CDB warns Guyana about impact of political uncertainty on sector
Oil and gas preparations
…imperils immediate growth prospects
By Jarryl Bryan
With the prevailing uncertainty in Guyana regarding the elections date being fixed, the Caribbean Development Bank (CDB) is warning that political uncertainty can have a significant impact on Guyana’s preparations for first oil and the overall economy.
This warning is contained in the bank’s country economic review of Guyana for 2018, the year in which a Government toppled after the no-confidence vote was passed for the first time in Guyana’s history.
“Commercial production is due to commence in 2020. This will increase economic growth and provide windfall revenues for the Government of the Co-operative Republic of Guyana,” the report states, adding that the proposed Natural Resources Fund (NRF) is expected to help manage the risks associated with the burgeoning oil and gas sector. The bank explained that this includes minimising negative impacts on other traditional sectors.
In the report, it notes that Guyana’s economy grew by 3.4 per cent for 2018. However, the banking institution warned of the risks to Guyana’s progress in preparing for the oil and gas sector and indeed, the overall macro-economic outlook if political uncertainty continues.
“Guyana is on the verge of a sharp increase in economic growth, but immediate prospects partly depend on ending political uncertainty,” the report states. “In the November 2018 budget speech, the Ministry of Finance was targeting 4.6 per cent (Gross Domestic Product) growth in 2019.”
“However, increased political uncertainty in early 2019 may dampen this momentum,” the bank added. “The National Industrial and Commercial Investments Limited bond issue will push total public and publicly guaranteed debt above 60 per cent of GDP in 2019, but that ratio is projected to decline sharply after 2020.”
The CDB also urged more reforms to the doing business environment. According to the bank, this is necessary to ensure that the traditional, non-oil industries can become more competitive.
“Business reforms are needed to improve competitiveness and facilitate inclusive growth. Although efforts are being made to increase linkages between the oil industry and the rest of the domestic economy, there is a risk that oil production could dominate exports and lead to exchange rate appreciation, which in turn could harm the competitiveness of other sectors.”
“The NRF can help to manage some of these risks,” the CDB continued. “But business sector reforms will also be necessary. Improvements are needed in reducing energy costs, the speed of getting construction permits and trading across borders.”
The World Bank’s Ease of Doing Business Index is one of its most comprehensive studies. In its 2018 report, Guyana was shown to have dipped, placing 126th in the global rankings. In 2017, Guyana was ranked 124th, while in 2015 the nation ranked 140th. Guyana saw an increase in the cost of starting a business, dropping seven places, from 92 to 99.
A drop of 13 places, from 123 to 136, was also recorded in the area of paying taxes. However, the country rose in the ranks in areas such as dealing with construction permits, getting credit and protecting minority investors.
The country was also commended for decreasing the time to transfer property by allocating higher resources and personnel and the adoption of a new code of civil procedure which the report notes make enforcing contracts easier by regulating time standards for key court events.
Article 106 (6) of the Guyana Constitution states: “The Cabinet including the President shall resign if the Government is defeated by the vote of a majority of all the elected members of the National Assembly on a vote of confidence”.
106 (7) goes on to state that, “Notwithstanding its defeat, the Government shall remain in office and shall hold an election within three months, or such longer period as the National Assembly shall by resolution supported by not less than two-thirds of the votes of all the elected members of the National Assembly determine, and shall resign after the President takes the oath of office following the election”.
Government was defeated by such a motion on December 21 (though Government is disputing this in the Appeal Court, after that very defeat was upheld by the High Court). That three-month stipulation is expected to expire next week, but there has been no agreement by the National Assembly to extend the timeline for holding elections, something stipulated by the Constitution.
Since the passage of the no-confidence resolution on December 21, 2018, there have been calls from the international community and civil society for Government to respect the Constitution. This is something Government maintains it is doing but yet have not set a date for elections as is constitutionally mandated. President David Granger has claimed that he has to wait on the Guyana Elections Commission (GECOM) to provide clarity on its readiness and timeline for holding elections, though he expressed a desire to have them held this year.
GECOM, on the other hand, is divided on this very issue. On the one hand, Opposition nominated commissioners are pushing for a timeline where elections can be held by April 30, 2019, when the current voters’ list expires.
On the other hand, Government Commissioners on GECOM are insisting that house-to-house verification must be done – an exercise that is expected to delay already delayed elections by months.
There have been many criticisms of what the Opposition and civil society has called a delaying tactic by the David Granger-led Administration. Guyana will slip into a constitutional crisis after March 21, 2019, if a two-thirds majority of Parliament do not vote to extend the constitutionally mandated elections.