– says COVID-19 will lead to biggest economic contraction in Caribbean, Latin American Region 

By Navendra Seoraj

AS economies around the world continue to contract, the Economic Commission for Latin America and the Caribbean (ECLAC) has predicted that the Novel Coronavirus (COVID-19) pandemic will lead to the biggest economic crisis in Latin America and Caribbean Region, but despite the odds, there could be light at the end of the tunnel for Guyana, which is projected to record growth of 56.4 per cent this year.

With the exception of Guyana, ECLAC has projected that every other country in this region will record a contraction in economic activities, this year. The commission in its COVID-19 Special Report No. 2, entitled Assessing the Effects of COVID-19 to Plan the Recovery, said: “The pandemic is affecting the economies of Latin America and the Caribbean through external and domestic factors, the combined effect of which will lead to the worst contraction that the region has ever undergone, exceeding those seen in 1914 and 1930.”

According to the latest estimates, an average regional contraction of -5.3 per cent is forecast for 2020.

According to the ECLAC report, before the pandemic hit, Latin America and the Caribbean had already accumulated almost seven years of low growth, with an average of 0.4 per cent between 2014 and 2019.

The crisis being experienced by the region in 2020, with an expected drop of -5.3 per cent in GDP, will be the worst in all its history. To find a contraction of comparable magnitude, one must go back to the Great Depression of 1930 (-5 per cent) or even further back to 1914 (-4.9 per cent).

According to the breakdown in the projections, the organisation forecasts that South America will contract -5.2 per cent because several countries will be greatly affected by lower activity in China, which is an important market for their exports.

Meanwhile, the decline in Central America is estimated at -2.3 per cent, affected by a drop in tourism and reduced economic activity in the United States, which is its main trading partner and source of remittances. Finally, the Caribbean is seen contracting by -2.5 per cent, due to reduced demand for tourism services.

The ECLAC document also explains that the coronavirus crisis has been transmitted to Latin America and the Caribbean through five channels: a reduction in international trade, a fall in commodities prices, the intensification of risk aversion and worsening of global financial conditions, lower demand for tourism services, and a reduction in remittances.

“The effects of COVID-19 will cause the biggest recession that the region has suffered since 1914 and 1930. A sharp increase in unemployment is forecast, with negative effects on poverty and inequality,” said the Executive Secretary of ECLAC, Alicia Bárcena, during a presentation on the report, on Saturday.

Guyana, being the only country that is projected to “weather the storm”, was recently warned by the World Bank, that the effects of an incomplete general and regional elections, coupled with the effects of the COVID-19 pandemic and falling oil prices, could stymie the country’s potential economic boom. The World Bank in its semi-annual report said, real gross domestic product (GDP) growth at constant market prices will be 51.7 per cent.

“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,” said the World Bank.

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 infrastructural needs.

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.

A TOLL ON THE WORLD

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 decrease in travel.

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.

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.

The IMF had also projected that Guyana’s real GDP is expected to grow by approximately 86 per cent in 2020.

A report from Bloomberg had 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.

In Latin America and the Caribbean, governments have sought to implement measures which could reduce the spread of the COVID-19 disease, and also form policies which could cushion the effects of the external shocks stemming from the pandemic.

“The region’s countries have announced important measures, which must be reinforced by expanding fiscal space. It is urgent for them to access financial resources based on the flexible support of multilateral financing organisations, accompanied by low-cost credit lines, debt servicing relief, and possible debt forgiveness.

“In addition, the region’s integration model and alternatives for recovery must be rethought in light of the structural changes that will occur to globalisation and the world post-COVID-19,” said ECLAC’s Bárcena.

“We must prepare for the post-COVID-19 world. We must think about the region’s future in the new economic geography given the elevated dependence on imported manufactured goods,” Bárcena indicated.

She believes that industrial policies are needed that would allow the region to strengthen its production capacities and create new capacities in strategic sectors.

“To have an impact in the new global economy, the region must move towards greater regional integration in terms of production, trade and technology. Our countries’ coordination on macroeconomic and production matters is crucial for negotiating the terms of the new normal, particularly with regard to an urgent aspect of the current crisis and in the medium term: the issue of financing for a new development pattern with equality and environmental sustainability,” ECLAC’s highest authority stated.