Fewer soft loans for oil-producing Guyana; growth rate may jump to 38.5 percent- IDB, IMF

Last Updated on Wednesday, 20 December 2017, 9:33 by Denis Chabrol

The headquarters of the Inter-American Development Bank, Washington DC, United States.

The Inter-American Development Bank (IDB), in announcing its approval of Guyana’s four-year country strategy, has cautioned that the country would eventually not be eligible for a lot of international concessional financing when it becomes an oil-producer.

“As Guyana transitions to oil and gas production by mid-2020, it is expected that the country will likely see reduced access to concessional resources from the multilateral development banks. This means that the next four years are particularly important for the IDB’s long partnership with Guyana,” the bank states.

The International Monetary Fund (IMF) forecasts that Guyana’s growth rate is expected to jump from 3.5 percent between 2017 to 201 to 38.5 percent in 2021. The current account is
projected to run a persistent surplus, with a significant increase in official reserves and a gradual decline of the public debt-to-GDP ratio.

The bank notes that after a decade of robust economic performance, Guyana is poised to emerge as a significant oil producer by mid-2020. The bank said that Guyana’s growth, however, has not been inclusive. Per capita income remains among the lowest in the English-speaking Caribbean, at US$7,520 PPP in 2015, and the Human Development Index score stands at 0.64 compared with 0.75 for Latin America and the Caribbean.

“Guyana’s institutional framework has not been able to translate economic returns into improved outcomes in human development (well-being), or an enhanced environment for the private sector, including as it relates to delivering critical infrastructure for supporting both. Over the medium term, Guyana is expected to undergo an important structural transformation while access to concessional resources decline,” states the bank in its report.

The Western Hemispheric development bank said its US$86.1 million concession will finance the 2017-2021 country strategy  which focuses on institutional strengthening and infrastructure investment to help prepare Guyana as an emerging oil economy.

The IDB also said Guyana would have to take urgent steps to properly manage the oil and gas industry with which it has no local experience. “Several risks will need to be swiftly addressed including the continued vulnerability to commodity price shocks, and the adequate creation of new government structures to manage a hitherto unknown sector,” the bank said.  As a commodity producer-exporter, Guyana has historically had to grapple with low or fluctuating prices for its major exports such as rice, sugar, bauxite and gold.

The IDB Country Strategy observes that the legislative and regulatory framework for managing natural resource
revenues is currently in the process of being updated. Preparation works have begun on the drafting of a Petroleum Commission Bill and a Sovereign Wealth Fund Act. The bank cautioned that if the money is not properly managed, Guyana will not benefit adequately. “In the absence of a strong, independent regulatory body to govern oil and gas exploitation, the sector will not perform in benefit of the economy and the country at large,” the international financial institution said.

In the area of transparency, the IDB notes that Guyana will need considerable support to comply with the Norway-headquartered Extractive Industries Transparency Initiative’s (EITI) eight key requirements. “The EITI process
will require increased transparency between the Government and companies regarding the proceeds garnered from extractive industries. Both the public and the private sector are required to report separately on revenues received to a reporting multi-stakeholder group,” says the country strategy.

The country strategy, which guides the IDB’s partnership with Guyana for the next four years, will focus on institutional strengthening and infrastructure investment to help prepare the country as an emerging oil economy.  The strategy, according to the  bank, has been designed to ensure continuity with Guyana’s existing portfolio commitments, as well as to respond to developing government priorities in the new Green State Development Strategy.

Activities will focus on four main areas establishing a modern national strategy and planning framework for under-girding the new Green State Development Strategy, including efforts to promote Guyana’s economic diversification efforts and pursue modern industrial policies; strengthening fiscal policies and the framework for managing Guyana’s natural resource revenues; facilitating private sector development to support the delivery of better services, mainly through enhancing Guyana’s business environment; and delivering critical infrastructure to facilitate Guyana’s human and private sector development.

The Bank recalled that the 2012-2016 IDB Guyana Country Strategy had focused on four priority programmatic areas-natural resource management, sustainable energy, private sector development and public-sector management.

Then, the IDB’s portfolio in Guyana had consisted of 13 new loans totaling US$143.6 million; investment grant operations totaling US$51.9 million; and 30 technical cooperation in various sectors.

The IDB’s Multilateral Investment Fund (MIF) approved four separate operations totaling US$4.0 million. Despite efforts by the Government to overcome difficulties in loan disbursements, slow portfolio performance reflected Guyana’s challenging institutional environment.