…but warns that COVID-19, incomplete elections, falling oil prices could stymie economic transformation

AN INCOMPLETE general and regional elections, coupled with the effects of the Novel Coronavirus (COVID-19) pandemic and falling oil prices, could stymie Guyana’s potential economic boom, said the World Bank.

The World Bank, in a semi-annual report on the Latin America and Caribbean Region, titled: “The Economy in the Time of COVID-19,” said: “Guyana’s economy expanded by 4.7 per cent in 2019, with anticipated oil revenues spurring an expansion in nontraded sectors. Oil production is projected to boost GDP growth to unprecedented levels in 2020.

“While this could transform Guyana, there are risks, as illustrated by a still incomplete election outcome, and compounded by falling oil prices and the Covid-19 epidemic. Weak public service delivery and monitoring systems constrain the development of policies to reduce poverty and protect the vulnerable.

Coming off of a good run in 2019, with recorded economic growth of 4.7 per cent, Guyana’s continued progression and transformation was inevitably halted by the COVID-19 pandemic, which has so far infected about 45 persons and killed six locally.

The necessary restrictions in place to curtail the spread if the disease, as seen in countries across the world, has “slowed down” the economy because businesses either reduced their productive hours or are closed indefinitely, and the public sector has also scaled down its operations for the time being.

Unlike other countries, Guyana is also faced with the effects of an incomplete electoral process which has been ongoing since the close of polls at 18:00hrs, on March 2, 2020.
As it is now, the Guyana Elections Commission (GECOM) has decided that there will be a national recount of the votes, and a plan is being crafted by the Chief Elections Officer (CEO), Keith Lowenfield.

With the process still ongoing, there remains some level of uncertainty which has contributed to the further stagnation of the local economy, an economy which is anticipating massive transformation because of its new-found oil wealth.

The International Monetary Fund (IMF), in a report last year, had said Guyana’s $4B annual GDP is expected to expand to about $15B by 2024. The financial institution had said the commencement of oil production will substantially improve Guyana’s medium and long-term outlook. Guyana is projected to be among the world’s largest per-capita oil producers by 2025.

The oil sector is projected to grow rapidly, accounting for around 40 per cent of GDP by 2024 and supporting additional fiscal spending annually of 6.5 per cent of non-oil GDP on average over the medium term, which will help meet critical social and infrastructure needs.

The Economic Commission for Latin America and the Caribbean (ECLAC) had also said the Guyana Government will receive approximately 14.5 per cent of all oil revenue in 2020.
These promising projections could, however, be hampered by a falling oil prices and other economic shocks.

ExxonMobil, the company producing oil offshore Guyana, had announced recently that it is reducing its 2020 capital spending by 30 per cent, and lowering cash operating expenses by 15 per cent, due to the effects of COVID-19.

COVID-19 has taken a toll on the entire world and businesses such as ExxonMobil, involved in the drilling of oil, have not been able to escape the negative impacts which have vastly reduced the demand for fuel due to a sharp drop in travels.

In response to low commodity prices resulting from oversupply and demand weakness from the pandemic, the company announced that capital investments for 2020 are now expected to be about $23 billion, down from the previously announced $33 billion. It represents a 15 per cent decrease in cash operating expenses driven by deliberate actions to increase efficiencies and reduce costs, and includes expected lower energy costs.
Despite these adjustments, the company said developments offshore Guyana remain an “integral” part of its operations.

ECONOMIC GROWTH
In addition to ExxonMobil’s assurance, the World Bank pointed to figures that indicate that there could be light at the end of the tunnel for Guyana. In its report, the World Bank said, real gross domestic product (GDP) growth at constant market prices is projected to be 51.7 per cent.

This “unprecedented growth,” is projected to continue in 2021 and 2022, with real GDP growth expected to be 8.7 per cent and 2.6 per cent respectively.

According to the World Bank, Guyana was among only three countries in the Caribbean Region, which had growth rates in excess of four per cent in 2019.

In 2019, New York-based stock market, NASDAQ, had listed Guyana as the fastest growing economy in the world. According to NASDAQ, Guyana’s projected growth rate from 2018-2021 is 16.3 per cent.

The stock market said that with a Gross Domestic Product (GDP) size of $3.63B (2018 Rank: 160), a growth rate of 4.1 per cent in 2018 and 4.6 per cent in 2019, Guyana’s economy is expected to grow by 33.5 per cent and 22.9 per cent in 2020 and 2021 respectively.

Those projections are contained in a report from the International Monetary Fund (IMF), which stated that Guyana’s real gross domestic product (GDP) is expected to grow by approximately 86 per cent in 2020.

A report from Bloomberg stated that with such figures, Guyana’s GDP will grow 14 times as fast as China’s next year. Further projections by the IMF had showed that real GDP will grow by 4.8 per cent in 2021, 20.6 per cent in 2022 and 26.2 per cent in 2023.
In a recent report, the IMF, however, announced that the COVID-19 pandemic could cause the “worst economic fallout since the Great Depression”.

Based on the predictions of international health and financial experts, the interruption in economic activity could persist. If this turns out to be true, local Economist, Rawle Lucas, said that it means that some form of a major recession will take place.

While experts are predicting that what is to come could be worse that the 2008 Global Financial Crisis, which resulted in severe economic crisis worldwide, Lucas said that the current situation would be different from the possible global economic crisis as a result of COVID-19.

The main difference, he said, is that the trigger mechanism of the 2008 crisis was of a financial nature and later affected physical production due to a lack of finances; in this instance, the pandemic inflicts a limitation on physical production from the very beginning.
Fortunately, Guyana was not adversely affected by 2008 Global Financial Crisis due to the rise in demand for gold as persons turned to the mineral as a means to protect their money. Lucas recounted that gold prices skyrocketed and the gold industry in Guyana became a significant contributor to Guyana’s economy and this enabled other industries to take off.

“Because it was not a health crisis that affected the movement of people and the consumption behaviour of people, Guyana was able to actually benefit from that without an actual crisis,” he said.