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‘Economy caught up in the jaws of oil sector’- Volda Lawrence
…says Govt’s talk about diversifying economy not working
Kaieteur News – Over the past two years, Guyana’s key export commodity has been its new found natural resource, oil. Oil exports accounted for 41.1 percent of exportations in 2020 and jumped to as much as 87.5 percent in 2022, thereby drowning out export earnings in the other commercial sectors.
Table showing the performance of the non-oil sector and projections for 2023
Flagging this issue was Opposition Member of Parliament (MP), Volda Lawrence during her contributions to Budget Debates on Friday. She told the House that developments in the balance of payments mirror the performance in the rest of the economy. It is here that Lawrence made the point that “Oil dominates the export receipts of the country in an indecent manner.”
She explained, “Sir it is instructive to note our merchandise exports for 2019 was US$1.587 billion. Sir, since the first oil in December 2019, oil’s contribution to export earnings from merchandise has risen sharply from 41.1% in 2020 to 87.5% last year and expected to maintain this very high share in 2023.”
The former Public Health Minister reasoned that when merchandise exports are compared to 2019 when non-oil exports contributed to all the merchandise export receipts of the country, oil exports have crowded out the non-oil exports in a very dramatic fashion.
Chart showing oil’s contribution to export earnings
To this end, Lawrence noted, “So, for all the talk of spending to avoid the ‘Dutch Disease’, all the talk of focusing on agriculture and achieving 25% reduction in food import bill by 2025, the evidence indicates that the Government’s policies are having little to no effect on diversifying the economy.”
Shifting her attention to non-oil exports in 2019, Lawrence told the House that this figure stood at US$1.567 million. In 2022 however, this dropped to US$1.425 million. She pointed out that Government in its outlook for 2023 projects that this would be increased to US$1.644 million.
See table attached for statistics on performance of non-oil sector. These figures make it clear that since 2019, earnings from non-oil merchandise exports have not been matched or surpassed.
Lawrence explained, “In 2019, such earnings were US$1,567 million. But these declined in the next two years, before recovering slightly in 2022. The projection that these earnings in 2023 will surpass those of 2019 for the first time cannot be upheld to the scrutiny of the Budget 2023’s predictions of falling commodity prices and likely global recession.”
The Opposition MP said it is worrying that the economy “could be so quickly caught in the jaws of the oil sector.” As a matter of fact, she noted that this unfolding situation “is as frightening as the fragility on which the economy’s transformation is being undertaken.”
The Corporate Finance Institute defines the ‘Dutch Disease’ as a concept that describes an economic phenomenon where the rapid development of one sector of the economy (particularly natural resources) precipitates a decline in other sectors. It is also often characterized by a substantial appreciation of the domestic currency. ‘Dutch disease’ is a paradoxical situation where good news for one sector of the economy, such as the discovery of natural resources, results in a negative impact on the country’s overall economy.
Several stakeholders have warned Guyana that the nation may already be gripped by the ‘Dutch Disease’, even while the administration continues to argue otherwise. Former Finance Minister, Winston Jordan last August told Kaieteur News that one of the latest reports of the Inter-American Development Bank (IDB) has projected that for 2022, Guyana’s oil and gas resources would account for almost 60 percent of Gross Domestic Product (GDP), clearly outstripping the contributions of the other traditional sectors such as rice, sugar, bauxite, timber and gold. Taking this level of domination into account, along with the heightened cost of living pressures, Jordan said the ‘Dutch Disease’ phenomenon is already in Guyana.
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