Ramp up in oil production to result in ‘high rates of real economic growth’ says Finance Minister

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With Guyana currently having over US$200 million in its Natural Resources Fund (NRF) from oil exports and royalty, the government anticipates that the ramp up in production this year will result in greater earnings and an increase in economic growth.

In his 2021 budget speech on Friday, February 12, under the theme ‘A Path to Recovery, Economic Dynamism and Resilience,’ Guyana’s Minister of Finance, Dr. Ashni Singh stated, “We anticipate high rates of real economic growth in the immediate term, reflecting the ramping [up] of oil production, but moderating into the medium and longer term.”

Dr. Ashni Singh

He reported that in 2020, as a result of the coronavirus pandemic, Guyana’s Gross Domestic Product is estimated to have grown by 43.5 percent, somewhat lower than previously expected, while the non-oil economy is estimated to have contracted by 7.3 percent. Dr. Singh noted that for much of the second half of the year, mechanical issues on the Liza Destiny FPSO affected oil output, resulting in the production of approximately 74,300 barrels of oil per day (bpd) for the entire year, as opposed to the nameplate capacity of 120,000 bpd.

Earlier in the week, Vice President, Dr. Bharrat Jagdeo reported that with the first lift of Guyana’s oil cargo for 2021 done last week, Guyana’s total exports now stand at approximately five million barrels since the start of production in 2019. US$21.2 million in royalty payments have been deposited into the NRF and the total revenue currently stands at US$206.6 million. Dr. Jagdeo had disclosed that “US$185 million so far [is] from the profit oil and US$21.2 [million] from the royalties and then you have some interest…”

The Finance Minister on Friday also reported that Central Government’s current revenue for 2020 totalled $227.4 billion and tax collection accounted for 96 percent of that amount, which equates to $218.3 billion. “The increase in tax revenue above the 2020 Budget estimate was the result of higher-than-projected collections from internal revenue and excise taxes, which grew by $6 billion and $1.9 billion, respectively,” Dr. Singh also said, later adding, “The increase in excise tax collections above the budget projection is mainly the result of higher-than-anticipated collections from the importation of petroleum products and motor vehicles.”

Dr. Singh stressed that the government will be implementing safeguards to ensure that the increase in GDP growth does not negatively impact the economy and result in the dreaded ‘Dutch Disease.’ He emphasised, “We will ensure that those high rates of growth are accompanied by policies designed to minimise supply side constraints to avoid the risk of overheating.”

He said the government aims to ramp up adequate levels of external reserves, ensure exchange rate stability, as well as interest rate stability and low levels of inflation.

“Despite the ambition of our development agenda and our intention to roll it out in the shortest possible time, we will do so within a macroeconomic framework that ensures that we remain competitive and that addresses issues of both stability and sustainability. In this regard, we will remain ever mindful of the need to avoid the pitfalls that have beset many new producers of oil and gas and many resource rich countries, including Dutch Disease,” he affirmed.

He said that the government plans to safeguard the fiscal and debt sustainability by prudent contracting of new financing, careful targeting, and management of government expenditure, strengthened revenue administration, and ensuring that the fiscal deficit is financed in a manner that minimises any risk of crowding out credit to the private sector.

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