Vivek Charran, president of the San Juan Business Association, yesterday commended Government for considering the option of pegging the budget on a US$40 a barrel oil price.
"The business community and anyone interested in the economy appreciates the honesty of the Government in recognising that there need to be changes in preparing for the budget in light of the falling oil prices," he told the T&T Guardian.
Charran was reacting to Finance Minister Larry Howai's announcement that a People's Partnership (PP) government might base the upcoming budget on the lower oil price.
Howai, who spoke at a post Cabinet media briefing yesterday, said while the PP had based its manifesto plans on a US$45 per barrel oil price and US$2.25 per MMBTU gas price, with the drop in the oil price to US$38 a barrel this week he decided to revisit the number and computations will now be based on a US$40 oil price as well as a US$45 price.
"We are in the process of working out that and the effect it could have on our overall fiscal performance during the course of next year but we do have, again, one-off cash flows that will help us through the process of adjusting our overall fiscal position to the lower level of prices that are likely to prevail not only this year but the coming year but also perhaps over the medium term.
"It is not our expectation that prices will revert to the $100 barrel range but we do expect some level of recovery in prices," Howai said.
The minister added: "Even if the projections of US$50 to US$54 continue to hold up, we will probably want to peg our budget at about US$45 to be on the safe side, so we will continue to manage and be very careful and very prudent about how we manage this process as we go forward. We have continued to build our cash reserves and certainly to ensure that we have a quotient to ensure that we could meet our commitments as we go forward."
In response, Charran noted that oil prices are cyclical said and whoever forms the next government must be realistic rather than optimistic in planning the 2015/16 national budget.
"It is believed that the price of oil has reached rock bottom and it will not drop any further. After this it will go back up. Government must show prudence during these times," he advised, adding that anything can happen as the global markets are uncertain.
"There are people who are being speculative and say by next Easter prices of oil can go back up to US$70 a barrel of oil. During an election the Government can say anything and say things will be better and be optimistic. But the Government is being realistic. As we get closer to the budget, the Government needs to look more in depth at the oil price and what to do," he said.
Daphne Bartlett, president of the San Fernando Business Association, wants whoever forms the next Government to be conservative in how they plan the budget. She believes US$30 a barrel of oil would be the best price on which to base the budget.
"Citizens should not have expectations of greater expenditure spending. You cannot expect Dr. Keith Rowley or Prime Minister Kamla Persad-Bissessar to wave a magic wand and raise the barrel of oil to US$100 a barrel of oil again. The country has to be realistic," she said.
Ballyram Maharaj, former president of the Supermarkets's Association had said earlier this week that whoever forms the next government should consider pegging the budget at "thirty-something dollars a barrel."
"When one hears about the proposals of US$45 a barrel of oil on which to base the budget, you realise there is a lot of work to be done," he said.
The price of oil soared more than 10 per cent yesterday, its biggest one-day gain since March 2009, lifted by resurgent global stock markets and a report showing the US economy grew faster than previously reported in the second quarter.
West Texas Intermediate (WTI) crude, which trades slightly higher than the crudes produced in T&T, rose US$3.96, or 10.3 percent, to US$42.56 in New York–the biggest gain since March 12, 2009, when oil gained 11 per cent.
Oil had fallen to a 6 � year low because of a global supply glut and worries about the health of China's economy. Analysts viewed yesterday's gain as a reaction to the rebound in China's main stock index, which rose the most in eight weeks, and don't see anything pointing to a long-term rally in oil prices.