Last week, Finance Minister Colm Imbert hinted at a positive budget mid-year review based on the latest economic indicators, notably al rise in oil prices.
He said in 2013, the energy sector contributed more than 50 per cent of total government revenue but by 2016, that sector’s contribution had dropped to 18 per cent. Direct revenues from oil and gas also declined over the period from US$3 billion to less than $500 million.
However, there have been some positive signs.
The Central Bank’s Quarterly Index of Real Economic Activity (QIEA) for March 2018, shows that activity in the energy sector picked up during the third quarter of 2017. Upstream production was buoyed by new natural gas output from the Juniper field, which also made more gas available to some downstream producers.
“Fortunately, we are seeing the signs of a recovery in the energy sector, with average daily natural gas production increasing by over 15 per cent over the last 12 months.
“In fact, the gap between supply and demand in the natural gas sector is closing steadily, and we hope that by next year, all of the requirements of the gas-based industries can be satisfied.
We have also seen a rebound in oil prices, from a low of US$28 per barrel in 2016 to over US$68 a barrel as of today May 4th, 2018,” Imbert noted during the launch of the Eximbank Forex Facility.
He had said these improvements in gas production and in oil prices, coupled with the new royalty regime for oil and gas introduced in the 2018 budget, resulted in increased inflows of foreign exchange.
Indicators for the non-energy sector, the Central Bank noted, suggest that in the third quarter the sector contracted at its slowest quarterly rate (1.9 per cent) since the fourth quarter of 2015.
In an environment of sluggish economic activity, the latest available labour market information from the Central Statistical Office (CSO) shows that the unemployment rate increased to 4.5 per cent in the first quarter of 2017, up from 3.8 per cent in the first quarter of 2016.
Headline inflation remained low over the second half of 2017—it measured 1.3 per cent in December—despite a pick-up in food inflation in the latter months. Food inflation was affected by supply disruptions resulting from flooding and the pass through of higher international dairy prices.
Core inflation was restrained, notwithstanding upward impetus from higher transportation costs as a result of the reduction of energy subsidies in October 2017.
The Central Bank also noted that the fiscal accounts improved in the first quarter of financial year 2017/18 compared to the similar period a year earlier due mainly to higher petroleum prices and natural gas output.
A deficit of $228.3 million was recorded compared with $2,468 million in the first quarter of financial year 2016/17.
Total public sector debt amounted to $120.9 billion (77.5 per cent of GDP) in December 2017, compared with $121.4 billion in September 2017.
Regarding expected outcomes, the Central Bank noted that the anticipated improvement in the energy sector may have positive spillover effects on the non-energy sector.
Stronger demand for imports in some Caricom countries as a result of firmer growth could support increased output in the local manufacturing sector.
In the context of the moderate pace of domestic economic activity, inflation is expected to remain restrained despite some upward pressures from some budget measures such as the cut to energy subsidies.
The unemployment rate could rise slightly but the pace of increase could be tempered if prospects in the non-energy sector improve, the Central Bank said.
