Tom Sanzillo (IEEFA Director of Financial Analysis)
The Guyanese government enters a new epoch with the passage of this year’s budget—oil revenues now constitute 29 percent of its spending plan. This is the first year that the government has drawn down its oil revenues for budgetary purposes. The new revenues contribute to a substantial increase in the size of the budget. The budget increases have been heralded by the country’s leadership as evidence of the wisdom of oil and gas extraction for Guyana.
A careful examination, however, reveals several red flag warnings. The amount of revenue from the new oil venture demonstrates that Guyana is being short-changed. The use of the revenue shows that Guyana has mismanaged its initial share of the profits.
In short, this year’s budget shows that the amount of oil revenues collected to date:
- Failed to cover annual budget deficits;
- Supported additional spending but in a manner that is unsustainable;
- Failed to reduce debt; and
- Contributed nothing to the Sovereign Wealth Fund (SWF).
By spending all of the money that was received from oil in the fiscal year 2022 budget, this first year has set bad precedents.
Key Findings in the Budget are:
ü The Guyanese government enters a new epoch with the passage of this year’s budget—oil revenues now constitute 29 percent of its spending plan. This is the first year that the government has drawn down its oil revenues for budgetary purposes.
ü The amount of revenue from the new oil venture demonstrates that Guyana is being short-changed. The use of the revenue shows that Guyana has mismanaged its initial share of the profits.
ü This year’s budget shows that the amount of oil revenues collected to date failed to cover annual budget deficits; supported additional spending in an unsustainable manner; failed to reduce debt; and contributed nothing to the Sovereign Wealth Fund (SWF).
Guyana has not told the public—and may not even know—how much it actually owes ExxonMobil in total development costs. This outstanding obligation is a form of debt since it is a multibillion-dollar liability that will be paid off over several years. The liability has an effective priority lien on Guyana’s revenues., Exxon Mobil has failed to either inform its shareholders of a substantial receivable or to take action to secure its claim to recoup expenses it incurred as long as 20 years ago.
The one-sided contract short-changes Guyana. It also detracts from the efforts to improve Guyana’s competitive position in the world. It will be clear to any outside investor that the country is spending beyond its means and that the oil project lacks transparency.
About the author
Tom Sanzillo is Director of Financial Analysis for IEEFA. He has produced influential studies on the oil, gas, petrochemical and coal sectors in the U.S. and internationally, including company and credit analyses, facility development, oil and gas reserves, stock and commodity market analysis, and public and private financial structures. He also examines such areas as community and shareholder activism, institutional investment, public subsidies and Puerto Rico’s energy economics
For more detailed read refer to https://ieefa.org/resources/guyanas-first-oil-dependent-budget-exxon-drills-oil-and-guyana-digs-fiscal-hole
