Absorbing higher water & electricity costs ‘prudent’ use of oil money – Economist

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By Vishani Ragobeer

Vishani@newsroom.gy

With consumers grappling with an increased cost of living over the past few months, economist Richard Rambarran says the government’s decision to absorb some of the increasing costs signals the prudent use of Guyana’s oil wealth.

President Dr. Irfaan Ali, on Tuesday, announced that the government will subsidise increased water and electricity costs stemming from the surge in fuel prices globally.

In what he described as a “double whammy” though, Rambarran highlighted that Guyana will also benefit from these increased global prices when it sells its oil resources.

As such, the efforts of the government to absorb the increased cost of producing electricity and water so that consumers would not be required to pay higher rates is fiscally sound.

“…it is a prudent approach by the government to ensure that those key activities are subsidised to ensure that the effects of the international prices surging to the consumer is not one that is felt,” Rambarran said during an interview with the News Room on Wednesday.

He added: “Guyanese, effectively, are benefiting from their natural patrimony through this stabilisation mechanism.”

This surge in fuel prices, much like the significant increases in goods generally, is rooted in economic challenges from the COVID-19 pandemic. The ongoing Ukraine-Russia crisis has worsened the international price surge.

Rambarran explained that small countries like Guyana, which do not have the manufacturing or industrial prowess to determine the price of goods internationally, are affected by these international occurrences.

“We face the unfortunate circumstance of importing inflation and being unable to control the factors by which that inflationary condition is set,” the economist said.

Inflation, in simple terms, refers to the increase in the prices for goods and services. With inflation, the same amount of money paid for goods and services at an earlier period will cover the cost of fewer of those goods and services.

Therefore, goods imported carry higher costs. Because the cost of fuel, fertilisers and other much-needed inputs have increased, goods produced locally would also cost more.

Because Guyana is a nascent oil producer, it finds itself in a unique position.

The country markets one million barrels of oil from each oil lift. With the global increase in the cost of fuel, Guyana is expected to earn more money than it did previously.

In fact, Natural Resources Minister Vickram Bharrat recently told the News Room that could earn the country some US $120 million (or GY $25 billion) from the sale of its new one million barrels of oil because of the steep increase in oil prices.

Comparatively, Guyana secured US$95 million (or GY$19.8 billion) from the sale of its first set of one million barrels of oil earlier this year. Then, oil prices were pegged at about US $95 per barrel; now oil prices have increased to about US $120 per barrel.

And Rambarran explained, “… Insofar as the price surge remains, that will be the period that Guyana as a country continues to benefit from improved revenues from the oil and gas sector.”

He also contended that once the government is able to use the extra money it will earn to counter the rising prices of goods, there will be a more stable local economy.

In addition to the expressed intention to absorb the increased utility rates, President Ali told a recent press conference that the government has already started to examine several solutions to cushion the impact of the price surge on producers and consumers.

Already, the government set aside a sum of $5 billion in the 2022 National Budget to fund interventions to cushion the rising food prices.

President Ali had said that the government is yet to finalise how this sum will be used but hastened to add that consultations on the sum’s use have already started.

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