time in more than a decade T&T ran a fiscal deficit—it spent more than it earned. On January 14 in an address to the nation, Prime Minister Patrick Manning announced that the Government was further revising downward its revenue projections as a result of the sharp decline in the prices of T&T’s main petrochemical exports. In the January revision, which followed a revision in November, the revised revenue target was predicated on an oil price of US$45 a barrel and a natural gas price of US$3.25 per cubic feet, which represented Henry Hub prices minus transportation, liquefaction and regassification.
The January oil and gas pegs estimated that T&T would earn $42.2 billion in 2009. The fact that the actual outturn was $4.2 billion less was due to the fact that prices of steel, methanol, ammonia declined as well. It is also likely that the amount of VAT, personal income taxes and non-energy, corporate taxes declined more than the Government had estimated. As Ms Tesheira said in the budget speech, “During fiscal 2009 the revenue shortfall was not limited to the decline in oil and gas prices but also extended to other petrochemicals, including urea, methanol and ammonia as well as other commodities such as iron and steel. There has also been a spill-over effect into the non-energy sector revenues which resulted in a revised projected revenue outturn of $37,947.5 million, a shortfall of approximately $11,515.7 million from the original budget.”
Fortunately for the country’s revenues, the average monthly price of West Texas Intermediate has been above US$45 a barrel since March—ranging between US$49.94 in March to a high of US$75.72 in October, according to the US Energy Information Administration (EIA). In a report on Tuesday, the EIC predicted that the Henry Hub spot price would average US$3.95 per million cubic feet this year and US$4.62 next year but Bloomberg on Tuesday reported that natural gas for next-day delivery rose by 6.6 per cent to US$5.09 per million BTU. In her 2010 budget speech, Finance Minister Karen Tesheira said the Government expected to collect $36.6 billion in the current fiscal year, based on an average oil price of US$55 a barrel and a natural gas price of US$2.75 per million cubic feet.
