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Oil sector continues to spike Guyana’s economic growth

Last Updated on Wednesday, 6 October 2021, 7:23 by Denis Chabrol

Guyana’s rapidly emerging oil sector continues to drive the country’s economic growth, with the Finance Ministry forecasting  an overall 19.5 percent Gross Domestic Product (GDP) for 2021.

According to the Mid-Year Report, which is to be presented to the National Assembly, non-oil GDP will be 3.7 percent.

Already, for the first half of this year, GDP is 14.5 percent and non-oil GPD is 4.8 percent. But, the Finance Ministry says the adverse impact of COVID-19 and the May-June floods that hit agriculture, forestry and mining “will spill over into the last half of the year and even beyond.”

“Total output from the petroleum sector increased by 65.4 percent when compared to the same period last year,” the Finance Ministry quoted the report as saying.

Though Guyana has so so far not spent any of the more than US$400 million earned from crude oil sales, oil sector companies continue to invest heavily to support expanding oil exploration and pre-production activities for other wells as well as support services.

The Finance Ministry said that, “the favorable economic performance at the end of the first half of 2021 in the non-oil economy bodes well for the upcoming second half of 2021 and beyond. It is expected that advances in key investments, both in the public and the private sector, will buttress the second half performance of the economy.”

Referencing the extractive industries, the Report indicated that in the first half of 2021 the mining and quarrying industries were estimated to have grown by 23.1 percent, with higher output from the petroleum and other mining industries despite contractions in gold and bauxite.

With respect to diamond, sand and stone, these were estimated to have seen a total growth of 63.3 percent with quarry stone having a growth output of 141 percent, sand declarations growing by 119.3 percent as a result of increased activity in the construction sector while diamond declarations improved with a growth of 166.3 percent. The outlook for the remainder of this year for other mining industries was estimated to be promising as well with an estimated growth rate of 74.5 percent for the entire year, according to the report.

Sector Performance
The Finance Ministry says the agriculture, forestry and fishing industries for the first half of 2021 are estimated to have contracted by 2.4 percent compared with a decline of 4.1 percent for the corresponding period last year. “This was as a result of lower output from the other crops, sugar growing, forestry and fishing industries,” the Finance Ministry added.

Sugar
The Finance Ministry said the already ailing state-owned Guyana Sugar Corporation (GUYSUCO) declined by 22.4 percent at the end of the first half 2021 compared to the same period last year, producing 29,650 tonnes of sugar.  Government blamed this on record high levels of rainfall, which resulted in waterlogged soils, particularly at the Albion Estate, and strike action that resulted in over 5,600 man-days being lost.

According to the Mid-Year Report, some of the reasons indicated were a 30 percent mortality of mature cane at Albion estate, 10 percent at Uitvlugt and 5 percent at Blairmont due to the floods. Another 15,000 tonnes of sugar in the second crop were also expected to be lost.

The Finance Ministry said, however, the rice industry grew by an estimated 7.8 percent in the first half of the year, but marginally lower than the target set for the period, ‘other crops’ declined by 7.3 percent due to the floods.

The livestock industry was estimated to have grown by 10.6 percent when compared to the same period in 2020. However, for that same period, the fishing industry contracted by an estimated 6.6 percent and the forestry industry by 7.1 percent, the report states.

With regard to manufacturing, this sector notably saw an estimated growth of 13.1 percent when compared to the same period last year with expansion of the sector being attributed to a growth of 23.1 percent in other manufacturing. In the category of other manufacturing, growth was experienced in the manufacturing of non-metallic products, chemical products and beverages.

Meanwhile, the Finance Ministry says the services industries were estimated to have expanded in the first half of 2021 by 9.4 percent when compared to the same period in 2020 as it was noted that the measures to curtail the impact of COVID-19 would have severely impacted such activities last year. Notably, the Report indicates that the gradual relaxation of these measures would have contributed to some growth in the sector.

The Report also noted the strong performance of the construction sector which grew by 25.5 percent in the first half of 2021, reflecting increased emphasis on implementing the public sector investment programme as well as increased private sector construction reflecting improved private sector confidence and optimism regarding the economic outlook.

Balance of Payments – Larger Merchandise Trade Surplus

The Mid-Year Report noted that at the end of the first half of this year, ‘the overall balance of payments recorded a deficit of US$67.4 million compared with a deficit of US$2.8 million at the end of June 2020’ with the current account registering a deficit of US$39.1 million in comparison to a deficit of US$396.5 million for the corresponding period in 2020. This was attributed to a ‘significant increase in the merchandise trade surplus which moved from US$72.7 million, to US$813.3 million. The merchandise trade account, according to the Report, improved as a result of export receipts expanding by US$786.9 million, outweighing the US$46.2 million increase in imports.

Meanwhile, the capital account showed a deficit of US$19.6 million when compared with a surplus of US$419.7 million at the end of June 2020, attributed to ‘outflows of US$1,713 million from private enterprises in the oil and gas sector along with outflows of US$123.6 million in revenue from the petroleum sector to the Natural Resource Fund’. The Report also highlighted the fact that foreign direct investment in the first half of 2021 was 41.6 percent higher than the US$940.6 million recorded last year for the same period.

Inflation 

At the end of the first half of 2021, consumer prices grew by 5.6 percent. This was largely driven by increased food prices, as a result of the inclement weather and shortages experienced following the flood. Further, the Report indicated that the bottlenecks in the global supply chain adds some measure of imported inflationary pressures. However, the Report underscores, that the price increases are ‘transitory’ and are unlikely to have lasting long-term impact on inflation’. Inflation is now projected to be in the order of 3.8 percent for the full year.