With life as we know it turned upside down by COVID-19, small states like Guyana face unprecedented disruptions and challenges ranging from public health, political uncertainty, and a looming global economic crisis that will have both direct and indirect impact on life in Guyana.
Recently, Finance Minister Jordan requested US$5million dollar loan from the International Monetary Fund to combat Covid-19. Prior to that Guyana received $55 million for the first sale of oil. Why are Natural Resource Funds not appropriated for COVID-19 programs rather than applying for an IMF loan?
Unlike countries such as Norway with sovereign wealth funds from oil revenues, Guyana has limited assets to deploy in the COVD-19 war and the ensuing global economic downturn.
Norway’s US$950 billion (S$1.35 trillion) sovereign wealth fund is the world’s biggest. However, Norway faces its worst economic shock in half a century and has less income for crisis measures- which means that it will withdraw substantial sums form it’s SWF (Bloomberg).
As Guyana faces as unprecedented set of negative circumstances and threats the situation can worsen.
Remittances of US$400 million to Guyana represent 17-23% of the Gross Domestic Product. These numbers are set to drop significantly over the next six months because of the looming business failures, bankruptcies, and unemployment in areas of high concentration of Guyanese such as New York, Atlanta, Toronto, and London due to the COVID-19 pandemic. The COVID-19- effect will undoubtedly drive down remittances to Guyana and affect revenue generation in other sectors for a long time.
Additionally, restrictions on travel and exports will reduce tourism and export revenue to Guyana.
Foreign Direct Investment (FDI) will take a hit because of slumping global demand and global business downturn. China which is the second largest importer and exporter to the Caribbean and a major contributor of FDI faces a downturn in its economy that will directly impact Guyana.
In 2015, 70 percent of small and medium-sized businesses failed in Guyana when the global economic landscape was normal. The private sector which is the engine of growth in Guyana is expected to undergo a significant downturn because of travel restrictions, reduced global demand and indigenous problems- the result will see the loss of jobs and business downturn.
Impact of the Venezuelan dispute.
Guyana continues to defend its sovereignty in a battle with Venezuela for two-thirds of Guyana’s territory. The Venzuelan dispute is further compounded by the perception of the international community that the elections results are not valid and credible. Sir Ronald Sanders in a recent articled, noted that if the elections are condemned by the international community, Guyana’s moral standing in its case before the International Court of Justice will be weakened.
Guyana’ national image needs urgent repair.
Guyana’s national image as a law-abiding, self-respecting nation in the Caribbean community and among the African, Caribbean and Pacific States is in question by the international community. Political uncertainty reduced investment, business contraction and a tarnished image will have dire consequences on productivity and the economy.
One might say that oil revenues will buffer economic shocks in Guyana-but the oil market is also facing over-supply and reduced demand due to the COVID-19 pandemic.
With oil prices down 55% and oversupply topping 20 percent this year, the expected windfall for Guyana will decrease significantly. Oil prices fell by 25 percent on March 9, and on March 18, prices fell by 24 percent-.the two largest single-day movements for WTI in more than 20 years. Experts in the industry predict that oil demand could fall by more than 25mb/d (million barrels per day) by the third quarter.
However, Guyana also has competition in the neighborhood. On Thursday April 2, the Apache Corporation (NYSE, Nasdaq: APA) and Total S.A. (NYSE: TOT) announced a significant oil discovery at the Sapakara West-1 well drilled offshore Suriname on Block 58- a second for Suriname. Production from these reserves will drive up supply in a low-demand environment and compete directly with Guyana.
It will take strong transformation leadership to extricate Guyana from the myriad of complex problems, restore a favorable national image and navigate a new strategic course in a changing global world order.
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