MINDFUL of the accursed Dutch Disease and its debilitating effects on many countries with immense natural resources, the People’s Progressive Party/Civic (PPP/C) government has been doing the groundwork to ensure that the local economy is diversified, and not dependent on inflows from one sector to fuel growth and development.
Guyana, although being a known resource-rich nation for many years, became more susceptible to the Dutch Disease, the harmful effects of large increases in a country’s income, after 2015, when US oil giant, ExxonMobil, discovered hydrocarbons in commercials quantities in the Stabroek Block.
Today, with over 30 lucrative discoveries in the Stabroek Block alone, ExxonMobil has exponentially increased Guyana’s revenue base, and catapulted the country to new heights. In painting a vivid image of what is expected of the oil-and-gas sector in the near term, President Dr. Irfaan Ali had said that by 2025, operating cash flow, based on total investment, is expected to reach US$3.5 billion.
But even with such positive prospects, the government, since being elected to office in 2020, has only this year budgeted to utilise some of the funds earned from the petroleum sector. Its landmark $552 billion budget, which is 44.3 per cent larger than Budget 2021, includes roughly $126.7 billion from the Natural Resources Fund (NRF).
Although faced with challenges induced by the pervasive COVID-19 pandemic and other adversities upon being elected to office in 2020, the PPP/C government refrained from touching Guyana’s oil revenues, because it was keen on ensuring that there is proper accountability and transparency in the management and utilisation of the NRF. The government achieved its goal by amending the NRF Act, which was initially enacted by the former APNU+AFC administration in 2019, despite being toppled by the successful passage of a no-confidence motion in 2018.
This initiative by the government, which was essentially the first direct step in ensuring that there is prudent management of the oil-and-gas sector, was acknowledged and commended by the International Monetary Fund (IMF) in its preliminary report on June 3, following the Article IV consultation with local officials between May 18 and June 1.
The IMF said the recent amendments to the 2019 NRF Act set clear ceilings on withdrawals from the fund, for budgetary spending and promote transparency in the management and use of oil resources. The international financial institution praised the local authorities’ thorough review of the 2019 NRF Act before making amendments, and the restraint in using any oil revenues before the passage of the amendments.
After this stage of fostering transparency and accountability, the decisions that follow ideally have to be made with cognizance of the words of celebrated 16th Century author, Miguel de Cervantes Saavedra: “The gratification of wealth is not found in mere possession or in lavish expenditure, but in its wise application.”
And, so far, the government has been hitting the nail on the head in this regard, with a strategic agenda which encompasses a framework for development that will be sustained through prudent and effective investment of oil funds into education, health, infrastructure, and the non-oil sectors.
“… We have to spend the money to build the future; that is why we have made it clear in our Manifesto when we campaigned between 2015 and 2020, that money will be spent on education, healthcare, infrastructure, and assistance to non-oil industries,” Vice-President Dr. Bharrat Jagdeo had told residents of Region Six during a Cabinet outreach.
Those are the four areas that will attract the “bulk of the resources”, and are part of a broader plan to ensure that Guyana’s economy continues to thrive long after oil resources would have been exhausted. Additionally, efforts are underway to reduce electricity costs, improve transport infrastructure, diversify the economy, improve access to and quality of social services, and advance more broadly towards the Sustainable Development Goals.
Further, Guyana has been doing debt restructuring and repayment with effective debt sustainability analysis. As it is now, according to Dr. Jagdeo, Guyana has one of the lowest debts in the world.
At this rate, Guyana is on course to avoiding the effects of the Dutch Disease which were experienced even by Trinidad and Tobago.
A study released in 2018 by the Inter-American Development Bank (IDB) titled, The Dutch Disease Phenomenon and Lessons for Guyana: Trinidad and Tobago’s Experience, had revealed that for the fiscal period 1999-2015, TT$284.1 billion was collected in fiscal revenues and TT$283.9 billion was spent on transfers and subsidies alone.
This component of government expenditure, as outlined by the IDB in the report, is not necessarily productivity enhancing, especially if the subsidies are not well targeted or effective in either diversifying the economic base or improving human capita.
Contrary to what could be determined as Trinidad and Tobago’s errors within the period under review, the Government of Guyana has been rolling out targeted subsidies that focus on improving the country’s productive sectors, and enhancing the lives of vulnerable groups.
The IMF acknowledged Guyana’s goals to transform the economy, address development needs in an inclusive way, and protect the long-term economic well-being of the country. And while it supports public spending in major, transformational projects, the financial institution cautioned that the “ramping up” investment could potentially add inflationary pressures within the local economy. As such, the local authorities were encouraged to strengthen the capacity to manage public investment; this is a process that has already begun.