Finance Minister Colm Imbert has revealed that the crash in oil prices and lower projected revenue from natural gas will lead to a budget shortfall of an additional $3.5 billion.
“Our calculations tell us that this will result in a loss of revenue somewhere in the vicinity of 3.5 billion dollars,” Imbert told a news conference yesterday at his office at the Eric Williams Financial Centre in Port-of-Spain.
Imbert said the shortfall will now result in a budget deficit in excess of $8.5 billion. He also revealed that the Dr Keith Rowley-led administration had revised downward its projection for the price of crude oil and natural gas.
Imbert said: “The Government has done its projections and we are now using an average price for the year of forty dollars for oil and a wellhead price for gas.
“Again, there is a lot of confusion about what price we use for gas in calculating the national budget, there is a misconception that the Government uses the Henry Hub price, which is what you see posted online. We don’t, we use a well-head price which is the actual price for gas produced in Trinidad and Tobago. So we have used a well-head price of three dollars for the budget, we are now using a well-head price of $1.80 assuming a sort of worst-case scenario, so we are saying oil will average $40 for the fiscal year and gas will average a wellhead price of $1.80.”
The Finance Minister blamed the fall in crude prices on the drain on global demand caused by the COVID-19 and the price war between Saudi Arabia and Russia. He lamented that T&T was a price taker and could do nothing about it.
In that case, Imbert said Government was still formulating strategies on how to deal with the loss of $3.5 billion in revenue but was confident that it can handle the challenge. (See editorial on Page 12)
“We have gone this way before and we have been able to successfully come out of it by very careful management of the economy,” Imbert told the news conference.
“If we keep our expenditure as we planned, we obviously will have to finance it through two mechanisms, no actually three. One would be borrowing … Secondly draw-down on the Heritage and Stabilisation Fund. We will have to do some restructuring of the manner in which the fund operates. Thirdly will be extraordinary revenue from sale of assets and so on, we are putting a plan right now on how to deal with the three and a half billion dollar shortfall we had already projected to finance the five that was stated in the 2020 budget.”
He defended the decision to keep expenditure at $52 billion and not cut expenditure in keeping with the falling revenue streams. Imbert said to do so would stifle the economy and could impact jobs.
“We are still planning to keep our expenditure target as is. One of the problems with slashing expenditure is that it stifles the economy,” he said.
“So that when you have a situation like this you cannot react with a knee-jerk reaction and just slash expenditure because there are all sorts of implications that come out of cutting expenditure in a drastic manner. We have bills to pay to suppliers, we have the question of refunds to businesses for VAT and we have to keep people in jobs.”
He added: “Remember we have cut expenditure from the heady days of 2014 by $10 billion dollars. Even though the expenditure profile is $2 billion more in 2020 than 2019, it is still $10 billion less than 2014. So we do not intend to stifle the economy.”
The Finance Minister also revealed that Government was now working with a natural gas production figure of 3.6 billion cubic feet per day. This is 200bcf/d less than Imbert had projected during the 2020 budget debate.
“So our natural gas figures for 2019 averaged out at just below 3.6 billion. We expect that to continue in the foreseeable future, 3.6bscf of natural gas per day, that’s the production we expect,” Imbert said.
He also rubbished suggestions that he is often wrong in his budgetary projections for crude prices, saying in terms of oil revenue last year the country exceeded its projections.