WAR PRICE HIKE
Published:Wednesday | March 2, 2022 | 12:10 AM
Finance and the Public Service Minister Dr Nigel Clarke has conceded that Russia’s war against Ukraine may impact the global economy and critical projections made by the Government in the 2022-2023 Budget.
The Government had forecast that the average price of oil for the new financial year would be US$67.5 per barrel, a projection that might have to be reviewed based on the implications of the Ukrainian crisis.
In addition, the Ministry of Finance and the Public Service might have to go back to the drawing board and make adjustments to its five per cent inflation target for the 2022-2023.
Clarke told members of Parliament’s Standing Finance Committee on Tuesday that the Bank of Jamaica had indicated that inflation would be elevated in the short term but was expected to moderate towards the end of the financial year.
“With the war that is under way in Ukraine and with the impact that is likely to have on commodity prices, at least in the short term, it is quite possible that inflation could be higher than this assumption,” Clarke said.
He noted that the average 12-month US$67.5 per barrel forecast was made prior to the crisis in Ukraine.
In a Gleaner interview last week, Telroy Morgan, manager of strategic planning and business support at the Petrojam oil refinery, said that the company had seen postings of between US$140 and US$150 per barrel in the short to medium term in the wake of the unfolding war in Eastern Europe.
Morgan argued that the early days of the Ukraine conflict forebodes worse to come in the oil markets if Russia’s military operation persists.
Opposition Spokesman on Finance Julian Robinson said that when the Estimates of Expenditure was tabled in February oil prices had already increased above the US$90 per barrel mark.
He argued that for the 2021-2022 financial year, the Government had projected oil prices at US$45 per barrel, but it ended up at US$73 per barrel.
Robinson, who is member of parliament for St Andrew South East, queried the basis for US$67.5 per barrel forecast given all major developments on the international scene and the likely impact in the weeks and months ahead.
Responding, Clarke said of the February 10 Budget tabling: “At the time these numbers were presented, ... I don’t think that oil prices were in the US$90s per barrel, but what was here was a projection for the average oil prices over 12 months.”
He said that the Government’s projections were informed by “taking data and information from public sources that we have relied on over a long period of time”.
The finance minister told his parliamentary colleagues that the impact of the war in Ukraine was likely to be felt through various channels, including a spike in commodity prices.
Discussing the central bank’s stated policy of increasing interest rates as a means of moderating inflation, Robinson reasoned that each one per cent increase in inflation rate adds $6.5 billion to Jamaica’s debt.
“Having higher-than-expected inflation, which may lead to higher-than-expected interest rates, has a direct impact on your debt-servicing charges,” he said.
However, Clarke said that the Government had already made provisions in the Budget for an increase in interest rates on the variable stock of domestic debt that was outstanding.