Global shocks which have resulted in plummeting oil prices will negatively affect the revenues generated from oil production in Guyana, the Inter-American Development Bank (IDB) has said.
In its second Caribbean Quarterly Bulletin for 2020, the Bank revised the value of Guyana’s oil exports, for this year, from US$2.4B to US$1.3B, which still represents Guyana’s largest productive sector.
Guyana commenced oil production in December of 2019, and has so far received US$95M (or GYD$19B) in payment for the first two loads of oil Guyana was entitled to and royalties paid by ExxonMobil – one of the Deepwater Giants currently engaged in oil exploration and production here.
But the Bank was keen to note that Guyana’s overall economic outlooks remains positive due to the “sheer volume of expected oil production”.
It said that one of the main transmission mechanisms of the global economic and health crises is through its impact on commodity prices, namely oil and gold, which are expected to be Guyana’s largest exports in 2020.
Oil production in 2020 will also affect the country’s trade balance, causing it to climb significantly to a deficit of 13% of GDP. The current account deficit is 40% of GDP.
And as oil production increases, the Bank noted that its export as a share of GDP is estimated to be 19% and 22% of GDP in 2020 and 2021.
The IDB noted too, that for this year, government revenues are expected to grow by 12.8% and not 25.9% as it had initially predicted. The overall impact will mean that Guyana’s Gross Domestic Product (GDP) growth will be 52.8% and not 85.6% as the Bank had predicted last year.
“Guyana’s GDP growth estimate [is]… still a remarkable growth figure and the only positive one in 26 Latin American and Caribbean countries,” the report added.
But while the petroleum industry is being heavily impacted in a negative way, other major sectors of the economy are expected to feel little to no impact.
It was noted in the IDB report that the mining sector is expected to benefit from higher profit margins due to lower fuel costs, while prices for gold continue to climb incrementally.
The world market price of gold increased from US$1,400 at the end of June 2019 to approximately US$1,720 currently – a 23% increase.
The mining sector is one of the largest in Guyana, accounting for 14% of the country’s GDP.
Despite its improved performance, the COVID-19 pandemic is also having a negative impact on the mining sector, the Bank added.
“Despite the favorable financial conditions, the public health situation and travel restrictions have affected both gold and bauxite operations in terms of worker availability and private sector measures prioritizing the safety of workers. Government authorities in the mining sector report expecting some impact, though the magnitude of the impact remains uncertain,” the report highlighted.
In relation to tax revenue collections, the Bank said that these are expected to remain flat,growing only by 0.5%.
But this is good news for Guyana, considering that both GDP growth and tax collection across the region are expected to decline; the latter by an average of 4.5%.
