In a report released this month on the impact of COVID-19 on the Caribbean region, the Inter-American Development Bank (IDB) said the pandemic coupled with low oil prices and Guyana’s elections conflict are expected to have deep implications for the country’s revenue outlook and GDP growth estimates for 2020.
The International Monetary Fund (IMF) originally estimated that Guyana’s oil production would contribute to achieving oil exports worth US$2.4 billion, oil-related government revenue of approximately US$230 million, and a GDP growth rate of 86% on an assumed price of oil of US$64/barrel.
The government of Guyana made a sale of 1 million barrels of oil in mid – February as part of its profit – sharing agreement with ExxonMobil, earning US$55 million. The government is expected to make four more sales in 2020, potentially at much lower prices, the IDB said.
“Under oil price scenarios varying between US$20/barrel and US$35/barrel, the estimated value of oil exports (US$2.4 billion) could decline by 40% – 60%, leading to terms-of-trade effects affecting the GDP growth estimate. Guyana’s expected oil-related revenues (US$230 million) could decline by 15% – 40%, which would be the main impact on Guyana from the oil price fall-out,” the IDB stated.
On the other hand, the IDB said some of these negative impacts could be offset by improvements in the price of gold, Guyana ’s largest traditional export, representing 56% of merchandise exports in 2018.
“Similarly, the oil import bill would also significantly decrease, representing approximately a fifth of expected oil exports in 2020 (IMF – WEO, 10/2019). Furthermore, key sectors of Guyana’s economy are susceptible to isolation and social distancing policies which the government has advised,” the IDB pointed out.
It said for example, Guyana’s wholesale and retail and transportation sectors make up approximately 11% and 13% of the economy, which are exposed to these risks.
“The fall in the price of oil, along with the uncertainties related to the Coronavirus could contribute to a reduction of the GDP,” the bank stated, adding that the country faces several constraints to address the impending health crises.
“First and foremost, the ongoing political dispute over the election results hinders the design and implementation of an adequate fiscal policy response. With Parliament currently dissolved, no legislation can be passed, a situation which is aggravated by the legal dispute over the elections,” the IDB said.
This affects any potential fiscal stimulus supporting the health sector or social policy providing relief to the vulnerable.
The IDB said once a government is in place, the recently created Natural Resource Fund (NRF) could also provide support through the budget. “The NRF has strict withdrawal rules in place, but accounts for the possibility of emergency financing in the event of a major natural disaster.”
The IDB said the main recommendation for Guyana has been proposed by the World Health Organization, namely “for Guyana to urgently introduce more stringent measures limiting people’s movement in urban areas, which up to now has been relatively unaltered.”