Guyana to revise oil law to spend more of its windfall this year

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The Guyana government is set to propose a revision of the withdrawal rule in its Natural Resource Fund (NRF), Finance Minister Dr. Ashni Singh said during a Jan. 15 reading of the country’s 2024 budget. This change aims to allow greater utilization of the revenues from oil to support the country’s expansive budget.

The current framework of the Natural Resource Fund links annual withdrawals to the previous year’s inflows. The formula permits just over US$1.15 billion for usage, Singh noted.

He added, however, that the government will propose “a revision to the NRF withdrawal rule which, once approved, will result in an upward revision to the NRF withdrawal amount to take effect from this fiscal year.” 

But why does the government want more oil revenues? 

The 2024 proposed national budget of Guyana stands at approximately US$5.5 billion (GY$1.146 trillion). There are massive proposed increases in spending for infrastructure and social services. 

To put the magnitude of this budget into perspective, the budget submitted for the fiscal year 2023 was US$3.75 billion (GY$781.9 billion). Oil revenues approved to support the 2023 budget stood at US$1.002 billion

The 2024 budget proposal is an increase of 47% (about US$1.75 billion), but the oil fund’s withdrawal formula only allows US$1.154 million (US$152 million more than the 2023 amount) for withdrawal.

Seeking to reassure, the finance minister said, “The revised withdrawal rule will retain the important feature that, as production and revenue ramp up further, an increasing share of the inflows into the NRF will be saved relative to the share transferred to the Consolidated Fund [The government’s main bank account] to finance national development priorities.”

In 2023, Guyana’s earnings from oil sales and royalties were US$1.62 billion. These earnings, combined with previous oil sales and royalties saw the Fund close 2023 with US$1.97 billion. Singh did not say exactly how much of this the government wants access to spend.

The oil sector, particularly in the Stabroek block, is a cornerstone of Guyana’s economic strategy. Expected to meet US$10 billion in government revenues annually by 2030, no other sector is raking in these levels of revenues for Guyana. The sector is projected to realize production of over 550,000 barrels of crude oil per day in 2024, with expectations to ramp up to over 600,000 barrels by the end of the year. The oil and gas sector is anticipated to expand by 44.7% in 2024.

The financial implications of these projections are substantial. The government expects to receive 25 of the 202 projected lifts of crude oil in 2024, each lift comprising one million barrels. From the sale of these lifts, receipts of US$2.08 billion and royalties of US$319.9 million are expected.

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