The International Monetary Fund (IMF) says commodity exporters in South America will face all round lower export revenues as a result of the COVID-19 pandemic both from the drop in prices and reduction in export volumes, especially to China, Europe and the United States which are important trade partners.
“The sharp decline in oil prices will hit the oil exporters especially,” the IMF said.
The tightening of financial conditions will negatively affect the large and financially integrated economies and those with underlying vulnerabilities.
The monetary body said containment measures in several countries will reduce economic activity in service and manufacturing sectors for at least the next quarter, with a rebound once the epidemic is contained.
South America’s newest oil producer Guyana is listed by the IMF as one of the least prepared countries in the western hemisphere to combat the spread of the virus.
Mauricio Cárdenas, visiting senior research scholar at the Center on Global Energy Policy at Columbia University said while COVID-19 will have a serious detrimental impact on the economies of Latin America and the Caribbean, the oil price war is a second economic blow for the region.
“Relative to the prevailing outlook in late January, Latin America will face a year of lower economic growth and much weaker public finances, leading to potential downgrades in sovereign ratings,” he said.
Cárdenas said it is worth noting that many countries in the region were already under stress before the COVID-19 pandemic.
Chile and Colombia have been hit by social protests over economic inequality and a lack of social mobility; Venezuela is in the midst of the worst humanitarian crisis the region has ever seen.
Guyana is now racked by political instability after the March 2 presidential election was clouded by allegations of fraud surrounding the tabulation of votes for the largest district. This has prompted the United States to warn of potential sanctions if a government is put in place in the absence of a transparent process. Several observer groups that were in the country for the pivotal election, including the Carter Centre, have said any government put in place under the current circumstances would lack legitimacy.
“Low prices and political instability will probably delay investment plans by oil companies operating in the country, resulting in lower GDP growth relative to the expected figure of 85 percent, which would have made this very small country the fastest growing in the world this year,” Cárdenas pointed out.
With vast oil resources exceeding 8 billion barrels discovered off the country’s coast since 2015, Guyana, with a population of just over 750,000, has an unprecedented opportunity to fast-track its development. It remains to be seen if the country’s politics and the racial division it fosters, will continue to stymie its growth and curtail opportunities for its multi-racial society.