- Co-Chair of the Economic Programme Oversight Committee (EPOC), Richard Byles, says the continuous fall in oil prices on the world market will benefit the Jamaican economy, individuals and businesses.
- Since July, global oil prices have fallen by about 40 per cent and American Investment Bank, Morgan Stanley, forecasts that this trend will continue until at least the middle of 2015.
- The investment bank says prices could fall as low as US$43 a barrel next year.
Co-Chair of the Economic Programme Oversight Committee (EPOC), Richard Byles, says the continuous fall in oil prices on the world market will benefit the Jamaican economy, individuals and businesses.
Since July, global oil prices have fallen by about 40 per cent and American Investment Bank, Morgan Stanley, forecasts that this trend will continue until at least the middle of 2015. The investment bank says prices could fall as low as US$43 a barrel next year.
Mr. Byles, who was speaking at a press briefing on December 9, in New Kingston, said the reduction will have a significant impact on the country’s current account deficit, which occurs when the country imports more goods, services and capital than it exports.
He told journalists that at the end of March 2013, the country’s current account deficit stood at 10.4 per cent and at the end of March 2014, 8.3 per cent. However, he informed that as a condition of the International Monetary Fund (IMF) programme, Jamaica aims to achieve a 5 or 5.5 per cent current account deficit.
“We were expected to end up at about 6.5 per cent or so at the end of this fiscal year. If oil continues to behave in this way, we will end up below 6 per cent, which is excellent,” he added.
If this adjustment in the country’s current account deficit occurs, Mr. Byles said Jamaica’s rating by international agencies, such as Standard & Poor’s, Fitch and Moody’s, will also improve.
The dramatic reduction in global oil prices should also significantly benefit the purchasing power of Jamaicans.
The EPOC co-chair said this should be seen primarily in electricity bills and at the gas pumps. Mr. Byles said this change will be significant, because the country imports about $2 billion worth of oil each year and about 32 per cent of that goes into generating power.
“So, if oil falls 40 per cent, and approximately half of your electric bill is oil (energy charge), then you should begin to feel a 15- 20 per cent reduction in your electric bill…and at the pumps, it should be even better,” Mr. Byles said.
“That is like putting purchasing power in the hands of thousands or hundreds of thousands of people,” he added.
This, he said, should also result in significant savings in energy costs for businesses and the Government.
As it relates to the impact on Jamaica’s current Petrocaribe deal with Venezuela, Mr. Byles noted that this will result in a reduction of the build-up of the debt Jamaica has to pay back.
“When oil is at US$115, the debt rises pretty steeply; when oil is at US$63 it rises much more slowly, so a much slower build-up in Petrocaribe debt is another big plus,” the EPOC Co-chair highlighted.
In the meantime, he noted that the reduction in oil prices will have a slight negative impact on revenues from Sales Consumption Tax (SCT) to the Government.
However, Mr. Byles said this may be corrected as demand for gas by consumers will increase once the price falls at the pumps.