What will the Mid-year Review Bring?

In each of the last three years since the current PNM administration came into office, it has conducted a review of fiscal and economic developments after the first six months of the fiscal year. With the fiscal year running from October to September, this means that the first half of the fiscal year ends in March. Because it is simply a review, one cannot expect a plethora of new initiatives to be implemented at that time. For this reason, the mid-year review does not generate anything near the level of anticipation of the national budget. Nonetheless, the mid-year review does present the government with an opportunity to make necessary adjustments to its initial projections. It is also a good occasion for the government to account for its stewardship during the period and to provide economic updates. Now that we are in the month of April, we won’t have to wait much longer for the 2018/2019 Mid-year Review. In this note I will briefly touch on a few issues, that I think people would be anxious to hear about.

The first issue relates to the fact that the budgeted price of oil has been over the actual market price during the first six months of the fiscal year. The budget was based on a West Texas Intermediate oil price of US$65.00 per barrel and a Henry Hub gas price of US$2.75 per MMBtu. However, during the first quarter of the fiscal year (Oct-Dec2018) oil prices averaged US$59.59 and fell to US$53.75 in the succeeding quarter. Nevertheless, this is not necessarily a major cause for concern, since gas prices remained above the budgeted figure during both quarters (US$3.80 and US$2.90, respectively). Additionally, gas production received a major boost in early 2019 when BPTT’s Angelin platform began operations. Further, for some time now, the growth prospects for the domestic economy have been much more dependent on gas than oil. Accordingly, it will not be a surprise if no adjustment is made to the budgeted oil price, since revenue projections may still be attainable.

People will also be very interested in the progress of certain previously announced budget initiatives. The re-implementation of the property tax is perhaps the principal initiative that comes to mind in this regard. After clearing legal and other hurdles, the government is confident it can implement the measure soon. In its 2018/2019 budget presentation, the government revealed plans for the Board of Inland Revenue to issue notices to property owners for the payment of the tax in 2019.It remains to be seen if this target would be met or if the tax would be delayed for yet another year.

Another issue of significant concern relates to government’s plans for the fuel subsidy. Having already put the nation on notice of its plans to gradually eliminate the subsidy, the lead-up to all government’s budgets and reviews is normally filled with speculation about the future of fuel prices. This time around I’m sure will be no different. The state opted to increase the price of Super gas by $1 to $4.97 per litre in the 2018/2019 Budget but left the price of diesel at $3.41 per litre. Premium gas is essentially unsubsidised. Given that diesel now accounts for the largest portion of the fuel subsidy, there is the expectation that the government will eventually move to increase its price further. It is no longer a question of “if” but “when”.We may not see a price increase in the upcoming mid-year review though.

Other areas of concern include to the ongoing resolution of issues concerning CL Financial, as well as the progress, plans and outlook for PETROTRIN’s successor companies. Given the importance of these issues to the nation, I imagine the government will deal with most if not all of them during the review. It’s too bad we can’t predict exactly what would be said.