THE most damning aspect of the last Moody’s report is that, after four years, it sees no prospect for economic diversification under this administration.
What an indictment! Development of new foreign earnings should have been the main priority for the economy. The nation has never needed it so badly. The global energy revolution demanded we reduce our dependence on oil and gas which as Moody’s says, places this country “at great risk”. But soon it will be five years and almost $300 billion spent! But not one blessed thing has been done to improve the nation’s economic security. They haven’t even tried. History will not absolve them.
As we approach Budget 2020, the last of this administration, we are reminded of this criminal irresponsibility. We are being hit with a double whammy. In addition to declining oil and gas production this year, we face less demand and falling prices from a global economic slowdown and the US-China trade war. Natural gas has already fallen to US$2.15 mmbtu and oil has dropped to the fifties. This means declining foreign earnings, the lifeblood of our economy and society.
And global oversupply will push down prices further. US natural gas production alone will increase to 91 billion cf/d in 2019 while our production remains below four billion, inadequate to satisfy LNG and petrochemical production. Our two main earners are in trouble.
LNG revenue will drop. Moody’s says with US exports exploding, 500 shipments to 28 countries last year, globalising the LNG trade, prices will fall in all markets. And they will go down further with new liquefaction plants under construction all over the world, 20 in the US alone.
Our petrochemical industry faces not only gas shortages but an increased gas price demanded by up-streamers. This will obliterate our fading competitiveness. Next door, the US has the largest and cheapest gas in the world with proven reserves alone at 341 trillion cubic feet. Small wonder that by the end of last month, 334 petrochemical projects, together valued at US$204 billion, had been announced in the US. None came here. How will Point Lisas survive? With no diversification, what will we have as replacement?
And in oil, a global glut is underway. Artificial Intelligence (AI) is boosting drilling, with 46,209 wells this year. Now comes Argentina’s Vaca Muerta, an impressive shale basin with some 27 billion barrels of resources, where Shell and Exxon are ramping up operations. And coming next year is Guyana, with 700,000 bpd from the world’s 12th largest reserves, six billion barrels in the Stabroek block. And 100 million barrels were discovered last week in the Orinduik Block which could hold a total of 400 million. Could T&T compete with its minuscule 0.2 million barrels of proven reserves? Yet, on closing down Petrotrin, the Prime Minister said we will now “make money by finding and selling oil”. But not a word about diversification! What dereliction of duty!
This blindness existed from the very start. Around Christmas 2015, Finance Minister Colm Imbert said there is no “great cause for concern”, since we had 12 months import cover from US$10 billion in reserves. I immediately warned, “We will no longer earn at the level that produced those reserves,” and called urgently for diversification. That was four years ago during which almost US$4 billion in reserves evaporated, a 33 per cent drop, damaging the nation’s economic security and the children’s future. Could this administration ever be forgiven?
And they continued carelessly spending more than we earn, producing a sizeable, intractable, fiscal deficit. They borrowed “to maintain our lifestyle” rather than for investment, increasing the external debt by 88 per cent. Unsustainable, say both Moody’s and S&P! We are now borrowing to pay the interest on current debt, in the jaws of the debt trap, heading for junk bond status. But hear Imbert, “now that we have stabilised the economy, we can put cash into people’s hands and that will put money into businesses and will continue the momentum of the economy.” What elementary nonsense! Where is the “stabilised economy”? Where the “momentum”? Our reserves, the nation’s security, are vanishing, with no new replenishment streams that could have come only from diversification! We are heading to the abyss!
Yet they will open the spigots for a spending spree, borrowing almost $13 billion to get re-elected. They have always cared only about their paltry political future. They kept the dollar grossly overvalued, claiming they want to save people economic pain when in fact they feared political fallout from levelling with the nation that sacrifices were needed. They have taken the coward’s way out, propping up the rate and depleting our precious reserves.
And discouraging the very diversification we so badly need! The present exchange rate subsidises imports and penalises exports when the exact opposite should happen to encourage new non-energy ventures that would earn precious foreign exchange. Imagine the transformation that would have already been underway with a realistic exchange rate together with reduced corporation tax for new ventures. With the population on board, we could have made up for the initial revenue shortfall with reduced transfers and subsidies.
But this transformative diversification process would have required courage, caring, foresight and planning, totally lacking in this scandalously unprepared administration. All the Prime Minister has said on the most important issue facing the economy is “diversification means finding the things we can do and just do them.” No strategy. No research. No planning. Small wonder nothing happened. But reserves keep dropping and the economy keeps sinking. Unforgivable. There can be no absolution for this administration.