By Joel Bhagwandin
THE Dutch disease is not present in any form at this time, largely on account of the current government’s strong commitment to tangibly rebuild the traditional productive sectors, and the advancement of an ambitious economic diversification programme through improved national competitiveness, inter alia, cheaper energy, the regional food and energy security agenda, etc. However, it is worth mentioning that the economic path that the economy previously came out of under the previous administration during 2015–2020, had that trend continued, the economy would have most certainly experienced far greater symptoms of the Dutch-disease syndrome by now, as evidently demonstrated in the aforementioned findings and analyses.

Notwithstanding this, the paradoxical Dutch disease is a cause for concern by the policymakers of the day, but it is one of those risks that has to be managed. The degree to which this can be prevented or avoided, depends on the action of government today, the type of policies being pursued, the economic diversification and development plan being pursued and the strategic allocation of resources. At this time, it can be safely concluded that the government is absolutely committed to do all of the right things (as previously mentioned to avoid the dreaded disease) as is tangibly demonstrated thus far. In other words, the current government is so far managing the economy well, while being cognisant of the Dutch disease and is undertaking prudent measures to prevent such occurrence.

SUBSIDISING FUEL IMPORTERS – ELSON LOWE’S PROPOSAL
Economic Adviser to the Opposition Leader, Elson Lowe, made a proposal to the government to subsidise fuel importers to ease the high-cost burdens owing to rising fuel prices. More recently, he went further to propose that the government should subsidise electricity bills for the vulnerable.

BHAGWANDIN’S RESPONSE
Lowe failed to perform any analysis to justify his recommendation as stated above and demonstrate the feasibility of both options. In the case of the second option, to subsidise electricity for the vulnerable, Lowe has no clue what he was talking about, because the government has already subsidised electricity for the entire country and not just the vulnerable. In this regard, though the fuel cost for power generation has increased substantially, the government did not increase electricity rates, which means that this increased cost has been absorbed by the power company, which is effectively a subsidy.

To further understand this level of increase, about 20 per cent of the country’s total fuel-import bill accounts for electricity generation. Prior to the rising fuel prices, with no substantial increase in demand, the country’s total fuel-import bill stood at about US$500 million, of which about US$100 million accounts for electricity generation for the country. Following the rising fuel price, the total import bill amounted to about US$823 million, representing a 65 per cent increase. As such, fuel imports for electricity generation have amounted to US$165 million, representing an increase of 65 per cent or US$65 million. None of this cost was passed onto consumers, which means that the government has already subsidised the entire country, a fact about which Elson Lowe is utterly clueless.

The same argument / analysis is applicable to another of Lowe’s proposals, whereby he suggested that the government should take the increased earnings from the higher price on Guyana’s share of crude oil from the profit-oil and provide subsidies to the vulnerable. Again, while Guyana benefitted from the higher price on its share of crude oil, as shown above, this increase was more than offset by the increased cost for the fuel-import bill of the country, of over US$300 million or 65 per cent, from US$500 million to US$823 million.

WINDFALL TAX – PROPOSED BY ELSON LOWE
Following the introduction of a “windfall” tax on oil and gas companies in the United Kingdom (UK) on the back of soaring oil prices earlier this year, the Elson Lowe / the political opposition and others have been calling for a similar measure to be implemented in Guyana.

Bhagwandin’s Argument
It is critical that one seeks an understanding and appreciation for the current situation in the United Kingdom, the precedence and justification for the measure and more importantly, the fiscal regime for the oil and gas sector in the United Kingdom. While it is always good to examine comparatively these issues across other countries in the world with a view to apply similar policies in the home country, context is particularly important. Within this framework, the situational contexts are often times fundamentally different, hence, not pragmatically applicable.

The fiscal regime applied to the oil and gas sector in the United Kingdom prior to introduction of the windfall tax (energy profits levy) in May 2022, comprised three elements, namely (1) ring-fence corporation tax (RFCT), (2) petroleum revenue tax (PRT), and (3) supplementary charge (SC). It is worthwhile to highlight that the UK’s fiscal regime is designed with a number of built-in incentives. For example, the 25 per cent tax levy or windfall tax includes an additional investment allowance of 80 per cent that can be claimed at the point of investment. Overall, the tax-relief companies receive from qualifying expenditure in the UK has nearly doubled from 46p for every £1 to 91p for every £1. Put differently, for every US$1 billion invested in the UK oil and gas industry, the oil companies receive US$912.5 million in tax relief under the new (current) scheme.

A comparative analysis conducted by this author demonstrates clearly that the economic situation and the fiscal regime for the oil and gas industry in the UK are completely different when compared to Guyana altogether. In fact, the comparative assessment revealed that Guyana’s fiscal regime allows for a relatively higher government take, even when the 25 per cent windfall tax is applied to the fiscal regime as in the UK – that is to say, should the UK’s fiscal regime be applied to Guyana. The oil and gas revenue contributes just about 2.5 per cent of government’s total revenue in the UK, while in Guyana the contribution to total revenue is about 40 per cent, based on the projections for 2022. The windfall tax was introduced in the UK because the fiscal regime over the years have undergone several changes aimed at making the industry more competitive and to attract new investments in the industry. For example, the PRT was reduced from 50 per cent in 1993 to zero per cent in 2016.
See my full analysis here: https://guyanachronicle.com/2022/09/26/should-guyana-apply-a-windfall-tax-like-the-uk-did-part-1-2/.

CONCLUDING REMARKS
The Economic Adviser to the Opposition Leader, Elson Lowe, has failed the people of Guyana and more so their constituents to prove that they are a better alternative for the economic prosperity of the country. To this end, Lowe back-pedalled from a unique opportunity to debate and defend his party’s counter proposals and other positions on economic matters of the country. This of itself speaks volumes, which is an unfortunate situation.
As demonstrated in this special article, the counter proposals on the economy by Elson Lowe are poorly thought out, lacking in depth and rigour, and are divorced from pragmatism and reality.
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