Guyana’s non-oil economy shrunk by 7.3% in 2020 – IDB
…total oil revenue produced 43.3 % GDP growth
The Inter-American Development Bank (IDB) in its Caribbean Quarterly Bulletin for 2021 has said that Guyana is the only country in the region to record a positive growth rate in spite of the 2020 electoral impasse and the impact of the COVID-19 pandemic.
However, financial institution explained the non-oil (traditional) economy contracted by 7.3 per cent while the agriculture sector recorded a 4.1 per cent expansion which was as a result of 4.8 per cent growth in the rice industry and 6.6 per cent in variety crops. This growth accounts for almost 11 per cent of the country’s GDP.
Gold production contracted by 7.8 per cent, mainly due to production interruptions among large gold producers owing to administrative/technical reasons, the IDB explained. It noted the small and medium scale gold miners were able to cushion the contraction of the industry by increasing their production to just 8.3 per cent. That grown was propelled by the relatively high gold prices.
The services sector, which makes up a quarter of the economy, contracted by 9.4 per cent, the IDB reported.
Guyana’s economy grew by 43.5 per cent in 2020 with the main driver being oil production. The IDB said that oil production represented 37 per cent of Gross Domestic Product (GDP) and accounted for 51 per cent of overall GDP growth.
The Central Government’s overall deficit was approximately US$434 million or 9.4 per cent of non-oil GDP in 2020 (7.4 per cent of total GDP), higher than previous deficit levels of about US$140 million. In 2020, Government revenue (excluding oil proceeds) fell by 5.5 per cent as a result of reduced economic activities and a series of tax exemptions in specific sectors.
On the other hand, expenditure grew by 15 per cent. For 2021, total revenue is expected to increase by 17 per cent, from US$1 billion in 2020 to US$1.3 billion in 2021. Total expenditure is projected to increase by 13 per cent from US$1.5 billion to US$1.7 billion.
Capital expenditure is expected to increase by 35 per cent, from US$365 million in 2020 to US$495 million in 2021, increasing from 8 to 10 per cent of non-oil GDP in 2021.
A deficit level of approximately US$430 million is expected in 2021, though that level would be a slightly lower share of GDP, at 8.7 per cent of non-oil GDP or 5.8 per cent of total GDP.
Total public debt increased from US$1.8 billion in 2019 to US$2.6 billion in 2020, reaching 47.4 per cent of GDP. This significant increase is mainly due to reporting changes, as Central Bank overdrafts are now included in Central Government statements. This was not previously the case. These overdrafts represented 30 per cent of total public debt in 2020.
Additionally, the Government now includes publicly guaranteed debt, which was less than half a percentage point. In terms of new debt policies, the Government has recently approved increasing the debt ceiling to US$5.5 billion by increasing the domestic debt ceiling to US$2.4 billion (GY$500 billion) from US$720 million (GY$150 billion) and the external debt ceiling to US$3.1 billion (GY$650 billion) from US$1.92 billion (GY$400 billion).
Short- and medium-term perspectives for 2021 and beyond are positive, with GDP estimated to grow by 20.9 per cent. This growth is potentially related to the assumption that oil production will increase by 46.7 per cent, from 74,300 barrels per day in 2020 to 109,000 in 2021.
The non-oil economy is expected to rebound to 6.1 per cent in 2021 based on the assumption of a phased re-opening of the economy, with services and construction growing by 5 per cent and 9 per cent, respectively. Over the medium term, oil production is expected to continue driving GDP growth, with oil exports growing by an annual average of 48.5 per cent over 2020-2023, contributing to average annual GDP and Government revenue growth rates of 17.1 and 6.7 per cent, respectively, in 2021 and 2026.
Government expenditures are estimated to grow by an average of 5.3 per cent over the same period, contributing to a fall in the fiscal deficit from 7.4 per cent in 2020 to 3.4 per cent in 2026. For medium-term projections, the IMF assumed an average price of oil of US$58.52 per barrel in 2021 and US$54.83 per barrel in 2022, with the price remaining unchanged in real terms thereafter. Additionally, they are conservatively based on the output of two oil production wells.
The prospect of more oil discoveries continues to improve perspectives for Guyana in the medium term.
On April 27, ExxonMobil announced its 19th oil discovery in Guyana and increased the estimate of recoverable petroleum resources from 8 billion to 9 billion oil-equivalent barrels, an estimate that had not been adjusted since January 2020. Additionally, ExxonMobil updated its development plans of having five oil production projects by 2026 to six projects by 2027, which could potentially grow to 10 production projects in the future.
The Government received US$267 million for oil sales and royalty payments through 2020 and March 2021. These revenues were saved in the Natural Resource Fund (NRF) and were not part of the 2020 or 2021 budget, as the Government has announced plans to modify the NRF law.
With Brent crude oil at more than US$60 a barrel and the expectation of oil production increasing by 46.7 per cent in 2021, Government oil revenues could significantly increase this year. The Government could receive US$263 million in oil revenues in 2020, which would take the balance of the NRF to approximately US$500 million by the end of 2021. (G2)