Guyana’s economy is forecast to expand 38 per cent this year as it continues to see an “unparalleled oil sector expansion”, according to an International Monetary Fund (IMF) report released earlier this week that also warns of the negative impact its oil boom could have on the rest of the economy.
Massive offshore oil deposits first drilled by US-based Exxon Mobil Corporation in 2015 have allowed that Caribbean country’s economy to quadruple in size over the last five years, with rapid growth projected to continue for some time.
“The outlook for medium-term growth is better than ever before,” the IMF report said Monday. “Oil production will continue to expand rapidly as three new approved fields will come on stream between 2024-27, and a sixth field is expected to come on stream in the first half of 2028,” it continued.
Guyana’s economy, which has been the fastest growing in the world over the last few years, record real gross domestic product (GDP) growth in 2022 of 62.3 per cent. Spillovers from oil and heavy investments in construction are supporting growth in the services and supplies sectors, while agriculture, mining, and quarrying are also performing well. After a strong 2022, in the first half of 2023 real non-oil GDP grew by 12.3 per cent.
Gobind Ganga, governor of the Bank of Guyana said he is not worried that enhanced capital spending could be inflationary.
“The management of the economy, from both the fiscal and the monetary perspective, have been very accurate and so the outcome so far for the first half of the year is similar to what we would have expected from 2022,” Gobind Ganga, governor of the Bank of Guyana, told the Jamaica Observer in a telephone interview shortly after digesting the IMF report.
Sustained real non-oil GDP growth of 5.5 per cent is projected, as the Government continues its ambitious plans to address developmental needs, the IMF report said.
“Further oil discoveries would continue to improve growth prospects. Construction growth and strong public investment may support higher than expected short-term non-oil growth but could also lead to inflationary pressures and the appreciation of the real exchange rate beyond the level implied by a balanced expansion of the economy, overheating, and the crowding out of credit to the private sector. Adverse climate shocks, and volatile or lower than projected commodity prices may also negatively impact the economy,” the IMF warned.
But Ganga, addressing the warning on inflationary pressures, said he was not worried too much at this time.
“The spending is more concentrated in terms of projects on the capital side. That is not going to bring inflation,” Ganga told the Caribbean Business Report. “It’s spending to build the social and economic infrastructure that we have a huge deficit in. Here we are trying to ensure that we close the gap,” he outlined, arguing that the capital expenditure is to increase productivity.
Headline inflation reached 7.2 per cent in Guyana at the end of 2022, in line with other countries in the region, and declined to 1.2 per cent on a year-on-year basis in July 2023, with the decline in transportation and communication prices in that country.
Turning to the matter of currency appreciation, Ganga said the country is aware of the possibility manifesting itself in the so-called Dutch disease, but pointed out that there is no evidence of economic issue raising its head in Guyana so far. Dutch disease is the paradox which occurs when good news, such as the discovery of large oil reserves, harms a country’s broader economy. It may begin with a large influx of foreign cash to exploit a newfound resource. Symptoms include a rising currency value leading to a drop in exports and a loss of jobs to other countries.
“When you do think about Dutch disease, where you can have the increase in inflows [of foreign funds], that could cause an appreciation. But as you know, given what we are involved in, we have been having a relatively stable exchange rate,” he stressed.
“We are aware of what the Dutch disease [is] and what it can result in, so that is being looked at very carefully, in terms of going forward, to ensure the economy does not have a drawback, especially in the non-oil export sector,” he said, adding that the country is working to ensure the real effective exchange rate remains relevant.
“All of the issues the IMF has pointed out can be overcome. We have to be vigilant, we have to ensure we keep our eyes wide open,” he concluded.
BY DASHAN HENDRICKS Business content manager (Jamaica Observer)
