Oil bill could derail fiscal programmes - BoJ - Forecasts imports to grow by US$500m
published:
Friday | February 22, 2008
John Myers Jr, Business Reporter
Derick Latibeaudiere, Bank of Jamaica governor, says the need for energy-saving measures is urgent.
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Jamaica's central bank governor has waded into the growing debate on energy conservation, warning the Bruce Golding administration that its fiscal programme could go awry if the island maintains its gluttonous consumption of oil.
"[The] oil bill could increase by as much as US$500 million during the course of the year, which then points to (the need for) some type of energy-saving measure," Derick Latibeaudiere told reporters and market analysts at a Bank of Jamaica (BoJ) briefing on Wednesday.
"It is both volume demand and the price that impacts us."
Jamaica consumes about 27 million barrels of oil a year, approximately a third of which is used by the bauxite/alumina sector and the remainder in the 'domestic' economy.
Last year, the country paid a projected US$2.2 billion ($154 billion), a 22-per-cent hike on the previous year - and this was despite a Venezuelan facility that allows the country to get credit on a substantial portion of its oil bill, with the saving turned into long-term, low-interest loans.
If Latibeaudiere is right, the country could end up paying US$2.7 billion for oil in 2008.
Oil prices soaring
In fact, over the past three years, with the price of oil rocketing - crude traded at US$101 per barrel Wednesday - the oil bill has risen by approximately 47 per cent in US dollar terms, without any significant change in either aggregate consumption or improved efficiency.
Oil accounts for 96 per cent of Jamaica's energy needs.
Analysts, for instance, pointed out that since the first oil shock of the 1970s, Jamaica, although talking a lot about the issue, had made only small gains - in the low single digit - in terms of economic output for each barrel of oil consumed.
And were it not for the bauxite/alumina industry where there have been substantial gains in efficiency, the situation would be far worse.
After nearly a decade of stagnation, the island in recent years struggled to achieve growth of two per cent a year.
It was against the backdrop, as well as Jamaica's tight fiscal situation - including a projected public sector deficit for the current fiscal year of five per cent of GDP - that Latibeaudiere attempted to prod the authorities into picking up the pace on their review on its review of an energy and to come to a clear position.
The BoJ governor stressed that the country, in the absence of a decline in consumption, had limited options to pay for the oil the country consumes.
"We can either induce capital flows, so the Government could either borrow more foreign exchange," Latibeaudiere said. "Or, we (can) utilise the reserves to pay for the oil."
Hardly enticing
With the Government pledged to attempt to rapidly reduce its debt that now runs at about 130 per cent of GDP, this hardly appears to be an enticing policy option.
Neither, analysts say, would the administration want to aggressively run down the country's reserves, which stood at US$1.81 billion at the end of January, and which would render the Jamaican dollar even more vulnerable to global economic events and market speculators.
Senior government officials were not immediately available for comment on Latibeaudiere's observations, but the Golding administration has been airing a white paper on energy it inherited from the government that left office in September.
Golding, however, has said that the Government has signed off on a proposal for the conversion from oil to liquefied natural gas (LNG) for the generation of electricity for the national grid for big industries, like alumina refining.
Among the other proposals of the green paper is for higher taxes on petrol and a greater utilisation of renewables.
