Oil will account for 40 percent of Guyana’s GDP by 2024 – IMF

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A section of Guyana’s capital, Georgetown.

The International Monetary Fund (IMF) has called Guyana’s medium-term prospects “very favourable” as the South American country prepares for oil production in early 2020. The Fund has projected that oil will account for around 40 percent of the country’s GDP by 2024.

These disclosures were made in an IMF press release dated September 17, 2019 following the conclusion of the Fund’s Article IV Consultation with Guyana on August 30, 2019.

“The commencement of oil production in 2020 will substantially improve Guyana’s medium- and long-term outlook. The oil sector is projected to grow rapidly, accounting for around 40 percent of GDP by 2024,” the Fund said.

It said that economic growth is projected at 4.4 percent in 2019, extending the broad-based expansion across all major sectors. “The current account deficit is estimated to rise to 22.7 percent of GDP on the back of higher imports related to oil production, which will be largely financed by FDI [Foreign Direct investment] in the petroleum sector,” the report said. It said too that public debt and the external current account deficit are projected to decline steadily when oil production comes on stream.

The Fund said however that oil production “presents both opportunities and challenges” and emphasized that policies should focus on reducing macroeconomic vulnerability, addressing structural weaknesses, boosting inclusive growth and promoting inter-generational equity with a view to ensuring effective use of windfall revenues.

Further, the Fund said its Directors welcomed government’s Natural Resource Fund (NRF) legislation for managing Guyana’s oil wealth, emphasizing the need to complement it with a fiscal responsibility framework “to avoid fiscal deficits.”

The release said that the IMF commended that the NRF’s framework aims to save some of the resource income for future generations and contain increases in public spending. “To meet these objectives, Directors called for the authorities to constrain the annual non‑oil deficit to not exceed the expected transfer from the NRF. This rule could be phased in over the next three years to allow a smooth widening of the non‑oil deficit (in relation to non‑oil GDP),” said the IMF.

The release said that the Directors encouraged the authorities to use the opportunity oil revenues present to address skilled labour shortages, ensure gender equality and support economic diversification.

“Priority should be given to address infrastructure bottlenecks and upgrade the education system. In addition, promoting more flexible working arrangements could help increase female labour participation.” the report said.