By Vishani Ragobeer
A team from the International Monetary Fund (IMF) has concluded that Guyana’s medium-term prospects are quite favourable, particularly with oil revenues contributing significantly to development.
According to a statement issued after IMF staff engaged local stakeholders recently, Guyana’s economy has been adversely impacted by several local and external events, including a delayed political transition in 2020, the COVID-19 pandemic and the Ukraine/ Russia war.
“After deteriorating markedly in 2020, the fiscal position remained appropriately supportive in 2021,” the IMF said.
The IMF further stated: “Guyana’s medium-term prospects are more favourable than ever before, with increasing oil production having the potential to transform Guyana’s economy.”
Between this year and 2026, oil production offshore Guyana is expected to increase significantly. In the Stabroek Block alone, where a local affiliate for ExxonMobil has already commenced production, the oil reserves are estimated at over 11 billion barrels.
The IMF said that this amount of oil reserves is the third-largest in Latin America and the Caribbean, and among the highest in the world relative to the country’s population size.
Higher oil prices and more discoveries of oil and gas could significantly improve Guyana’s long-term prospects, too.
Earlier this year, in its April 2022 World Economic Outlook, the IMF projected a nearly 50 per cent rate of economic growth for Guyana this year. Beyond 2022, the IMF said Guyana is expected to record a 34.5 per cent increase in 2023 and a 3.7 per cent increase by 2027.
And the projected growth rates are similar to recent projections from the World Bank; the Bank noted that Guyana’s real GDP is expected to expand by 47.9 per cent this year. The trend of economic growth is expected to continue in 2023 at 34.3 per cent, the Bank said.
The country’s growth rate is primarily underpinned by its prolific oil sector and with large reserves and the expected reserves, the IMF posited in its release noted that Guyana can increase fiscal and external buffers that would allow it to absorb shocks.
What this means, essentially, is that the money can be spent on initiatives and projects that can cushion or altogether cut the adverse impacts of events like the COVID-19 pandemic, or food supply shortages.
The IMF also believes that countries do this while also addressing infrastructural gaps and human development needs but advised the country to carefully consider the pace of public spending.
“While pressing development challenges still face the country, a large surge in public investment could add inflationary pressure [that is, price surges], affect competitiveness of the non-oil economy, lead to an eventual loss in (foreign exchange) reserves, and might not be sustainable over the medium-term,” the release noted.
The international financial institution also cautioned that the increased dependence on oil revenues could expose the economy to the rapid, unpredictable changes in global oil prices. A slowing global economy and the repercussions from the war in Ukraine could also adversely affect non-oil exports.
FINANCIAL SECTOR STABLE
Despite its advice for future financial planning, the IMF noted that Guyana’s financial sector appears stable, with the country’s debt among the region’s lowest. This comes even as the government reallocated expenditures towards cash grants and transfers, tax cuts and immediate infrastructure projects.
Guyana’s public debt stood at 42.9 per cent of GDP at end-2021, the IMF said.
Guyana’s new Natural Resource Fund (NRF) law, which manages how oil revenues are saved, used and guarded, and the country’s anti-money laundering/ combatting the financing of terrorism (AML/CFT) were also commended.
“Staff strongly support the authorities’ goals to transform the economy, address development needs in an inclusive way, and protect the long-term economic well-being of the country,” the release noted.
These goals, it was acknowledged, include the reduction of electricity costs, improving transport infrastructure, diversifying the economy, improving access to and quality social services and protecting Guyana’s valuable forests.
Maintaining the current exchange rate was also seen as best serving Guyana’s current needs.
