While the Inter-American Development Bank (IDB) in its latest report noted that Guyana’s oil reserves are equivalent to over 10,000 barrels of oil per person, there is still some worry regarding the overall non-oil economy.
According to the IDB’s Caribbean Quarterly Bulletin, the COVID-19 pandemic has had varied effects on Guyana’s economy. One of those effects has been to contribute to the contraction of the non-oil Gross Domestic Product (GDP) by 4.9 per cent in the 2020 first half.
Agriculture, which is the largest job retentive, productive sector of the non-oil economy, contracted by 4.1 per cent in the 2020 first half. The IDB expressed optimism, however, that rice production will have expanded by 3 per cent at the end of 2020. This, according to the IDB, would help in mitigating the contraction in agriculture.
“The mining industry, Guyana’s second-largest sector with 14.9 per cent of GDP, expanded by 343.7 per cent in the first semester after oil production began in December 2019. Gold production, representing almost 10 per cent of GDP, grew by 2.1 per cent in the first half of the year, bolstered by historically high prices of gold,” the IDB said.
“The services sector, potentially the sector most exposed to social distancing policies, declined by 3.8 per cent the first half of the year, with wholesale and retail trade falling by 14.7 per cent, transportation and storage by 25 per cent, and accommodations and food services by 32.9 per cent. The construction sector, which had been growing at relatively high rates prior to the pandemic, fell by 5.6 per cent,” the report further explained.
While the oil and gas-related aspects of the economy have taken off like a rocket, there is worry regarding the non-oil economy. According to the financial institution, it is expected that the non-oil economy, which already contracted in the first half of 2020, will fall between 1.4 and 4.3 per cent in the full year.
Nevertheless, it was noted by the IDB that Guyana, by virtue of its oil finds relative to population, is one of the richest countries per capita in petroleum reserves. The IDB pointed out that Guyana is estimated to have at least 8 billion barrels of oil in its crude reserves… which, when contrasted with Guyana’s relatively small population, works out to 10,250 barrels per person.
“Since 2015, ExxonMobil has made 18 oil discoveries, the most recent of which was in September 2020. Given Guyana’s population of approximately 780,000, this suggests the level of reserves equates to 10,250 barrels per person, making Guyana one of richest countries in petroleum reserves per capita in the world.”
“Despite these relatively large reserves, Guyana faces many hurdles and challenges in preparing itself to prudently manage this coming natural resource windfall and derive the greatest benefits for its people,” the IDB also said.
Another issue touched on was debt, as the IDB warned Guyana to be careful when it comes to debt management – a crucial issue as Guyana becomes an oil-producing nation. It was pointed out that the Government has two alternatives when it comes to debt.
“Government will have the alternative to use some of the new-found oil revenues to close budget financing gaps and avoid debt accumulation and/or retire expensive outstanding public debt. Budget financing needs to be monitored however, as it can erode savings and return the nation to a position of high indebtedness,” the IDB explained.
“Guyana’s economy is on the verge of a historic transformation owing to recent oil discoveries. In this context, maximising the benefits of faster growth and increased revenues will depend crucially on the financial sector.”
