Latest update March 19th, 2024 12:59 AM
Sep 18, 2019 News
By Kemol King
Most of the revenue accrued from Guyana’s oil-rich Stabroek Block will not directly impact on this nation’s domestic economy.
This is according to the International Monetary Fund (IMF), which has concluded the report on its 2019 Article IV Consultation in Guyana.
It is estimated that Petroleum production will start in the Stabroek Block at an estimated 102,000 barrels per day (bpd), reaching an average of 425,000 bpd by 2025. The Petroleum sector will only account for about 40 percent of Guyana’s Gross Domestic Product (GDP) by the year 2024, according to the IMF.
The first chart accompanying this article shows revenues making a slow increase to 2024, and a short drop in 2025. After this, the revenues will experience a steep increase until 2027, after which it will be generally buoyant for a number of years.
The second chart shows the total value of the reserves assessed by the IMF on its mission. It should be noted that the assessment included only Liza Phase 1 and 2. The gross total oil revenue, as a percentage of Guyana’s 2018 GDP, is calculated to be 1,178 percent. Of that, 1,007 percent is projected to go to the private oil companies, 171 percent is projected to go to the Natural Resource Fund, and 114 percent is projected to be transferred from the Fund to the budget. That means a total of 86 percent of the total value of the reserves will go to the oil companies, while Guyana will get 14 percent.
The GDP is expected to jump from GYD$852.B in 2019 to GYD$1,678B in 2020. The non-oil GDP is projected to be GYD$967.2B in 2020, meaning that there will be a 13.4 percent increase in the non-oil GDP.
The IMF notes that, though the oil sector’s output will raise, the overall GDP and exports substantially, the direct impact it will have on the domestic economy will not be as pronounced, since the demand for importation of oil extraction equipment and payments to the operators will significantly offset Guyana’s profits.
Nevertheless, it predicts that the commencement of oil production in 2020 will substantially improve Guyana’s medium and long term outlook, as it will not only add to oil revenues, but is expected to support additional annual fiscal spending of 6.5 percent of non-oil GDP over the medium term. That is expected to sustain critical social and infrastructural needs.
The IMF goes on to predict that public debt and the external current account deficit will steadily decline after production starts.
The main direct effect the IMF notes the sector will have on the economy will be through fiscal revenue and its use.
In this vein, its executive board noted that the opportunities come with serious challenges. The board emphasized that to effectively use windfall revenues, Government should focus its policies on the reduction of its macroeconomic vulnerabilities, the addressing of structural weaknesses, the advancement of inclusive growth and the promotion of intergenerational equity.
It should be noted, as stated by the IMF, that the projected real GDP growth in 2020 is potentially overstated and subject to large subsequent revisions because of the very high growth rate of oil GDP, which in turn is elevated on account of the very low (zero) base in 2019. Hence, it states that even small changes to the projected oil output in 2020 would result in large changes in real oil GDP and overall real GDP growth rates.
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. They then summaries the views of the Executive Directors into a report, and transmit same to the country’s authorities to aid in proper governance.
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