Plummeting energy prices are “stinging” Caribbean powerhouse, Trinidad and Tobago, according to reports.
“The unrelenting slide in energy prices has thrown Trinidad and Tobago into economic turmoil, pushing the country’s Prime Minister into a tight corner,” said the British Globe and Mail newspaper, adding that, when oil and gas prices tumbled precipitously last fall, Kamla Persad-Bissessar, the country’s leader, “offered nothing but optimistic economic outlooks, suggesting Trinidad and Tobago was immune to other countries’ woes.”
But the Globe and Mail said that, on Jan. 8, in a nationally televised address, Persad-Bissessar “finally changed her tune.
“Trying to pacify business leaders who have pleaded with the energy-dependent government to slash spending, Ms. Persad-Bissessar conceded that the volatile energy market has ‘created the conditions where our reforms, strength and resilience are being tested,’” said the Globe and Mail, adding that “the roiling energy market is beginning to bite.”
It said that, when the twin-island republic laid out its annual budget in September, the government assumed the price of oil would average US$80 a barrel.
Since then, the paper noted that the price of crude has dropped below US$50.
“And while natural gas prices are still above the budget’s original estimate of US$2.75 per million British thermal units, they are extremely volatile, plummeting 35 per cent at the end of 2014,” said the Globe and Mail, stating that Trinidad and Tobago now expects natural gas to average US$2.25 per million BTU this fiscal year.
It noted that the Trinidad and Tobago government is “loath to play with the public purse, especially since 2015 is an election year, but it is starting to scrap some infrastructure projects and slash departmental budgets.”
The paper said these cuts are “the first acknowledgements that the economy is feeling the heat from lower energy prices, which is inevitable since oil and gas production comprises 45 per cent of the country’s gross domestic product and accounts for 80 per cent of exports.”
The paper said the Trinidad and Tobago government has already projected a fiscal deficit in September, despite its energy riches, but the new price estimates have boosted this shortfall by 17 per cent to CAN$1.4 billion.
Trinidad and Tobago, which has 1.3 million people, has been pumping oil for more than a century, but it became a global energy player after shifting its focus to natural gas two decades ago, according to the Globe and Mail, adding that the country now produces eight times as much natural gas as it does oil.
It said the energy boom has kept Trinidad and Tobago’s unemployment rate at 3.2 per cent and helped secure a single-A credit rating, the highest in the Caribbean, from the international credit rating agency, Standard & Poor’s.
The Globe and Mail said the recent downturn in energy prices is yet another blow to the broader region, pointing out that since the global financial crisis, tourism-dependent Caribbean countries, such as the Bahamas, have struggled.
“The economic outlook is so bleak on some islands, including traditional heavyweight Barbados, that the International Monetary Fund has been forced to step in,” it said, adding that “these woes have put Canadian banks at risk.
“Three of Canada’s largest lenders compiled Caribbean losses worth hundreds of millions of dollars in the past year, largely stemming from bad loans that went bust,” the Globe and Mail continued. “Until now, the hope had been that they would be able to restructure by refocusing on resource-rich islands, such as Trinidad and Tobago.”
It noted that the Royal Bank of Canada and Bank of Nova Scotia are two of Trinidad and Tobago’s leading banks, while Canadian Imperial Bank of Commerce is also a major lender in the region, based out of Barbados.
“With energy prices falling, Trinidad and Tobago no longer looks like the region’s safe haven – and the government has been caught off guard,” the Globe and Mail said.
It said whereas Norway, which started producing oil in the 1970s, set up a rainy-day fund now worth roughly US$860-billion, Trinidad and Tobago’s equivalent, the Heritage and Stabilization Fund, is worth just US$5.5-billion – “even though the island has produced oil for more than 100 years.”
“We’ve squandered it,” said Richard Young, a former head of Scotiabank Trinidad and current chair of the country’s Economic Development Board, which advises the government on the best way to diversify away from oil and gas.