Nov 22, 2017 News
…irrespective of promised oil and gas inflows –Finance Minister
By Kiana Wilburg
The emerging oil and gas sector promises the inflow of millions of dollars in revenue for Guyana. Irrespective of this “promise”, Finance Minister, Winston Jordan, said that the current public resources must not be spent in a reckless manner. He called for the public resources to be used efficiently.
Jordan made this comment in his 2016 Public Debt Annual Report which he recently presented to the National Assembly.
This is the second edition of this document. According to Jordan, the report is not a mandatory one but nonetheless, stands as an important instrument of transparency and accountability before the Guyanese people.
Before commenting on how the emerging oil and gas sector would impact Guyana’s debt profile, Jordan explained the state of Guyana’s debt for last year.
For 2016, the Finance Minister said that total debt as a percentage of Gross Domestic Product (GDP) declined to 46.4 percent, from 48.6 percent as at end-2015. As a result of prudent macroeconomic management, he said that Guyana’s debt indicators continue to depict a stable debt profile.
In 2016, Jordan noted that there remained great uncertainty and adversity at the global level, including the lingering effects of the European crisis, Brexit and weak economic performance in the Latin American and Caribbean region.
He noted that Guyana’s growth continued to be thwarted by a challenging international economic environment.
The Finance Minister asserted that expansion in output was primarily concentrated in the mining and quarrying sector, specifically gold production, which benefitted from higher international prices and increased production.
Unfortunately, however, the economist said that most of Guyana’’ important agricultural commodities —sugar and rice — as well as the forestry sector contracted.
Jordan added that there were disappointing performances in these key sectors coupled with poor weather conditions which resulted in a growth rate of 3.3 percent in 2016.
This performance, though commendable in the circumstances, indicates the urgency of sectoral reforms to diversify the economy, the Finance Minister expressed.
Notably, in 2016, the Finance Minister said that Guyana graduated to an upper middle-income country, which is indicative of the economic developments and progress in recent years. Jordan noted however that this graduation creates an array of new challenges for the country, foremost of which is the loss of highly concessional financing from development partners and greater risks associated with new sources of financing.
As a policy measure, the Finance Minister said that this administration has sought to widen the range of multilateral partners from which it can access concessional or near-concessional resources. He said that these include the Islamic Development Bank and the OPEC Fund for International Development (OFID).
The Finance Minister said that the increasing cost of development finance for Guyana means that the Government must strive for increased efficiency in the administration of public resources, irrespective of the emergence of oil and gas and its promises of substantial inflows of resources.
The Finance Minister said, “Small open economies, such as Guyana’s, in a globalised financial architecture, face great vulnerability to exogenous shocks, the impact of which cannot be underestimated. As such, while public debt is projected to remain stable and sustainable both in the medium and long-term, there remains susceptibility to adverse shocks.”
He added, “The recent experience of our Caribbean neighbours with shocks, in the form of extreme natural disasters, underscores the importance of considering these risks. Our Caribbean neighbours’ experience with these hurricanes demonstrates the need for risk consideration to be made for Small Island Developing States (SIDS) in the assessment of debt sustainability and to have this reflected in the global framework for development financing and official development assistance.”
Additionally, the Finance Minister noted that while the medium-term has a favourable outlook, with oil production expected to begin in 2020; Guyana’s debt profile becomes exposed to additional risks arising from this new sector.
He said that these benefits are contingent upon relative stability in oil prices which may be threatened by global developments, particularly from turbulence in oil-producing nations, as well as global policy shifts towards renewable energy, especially among emerging economies such as India and China.
Jordan said that these recent advances have the consequence of deepening Guyana’s exposure to international developments in the future. He stated that these unchartered waters mean that Guyana must not become complacent, but must continue to ensure that debt levels remain sustainable and within prescribed parameters.
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