More oil money can be beneficial if managed wisely  

Jul 21, 2022 News

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– as Economists rebut Jagdeo’s opposing claim

“If you take all this money and start spending like you wild, like a drunken sailor, it will be inflationary and the reason why the Vice President can say he doesn’t want this inflation is because he doesn’t have a proper plan in mind on what to do with this money”- Gaskin 

 By Davina Bagot

Kaieteur News – Vice President Bharrat Jagdeo recently addressed a private sector organised function in which he posited that a bigger share of the oil money can drive up inflation rates in the country, but two economists are arguing that this statement is grossly misleading to the Guyanese public.

The economists, Elson Lowe and Ramon Gaskin, both believe that wise management of the resources garnered from the oil and gas sector can be beneficial to the country.

Gaskin for instance shared five areas in which he believes the natural resource funds should be used, that will not drive up inflation.

Inflation is a measure of the rate of rising prices of goods and services in an economy. This can occur when prices rise due to increases in production costs, such as raw materials.

He explained, “It is my opinion that when this so-called oil money comes into this economy and to the people, the money has to be spent in a certain way. Not all of it has to be spent on infrastructure. Not all of it has to be spent on projects in the budget. The money has to be spent in five different areas.”

Topping his list as a priority, Gaskin noted that more money from the oil and gas resources can be used to service the country’s present external debt. The recent Bank of Guyana (BoG) quarterly report indicated that in the first three months of the year, the state took on an additional US$124.4 million in debt, bringing the total to US$3.248 billion.

Secondly, the economist believes that Guyana should set aside some of the money for a “rainy day” to ensure that even when the oil boom ends, future generations would be able to benefit. “We have to put aside some of this money into the savings. All over the world, and its common sense, you don’t have to be a scientist for that, when you have a lot of money and you don’t know if it will end or if you will get it forever and ever so you put aside money for a rainy day,” Gaskin said.

Thirdly, he believes that an investment should be made to boost the country’s health and education systems. Fourth on his list of suggestions to properly manage the funds, the economist stated that separate from the national budget, the Government of Guyana should embark on long-term capital projects, such as solar power projects and a bridge across the Essequibo River. According to him, “You want to build capital projects over the next 10 or 30 years whatever – that money goes there. It is my view that Guyana should spend money on renewable energy and we should spend money to bridge the Essequibo River for example. Something like that would need help from the oil money.” In qualifying his case for a bridge across the Essequibo River, Gaskin noted that the non-oil economy will not flourish unless the three counties in the country are connected. He believes that such an infrastructural project could help the economy take off as the movement of goods and people will not be dependent on marine vessels, which presently deter some Guyanese from travelling to Region Two.

Meanwhile, on his fifth suggestion, the economist told this publication that the funds raked in from the oil and gas resources should be invested. He pointed out, “They can have a separate fund for investments and if you do that with the money, it would not be inflationary.”

Mr. Gaskin is confident that if the government makes use of these five points, more money from the oil and gas sector would not land the country into a financial crisis. However, he insisted “if you take all this money and start spending like you wild, like a drunken sailor, it will be inflationary and the reason why the Vice President can say he doesn’t want this inflation is because he doesn’t have a proper plan in mind on what to do with this money.”

He argued that if the Vice President had a proper management plan for the natural resource funds, the money would not become inflationary. “He should know that if he plans it properly, it will not be inflationary and I have to disagree with the Vice President on this matter. It is not true that if you get more oil money, it would be inflationary,” the economist concluded.

Similarly, Elson Low, the Economic and Youth Policy Advisor to the Opposition Leader, who holds a Bachelor’s Degree in political Science and Economics from a United States College, Amherst, said more earnings from the oil and gas sector will not necessarily cause inflation. In justifying his response, Low explained, “the NRF holds Guyana’s oil funds offshore, that is to say, outside of the Guyanese economy. Jagdeo appears to be making the comment about inflation as if all the additional funds in the NRF (if more revenue were available earlier) would immediately be spent. That would indeed cause inflation.”

To this end, he told this newspaper that the VP’s attitude is concerning as it does not take into account saving for future generations. At the same time, Low reasoned that as much as Guyana is aiming to produce as much oil as it can to cash in on the high oil prices, the country must also be mindful that the risks of an oil spill will also increase as accelerated production takes place.

He pointed out, “An oil spill would jeopardise Guyana’s future because of potentially huge costs associated with it as well as our insufficient insurance coverage, not to mention delaying the development of planned fields. Thus, while speed is important, we must also manage our risks so it does not become counterproductive.”

Vice President Jagdeo, who is spearheading the development of Guyana’s oil and gas industry, believes that calls to halt the developments at the present in order for the country to realise a larger share of its oil revenues sooner, would not benefit the country.

He in fact he argues that this could introduce added inflationary pressures to the country’s domestic economy. Jagdeo was at the time addressing guests at the annual Guyana Manufacturing and Services Association (GMSA) dinner, held on July 12, last, at the Ramada Princess Hotel, Providence, East Bank Demerara. He was asked whether capping other industries in Guyana would be a good idea “since we have all this money from oil.” To this end, the Vice President drew reference to calls from sections of society to not licence any new projects for development just yet.

According to the Vice President, “so many people are saying, why you are going to licence, why would the government licence say any new FPSO, why don’t we cap the number there so that we can get a faster flow or larger sums of money into the sovereign wealth fund.”

To this end, Jagdeo noted that, “if you cap that, you will pay back for the four FPSO faster and then the government share grows.” He argued nonetheless that in such a situation “…what does that do, and is that the best thing to do, because if the money comes in, we can’t spend it all.” As such, he posited “it becomes inflationary. “ With this in mind, the Vice President said, “we have to save greater portions of it, but what will that do, we will run out, we are trying to build a private sector now with the capacity to service this industry.”

 

 

 

 

 

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