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Economic effects of COVID-19… Guyana could lose US$1.4B in oil exports-IDB
By Kiana Wilburg
Earlier this year, the coalition government was able to lock in a sale of one million barrels of Guyana’s oil at US$55 a barrel. That sale was executed with Shell Western Supply and Trading Limited (SWSTL) which is based in Barbados. But with four more sales to go, it is highly unlikely that the government will be able to rake in more profits, especially the kind that was projected before the market was plunged into economic turmoil because of the coronavirus.
As a result of the COVID-19 pandemic, demand for oil has declined to unprecedented levels and the recently concluded oil price war between Russia and Saudi Arabia inflicted its fair share of damage as the latter flooded the market with its cheap oil. Considering this, the Inter-American Development Bank (IDB) anticipates that the government will experience a 40 to 60 percent decline in the estimated value of its oil exports.
The financial institution specifically said, “The government is expected to make four more sales in 2020, potentially at much lower prices. Under oil price scenarios varying between US$ 20/barrel and US$ 35/barrel, the estimated value of oil exports (US$ 2.4billion ) could decline by 40% – 60%, leading to terms – of – trade effects affecting the GDP growth estimate.” Such a decline is equivalent to a loss of US$1.4B or $288B. To understand the significance of this loss, one only needs to remember that Guyana’s 2019 budget was US$1.5B.
Further to this, the bank said that Guyana’s expected oil – related revenues, some US$230 million, could decline by 15 percent to 40 percent, which would be the main impact on Guyana from the oil price fall- out between Russia and Saudi.
On the other hand, the IDB said that some of these negative impacts could be offset by improvements in the price of gold, Guyana’s largest traditional export, representing 56 percent of merchandise exports in 2018 based on Bank of Guyana statistics.
Similarly, the bank said that the oil import bill would also significantly decrease, representing approximately a fifth of expected oil exports in 2020. The bank was also keen to point out that key sectors of Guyana’s economy are susceptible to isolation and social distancing policies which the government has advised. In this regard, the bank said that Guyana’s wholesale and retail and transportation sectors make up approximately 11% and 13% of the economy, which are exposed to these risks. It said that the fall in the price of oil, along with the uncertainties related to the coronavirus could contribute to a reduction of the GDP.
Guyana began producing oil in December 2019 and variations in oil prices along with the Coronavirus pandemic are expected to have deep implications for the revenue outlook and GDP growth estimates for 2020.
The IMF originally estimated that Guyana’s oil production would contribute to achieving oil exports worth US$2.4 billion, oil – related government revenue of approximately US$230 million, and a GDP growth rate of 86% on an assumed price of oil of US$ 64/barrel. As the IDB noted, these will be affected in light of the coronavirus and the effects from the oil price war.
The government of Guyana had executed a sale of one million barrels of oil in mid -February as part of its profit – sharing agreement with ExxonMobil, earning US$55 million from Shell. That money has since been transferred to the Natural Resource Fund (NRF). It cannot be touched until a Parliament is in place to approve withdrawals.
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