THE ISSUE: Impact on foreign reserves
Are higher oil prices threatening Barbados’ economic recovery?
Barbados’ economic performance, and Government’s finances, would have been worse were it not for the fact that the island benefited from reduced oil prices in recent years.
It is true that some progress has been made in renewable energy generation, but an examination of the bigger picture showed that the authorities have saved millions of dollars on fuel imports.
It is frightening to image what the state of the foreign reserves would be if the cost of imported oil reached the high levels of more than eight years ago. For certain, a difficult situation would have been significantly more challenging.
As outlined by Prime Minister Freundel Stuart more than six years ago, there are plans to move Barbados towards becoming a green economy while reducing the energy import bill over the next 20 years.
Stuart said research showed that a renewable energy matrix could be achieved in the next two decades, with generation accounting for 29 per cent of electricity consumption and the remaining 21 per cent from fossil fuel sources.
This was expected to reduce the cumulative cost of oil imports from US$2.648 billion to US$1.978 billion, and electricity cost by US$283.5 million over the next 20 years. The initiatives should also ultimately reduce foreign oil dependency, increase energy security and create new jobs under a sustainable energy policy.
The reality, though, is that between now and 2029, and indeed beyond, Barbados will still need to import fossil fuels, especially for electricity generation, transportation, and industrial production. This is not accounting for what little oil the island produces onshore and future finds offshore.
Speaking at The Cliff restaurant during a fifth anniversary celebration for fuel distribution company Rubis, Minister of Finance Chris Sinckler highlighted the respite Barbados had gained from lower oil prices.
He said Government spent about $452.4 million on imported fuel in 2015, a 30 per cent reduction when compared to the $645.4 million in 2014.
Commenting on this substantial $193 million foreign exchange saving, the minister said prices were expected to continue to be low, but that Barbados should not become complacent.
In 2000, the price of oil was about US$30 per barrel, but in 2008 it reached a staggering US$150. In 2015, the price fell below US$40 per barrel. Oil production increased globally but this was not matched by demand.
In its most recent report, the International Monetary Fund pointed to how Barbados had benefited from low oil prices in recent years.
“The current account deficit narrowed from 9.9 per cent of GDP in 2014 to 6.7 per cent in 2015, reflecting a sharp decline in import values due to lower oil and other prices, notwithstanding increased volumes of oil and intermediate goods imports,” it said.
Some analysts expect world oil prices to increase this year as members of the cartel The Organisation of the Petroleum Exporting Countries (OPEC) reduce production.
This could prove a challenge for Barbados this year, at a time when reduced foreign exchange earnings from tourism are possible, and when there is major concern about a substantial reduction in foreign reserves at the Central Bank.
On Friday, a Reuters report said oil prices increased after reports that OPEC members “delivered more than 90 per cent of the output cuts they pledged in a landmark deal” that took effect last month. Supply from the 13-member OPEC fell to 29.92 million barrels per day. (SC)