KINGSTON, Jamaica, March 11, 2022 - Opposition Spokesman on Finance and the Public Service, Julian Robinson, wants the government to recraft the budget to meet the realities of the new world conditions brought about by the Russion invasion of Ukraine, to include escalating oil and imported food prices.
In making his contribution to the annual budget debate, Mr. Robinson pointed to the oil price forcast on which the budget is based. "The Minister presented a budget based on WTI oil price of US$67.50 per barrel, a figure unrealistic even before the conflict involving Russia and Ukraine started.
At the time the budget was tabled, oil prices were already trading at close to US$90 per barrel, due to the demand and supply imbalance as the global economy recovers from the Covid-19 pandemic.
"Madam Speaker, the American benchmark crude West Texas Intermediary traded at US$123.701 per barrel this week, and the British benchmark North Sea
Brent Blend traded at US$123.21 per barrel – the highest prices in 10 years. And now, we have news of the United States instituting a ban on imports of Russian oil
These high prices are not forecast to go down swiftly either: recent contracts have oil trading at as high as $99.07 in December 20222. Globally Globally, Russia is the third largest oil producer and the largest oil exporter, producing some 11-12 per cent of the world’s oil output. A one per cent drop in output leads to a 5 per cent increase in the price of the precious commodity."
"Last year the Government projected oil prices at US$45 per barrel, and based on its own estimates, the average price is likely to be US$73 per barrel by the end of this fiscal year. This is more than 60 per cent higher than the amount that was projected for FY 2021/2022 in the Fiscal Policy Paper tabled in February of 2021.
The US$67.50 per barrel projection for FY22/23 is lower than the revised estimate of US$73 per barrel for FY21/22. This simply does not make sense given the changing global environment," Robinson lamented.
He said the minister needed to explain the variance in the Ministry of Finance’s projection of US$67.50 per barrel in the Fiscal Policy Paper and Petrojam’s own projected average sale price of US$79.36 per barrel in the Public Bodies Estimates of Revenue and Expenditure5. Both documents were tabled at the same time, on
February 10, 2022.
Robinson noted that "while oil prices may not remain as elevated for the entire fiscal year, it is highly unlikely that its price will fall to an average of US$67.50 per barrel during the upcoming fiscal year."
The Opposition spokesman on finance pointed out that "while the higher oil prices will allow the government to collect more revenues from the taxes on petroleum products, the inflationary impact of higher oil prices on businesses and consumers will result in a fall in real disposable income. Therefore, businesses and consumers will have less money to buy other consumer goods and services after they pay their fuel, light and water bills."
Mr. Robinson told the Partliament that "getting the inflation target wrong, means that the country will have to find more money to service debt, and we believe the inflation target of 5% is way off base. The inflation rate was already running at 9.7 per cent in January 2022 – before the estimates were tabled – and the rates for our major trading partners in January 2022 were USA 7.5 per cent; UK 5.4 per cent; EU 5.1 per cent and Canada 5.1 per cent.
He lamented that "the global supply chain bottlenecks caused by the war, in conjunction with higher energy prices, will continue to drive inflation higher for most of this year. Jamaica’s debt is extremely sensitive to changes in the exchange rate, as well as changes in interest rates and this is amply demonstrated in the Medium-Term Debt Management Strategy, tabled in Parliament last month."
"Madam Speaker, the Debt Management Strategy7 tells us that a one per cent fall in the exchange rate increases the country’s debt stock by $13.664 billion and adds $673.0 million in interest cost, resulting in a total cost of $14.37 billion or 0.6 per cent of GDP.
"A one per cent increase in interest rates adds $2.41 billion to the cost of servicing the domestic debt and $4.18 billion to the cost of servicing the external debt, resulting in a total cost of $6.59 billion or 0.3 per cent of GDP. What that means is that if these increases take place, this money will have to be found from within the budget. That means either a cut in expenditure on social programmes or a re-allocation of money from other activities," Robinson advised.