…but bank warns of fewer loans when oil starts pumping

THE Inter-American Development Bank (IDB) Country Strategy with Guyana has been approved, paving the way for this country to access $US86.1M in concessional loans, but as it transitions into an oil-producing country, it is likely to experience reduced access to these resources from multilateral development banks.

The IDB Guyana Country Strategy for 2017 – 2021 was approved recently by the IDB Board with focus on institutional strengthening and infrastructure investment to help prepare Guyana as an emerging oil economy. “The strategy provides Guyana with $US86.1M in concessional financing, and has been designed to ensure continuity with Guyana’s existing portfolio commitments, as well as to respond to developing government priorities in the new Green State Development Strategy,” the IDB explained in an official statement on Wednesday.

The US$86.1M with an average disbursement rate of US$17.2M per year represents a lower level of approval compared with the previous Country Strategy (CS) (2012-2016) of US$209.8M or US$42.0M per year. According to the IDB report on the approved CS, the reduction in allocation is as a result of the increase in the country’s per capita income, and is also a consequence of its relatively weaker portfolio performance over the CS 2012–2016 period. “It is assumed that the current blend of 50/50 of concessional resources with ordinary capital will be maintained throughout the allocation period,” the IDB posited.
The $US86.1M in concessional financing, however, is coming at a critical time and will aid in reducing the constraints to achieving inclusive growth. Based on collective lessons from previous country strategies, the Country Development Challenges (CDC) findings, and in line with government priorities, this CS aims to support Guyana in pursuing inclusive growth by focusing on institutions to deliver services, critical infrastructure, and improve the basic conditions that enhance the private sector’s role in the economy.
As such, under this CS, focus will be placed on four areas of interventions: the

establishment of a modern national strategy and planning framework for undergirding the new Green State Development Strategy; strengthening of fiscal policies and the framework managing natural resource revenues; facilitation of private sector development; and the delivery of critical infrastructure to facilitate human and private sector development.
In establishing a Modern National Strategy and Planning Framework, the CS, when executed, will strengthen the country’s institutional capabilities to deliver public services, supporting strategic sector planning in line with national strategy goals; civil service quality; and collection and enhanced use of data and implementation of digital solutions.
According to the IDB, the cross-cutting themes of climate change and gender have crucial linkages as part of a modern institutional framework.

“The creation of a national strategy and planning framework is essential if the Government of Guyana is to provide the necessary leadership on climate change, and to reconcile its preferred low-carbon growth strategy with the discovery of oil.
“Given the dire predictions of sea-level rise over the next 30 years, the country faces significant decisions on the protection or possible decampment of the capital city, Georgetown. Although the discovery of oil presents a shift in resource revenues, Guyana remains unique in terms of its pristine forest cover, which hitherto had been a key source of revenue under REDD+,” the IDB explained, while noting that detailed financial plans will be needed to understand the costs of adaptation and mitigation requirements.
Meanwhile, in underscoring the importance of strengthening fiscal policies and the Framework for Managing Natural Resource Revenues, the IDB noted that Guyana’s fiscal performance has been volatile.

“In the absence of a strong, independent regulatory body to govern oil and gas exploitation, the sector will not perform in benefit of the economy and the country at large,” the IDB said, while emphasising that fiscal policies need to be guided by a transparent, rules-based framework after the onset of oil production. Notably, the current Administration has been taking critical steps to update legislative and regulatory framework for managing natural resource revenues. Additionally, preparatory works have begun on the drafting of a Petroleum Commission Bill and a Sovereign Wealth Fund Act.
According to the IDB Report, the CS will help to fill the gaps to allow for strong fiscal

institutions and policies. “Specifically, the CS will support (i) revenue management, through adjustments of tax legislation and administration (ii) public expenditure and public financial management, emphasising transparency and the adoption of sound auditing, and procurement practices (iii) and the establishment of appropriate natural resource wealth management tools,” the IDB explained. It was noted too that the interventions are also aligned with the IDB’s Update to the Institutional Strategy 2010–2020.
Additionally, both Guyana and the IDB agreed that it is critical to facilitate private-sector development. In coming up with this decision, the parties took note of the fact that institutional challenges affect the business climate and subsequently, private-sector development.

Guyana’s business climate was ranked 124th out of 190 countries on the World Bank’s 2017 Doing Business Index, with a distance from the frontier score of 56.2 compared to a Latin America and the Caribbean (LAC) average of 58.8. As such, the CS will support the business climate, fostering access to finance with initiatives to develop secure transaction systems and collateral registries.
“The IDB Group will work with the Government of Guyana, including through the IIC and MIF, to support the private sector by focusing on initiatives to increase firms’ access to credit and assisting companies to achieve productivity gains through investments and advisory services that promote innovation and adoption of sustainable business practices. The IDB will help address relevant market failures. As SMEs are the most financially constrained firms, IIC will seek to partner with financial intermediaries to address sub-optimal SME investment opportunities,” the IDB explained in its report.

With respect to the delivering of critical infrastructure, the CS can help Guyana to increase its execution rate of infrastructure investment in the Public Sector Investment Programme (PSIP); fostering the institutional framework for public–private partnership, installing capabilities to select, prioritise, and structure critical infrastructural projects (including through PPPs) in fiscal-friendly and sustainable ways; upgrading selected infrastructure to support climate resilience, social improvement, and structural transformation.
With Guyana well on its way to becoming an oil-producing country, access to concessional financing is expected to decrease.

“As Guyana transitions to oil and gas production by mid-2020, it is expected that the country will likely see reduced access to concessional resources from the multilateral development banks. This means that the next four years are particularly important for the IDB’s long partnership with Guyana,” the IDB stated.
It noted too that several risks will need to be swiftly addressed, including the continued vulnerability to commodity price shocks, and the adequate creation of new government structures to manage a hitherto unknown sector.
It has assured that it will work with the Guyana Government to achieve the good life for all, as the country undergoes a historic economic transformation.