The effects of the COVID-19 pandemic on the oil industry should help Guyana, South America’s newest oil producer, to understand a most valuable lesson — avoid heavy dependence on oil alone and diversify the economy at all costs. This was the advice recently conveyed by Caribbean Economist, Marla Dukharan during an exclusive interview with OilNOW.
Dukharan said Guyana should see the current collapse in crude prices just a few months after it began producing oil, as the perfect example of why it should not grow to depend solely on these revenues for foreign exchange earnings. She said that every effort must be made to insulate the economy from the volatility of oil prices. The Trinidad and Tobago-based Economist pointed out that this can be done by saving a significant proportion of these revenues in a sovereign wealth fund, so that the dependence is limited and there is a buffer on which to draw when prices dive.
So far, Guyana has accumulated close to US$60 million in its Natural Resources Fund from oil sales and royalty since production started last December.
With over 100 years of experience in oil and gas, Trinidad has long expressed an interest in helping Guyana build the capacity it needs for its budding oil industry. In this regard, Dukharan was asked to state in what areas she believes the twin island republic’s assistance would be most beneficial to Guyana.
“I believe that T&T is not an example to follow, except as it relates to the establishment of the Heritage and Stabilization Fund. The way in which T&T has managed its oil and gas revenues, the overdependence on these revenues and the classic resource curse symptoms displayed in T&T suggest that they could have done much better.” Dukharan said. She opined that better examples for Guyana would be Canada, Australia and Norway. She said that these nations provide much better examples of how to manage natural resource revenues.
In addition to the foregoing advice, the Caribbean Economist told OilNOW that having a diversified economy and consistent counter-cyclical fiscal policy is what Guyana and every country should aim for. If diversification is not feasible, she said that building fiscal buffers to insulate the economy from the shocks when they come, is also recommended.