Guyana off to a good start with spending of oil funds on development – Deakin

– recommends gradual transition from spending to saving oil revenue

Guyana is off to a good start, not only in the way it has established a Local Content Framework and a Sovereign Wealth Fund, but the way it is using early oil revenues to lay the groundwork for sustainable economic development.
This is according to oil and gas expert Arthur Deakin, an analyst at Americas Market Intelligence (AMI) and Africa Market Intelligence (AfMI). During an interview on Jumpstart, Deakin was asked by the host if the spending of the first oil revenues made sense and whether Guyana should slow down.

Oil and gas expert
Arthur Deakin

But on the contrary, Deakin lauded Guyana’s early expenditure of oil funds on sustainable development, noting that it “makes sense”. According to the analyst, this is an economic practice known as frontloading and is important in the context of Guyana’s developing economy.
“I think that makes sense—the use of a majority of the oil revenues in the first couple of years. It’s called frontloading, but it makes sense for an economy that’s developing and emerging like Guyana,” he said.
“You need to use those funds to establish the foundation for the future development, so you need to build up the local capacity, you need to build infrastructure, you need to invest in education and healthcare. All these things are important to continue the accelerated growth of Guyana,” Deakin explained.
According to Deakin, the Government’s efforts to pass the Local Content Act, set up a Local Content Secretariat, and also efforts to strengthen the Natural Resource Fund (NRF) are laudable. But he did warn against too much spending, over multiple years.
“What you don’t want is for this high percentage of spending to continue for multiple years after the oil revenues have already been flowing. That will lead to overheating of the economy, it can lead to inflation,” Deakin said.
“So, as we see in the Sovereign Wealth Fund, as the years go by, that percentage that’s being used from the oil revenues starts declining. It’s a gradual decline and that’s a good sign. So, I don’t think they’re (Government) getting ahead of themselves,” he added.
Last month, the Government of Guyana, through Senior Minister in the Office of the President with responsibility for Finance Dr Ashni Singh, presented a mega $552.9 billion budget to the National Assembly.
Of significant importance, Budget 2022 is the first budget that will benefit from financing from the proceeds of Guyana’s new and emerging oil sector. The Government had communicated its plans to withdraw from the Natural Resource Fund and transfer to the Consolidated Fund, a total of $126.7 billion. The Natural Resource Fund at the time had a balance of US$607.6 million.
There are a number of transformational projects that will see funds from the budget being directed to them. They include the new Demerara River bridge, where preparatory work has to be done.
The construction of the new Demerara River bridge is slated to start in the fourth quarter of 2022. The project is expected to be finished within two years. The bridge will land aback Nandy Park, EBD, and at La Grange, West Bank Demerara (WBD).
Last year, Cabinet granted its no-objection for China State Construction Engineering Corporation Ltd to construct the bridge at a proposed cost of US$256.6 million. The contract was awarded based on a Design-Build-Finance (DBF) model with financial terms and conditions which would be no less favourable than those submitted in the preferred bidder’s price proposals. The proposed construction cost by China State Construction was in fact the lowest amongst all bidders.
Meanwhile, the construction of the Amaila Falls Hydropower Project, which is projected to generate some 165 megawatts of electricity, is set to begin this year and be completed by 2027.
As a result, the Government has allocated a total of $29.4 billion to the energy sector in 2022.