Senior Political Reporter
“Quite careful” Government expenditure will be in force over the next year or two.
That was the message from Finance Minister Colm Imbert in his mid-year review of the 2024 Budget yesterday.
Imbert, who confirmed a $3 billion loss of revenue for 2024 due to energy prices—particularly natural gas prices—told Parliamentarians, “For the next year or two, we’re going to have to be quite careful about how we manage our expenditure.”
He said he expected that the revenue reduction will be reversed around 2026-2027 in terms of the volumes of natural gas available to T&T’s processing plants.
Imbert spoke on the performance of his 2024 package of $59.2B, in piloting debate on the Finance (Supplementary Appropriation) (Financial Year 2024) Bill, 2024.
At Monday’s Standing Finance Committee meeting, Imbert had presented the case for $2.3B more to supplement Budget funds to 12 divisions for the rest of the fiscal year.
Yesterday, Imbert said the energy price situation had caused the $3B drop in revenue from the $54B projected in the Budget last year to $51B now—and it’s increased the deficit stated in the Budget from $5.2B to over $9B for 2024.
On specific cause, Imbert explained that one of the things that affected Government profoundly in the first six months of 2024 were the natural gas prices. He said at the start of the fiscal year, based on the forecasts by all reputable international agencies—US Energy Information Administration World Bank, IMF, European Energy Agency, Standard and Poors, Fitch Solutions—Government projected going forward for the year, it didn’t come up with the number on its own.
“We use forecasts from world-recognised agencies,” he said, adding that in September 2023, Government used all forecasts available to determine what the Budget price of oil and gas should be.”
“Unfortunately, there’s been a precipitous decline in the natural gas price,” he added, noting this was both at the Henry Hub benchmark and also the foreign (Japan, Korean) benchmarks.
Henry Hub (HH) is the benchmark used for the entire North American natural gas market.
Imbert said based on the forecasted prices of natural gas in the British/Europe, Far East and American markets, Government had a certain Budget price of gas of US$5—but the formula is profoundly affected by HH.
While T&T no longer exported the bulk of its gas to North America, Imbert noted the gas contracts negotiated 20 years ago are all locked into HH in a significant way.
Oil prices are in US dollars.
Imbert said the HH had dropped from the amount at Budget time, when it was in the US$4–$5 range, then dropped to US$2 earlier this year and down to (US)$1.50.
“But right now, it’s almost (US)$3. So in one month, HH has recovered from less than (US)$2, I can only hope this continues and keeps increasing,” Imbert added.
Billions in royalties lost
While the Budget was based on a US$85 oil price, Imbert said to date, the price is just over US$80, and oil has taken a tumble in the last week or so and prior to that, it was in the (US)$80–85 range and the natural gas price of (US)$5 as just explained.”
He said total revenue for T&T based on those projections was estimated at (TT)$54B, with expenditure at (TT)$59.2B with an estimated fiscal deficit of TT$5.2B.
“When one looks at the adjustments that we have to make, we’re now projecting a lower figure for revenue because we have to be pragmatic, so we expect that because of the decrease in the natural gas price because this affects royalties.”
He explained that royalties are most profoundly affected by a drop in price. He said if there was a drop in gas price from US$5 to US$3, “you’re looking at a 40 per cent drop and, therefore, a 40 per cent drop in royalties immediately—we’re talking about billions of dollars that have not been realised and won’t be realised going forward.”
Noting T&T’s originally projected 2024 Budget deficit of $5.1968B, Imbert said with the $2.3B supplementation of the Budget, the net effect is $5.3B and when this is added to the original $5.2B deficit, “we’re looking at a deficit of somewhere over $9 billion for fiscal 2024.”
He said the Finance Ministry will continue trying to control expenditure within reason.
“We don’t expect the outturn to be exactly as we’ve appropriated but we have to do it and provide the supplementary appropriation, then we try and control expenditure after that,” he said.
Imbert said Government believed this reduction in revenue isn’t permanent, “because of all the foreign policy initiatives and foreign co-operation both at the corporate level and country level, we expect that this situation will be reversed in around 2026-2027 in terms of the volumes of the natural gas that will become available to our processing plants here in T&T—we expect the situation to be reversed.”
“What it does mean, however, is that for the next year or two, we’re going to have to be quite careful about how we manage our expenditure,” he added.
New revenue
streams weighed
Finance Minister Colm Imbert says there are also some one-off revenue streams that Government is planning, and looking at.
“We’re not sitting back and just relaxing or crying, we have other ways of raising revenue,” he said.
Imbert also detailed the positive review of the International Monetary Fund (IMF), with whom he said the ministry had a “very gruelling two weeks” and who took the ministry “through the wringer.”
Imbert said Government has been very successful in all its international bond undertakings, “and we’re going for another international bond shortly, as in order to maintain credibility in the world, you must continue presenting yourself to the large international banks and major investors.”
He boasted that on all other occasions, Government’s bond issue had been oversubscribed by over 200 per cent and Government was able to pick quality investors.
He added that every time T&T went on the international market, investors accepted Government’s account of what was happening with T&T’s economy and this country got the low bond issue price of 1.7 per cent, compared to most Latin American and Caribbean territories.
“An indication of the confidence international investors have in management of TT’s economy,” he said.
Imbert said despite the fact that Government needed to make withdrawals from the Heritage and Stabilisation Fund (HSF), “I daresay our HSF is now inching up close to (US)$6 billion—more than it was when we entered office in 2015.”
He said there was a bad year for the fund in 2022 but over US$1B in net asset value was recovered in the last year or two.