Massive job losses will occur in both the public and private sectors in the coming year if we do not act now to implement plans and protocols to restart businesses and the wider economy. It is economically ignorant to not put plans forward to reopen our businesses. Without their operation who will generate income for the country considering how low oil and gas prices are currently? Most of my proposals set off alarm bells yesterday (usually among people who have not bothered to think carefully about how our economic systems work). However, the proposals I have put forward at least take seriously that the upcoming economic fallout will be worse than the current Covid19 virus if plans are not put in place now for reopening our businesses and economy when the shutdown is over.
Expenditure for Budget 2020 was based on an oil price of US$60.00 per barrel and a gas price of US$3.00 per MMBtu. We have seen prices of WTI oil dip into negative territory and gas prices all year have been much lower than projected.
The drop in oil futures prices for May delivery is a culmination of overproduction, decreasing storage limits, the current Covid19 shutdown and The United States Oil Fund (An exchange-traded fund) dumping their contracts for the month of May. As of last week, this fund held as much as 25 % of the outstanding shares of May 2020 WTI oil futures. These contracts are up today, and it is either they take possession of the oil for May, or they sell the contracts no matter what the price.
The United States Oil Fund deals in “paper barrels” and does not take physical delivery of any amount of oil, it basically is just a trader of oil contracts. Entities that usually take these contracts such as refineries and other traders have been shuttered by the stay-at-home orders, which has ensured that they don’t want this May contract oil either. Therefore, they dump their oil no matter what the price.
However, prices for June contracts are still in the 20-dollar range so we in Trinidad and Tobago can hopefully expect a rebound to that range when the shutdown is over and summer driving season begins in the US. Additionally, natural gas prices remain low in the summer seasons because there is no need for heating of homes and demand becomes less.
These two low commodity prices will have massive effects for us going forward. The reduced income from these commodities will have to be replaced with increased income from the private and non-energy sectors. If we keep these sectors closed for much longer, we risk losing as much as six months of production. This is due to the additional time it will take to restart production and supply chains as well as reduced demand from consumers. Also, our exporters will be forced to compete with low priced dumping of products for other countries who will get rid of backed-up inventories.
These circumstances will lead to businesses as well as Government being unable to carry their existing wage bills. What will occur is unemployment will increase as everyone attempts to cut losses to stay afloat? As soon as this shutdown is over, some persons may not have a job to return to, they just don’t know it yet. Those who believe they are protected because they earn government salaries are mistaken. Government’s credit ratings are just above junk status, debt is at an all-time high and it will become more and more expensive to borrow money. Combined with decreased foreign exchange inflows, and decreased income from the private sector, where is the money going to come from to pay Government salaries?
I am again repeating my call for the immediate implementation of enhanced health, hygiene, sanitation and occupational safety protocols at all places of business and government offices so that they and the wider economy can be reopened without endangering people’s health when the shutdown is over.
Most of these protocols and practices are already in place in the industrial sector in our country. We have the expertise and personnel to transfer these systems to other sectors.
The protocols and infrastructure can be put in place immediately so we can reopen the economy sooner rather than later. We can couple this with staggered working hours for different sectors, continue social distancing measures and limit recreational activities to an acceptable minimum.
The UNC also has an economic transformation plan which we rolled out since the last Budget, which I urge the government to look at. The UNC has many persons who have expertise in these practices and are willing to assist.
We cannot be guided by fear and indecision. We can innovate and act logically while simultaneously protecting the mental and physical health of our citizens.