As crude prices plunge, four Caribbean Community (CARICOM) member countries are taking steps to reduce their reliance on PetroCaribe, Venezuela’s oil subsidy.
The four countries include Guyana, Haiti, Belize and Jamaica and it is thought more will follow suit, according to David Voght, managing director of energy consultancy IPD Latin America. Jamaica, one of PetroCaribe’s 19 members, is seeking to “build a resilience in the economy, restore the buffers and reserves, diversify from fuel oil, increase renewables and do something on conservation,” said central bank Governor Brian Wynter. The goal is “that our dependency is less” on PetroCaribe.
The $8 billion PetroCaribe subsidy allows countries to finance part of their oil purchases at 1% for 25 years. However, it is now looking far less secure as Venezuela faces inflation of 63% (the world’s widest budget deficit). Under PetroCaribe, Venezuela finances as much as 60% of the cost of oil shipments. The Bank of Nova Scotia said the program is more “noose” than lifeline for Caribbean countries who are highly indebted.
When the PetroCaribe program was created in 2005, it softened the blow of increased oil prices which averaged $100 a barrel over the past 9 years. This was significant since the Caribbean spends roughly 13% of its GDP on oil imports, and many countries are higher still.
However, Venezuela lost 30% of its foreign currency earnings due to the drop in crude prices last month, President Nicolas Maduro said in a national address on November 13. The country’s average price for oil exports reached a four-year low of $69 a barrel last week, below the level it needs to keep making debt payments.
As one of its least profitable members, Venezuela is pushing the Organisation of Oil Producing Countries (OPEC) to reduce output in order to boost prices. Along with countries such as Iran who also need higher oil prices in order break even on their budgets. However, it is unlikely they will convince other countries such as Saudi Arabia, who has already avoided scaling back production in order to gain leverage over the US shale oil industry.
The benchmark Brent crude price has declined 28% this year to $80.05 a barrel amid the fastest rate of US oil production in more than three decades.
An unfavourable decision by OPEC will be even more bad news for Venezuela’s economy, including its ability to maintain PetroCaribe.
Meanwhile, Jamaica is boosting international reserves to hedge against a potential reduction in aid from Venezuela, the IMF said in a July report on regional financial risk.
Belize is using PetroCaribe financing to strengthen external buffers and Guyana is using the program to reduce debt and increase savings, the IMF said.
Haiti, which owes Venezuela the equivalent of 15% of its gross domestic product, is strengthening fiscal policies to boost government deposits.
PetroCaribe deliveries to Central America and the Caribbean averaged 100,000 barrels a day this year, unchanged from last year. This does not include about 100,000 barrels a day sent to Cuba, which pays Venezuela with medical care provided by about 30,000 medical and sports personnel sent to the country.
Belize has tapped about $100 million in financing from PetroCaribe in the past two years, according to John Mencias, the head of the country’s PetroCaribe fund.
Jamaica is swapping high-interest debt for a line of credit funded by the PetroCaribe agreement, according to the PetroCaribe Development Fund’s CEO.
Credit: Caribbean News Now