World Bank urges Guyana develop institutional structure oil and gas sector

Apr 05, 2023 News

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By Davina Bagot

Kaieteur News – With the highest overall growth rate projected this year for the entire Latin America and Caribbean (LAC) Region, specifically driven by its nascent oil and gas sector, Guyana is being urged to develop an institutional structure that ensures the resources from the industry are used constructively.

This advice was proffered by the World Bank’s Chief Economist for the Latin America and Caribbean Region, William Maloney. During a press conference on Tuesday, Maloney presented the Bank’s economic review “The Promise of Integration- Opportunities in a Changing Global Economy” where he shared specific growth projections for LAC countries.

With Guyana’s Gross Domestic Product (GDP) expected to grow by 25.2 percent this year, the World Bank’s Chief Economist in response to a question from this publication said, “You don’t get 25 percent rate of growth without having something like discovering oil so clearly the oil and gas sector is driving high rates of growth.”

Maloney while offering his advice explained that, “The big challenge will be to develop an institutional structure that ensures that those resources go where they have to go.”

This includes using the funds from the sector to constructively lay the foundations to trigger the development of new industries to diversify the economy. The Economist was keen to note that this is particularly important to address the long standing social needs of the nation.

According to him, “To have a government framework to ensure that these resources are used well; I would say that’s the big challenge and I think that is where the World Bank is actually engaged in Guyana right now.”

He added, “The big challenge will be to develop an institutional structure that ensures that those resources go where they have to go; that they are used constructively for laying the foundations for new industries to diversify the economy to address long standing social needs and just to maintain, to have a government framework to ensure that these resources are used well.”

In 2021, the Government of Guyana passed a Natural Resource Fund (NRF) legislation that governs the use of the revenue garnered from the petroleum sector. The law does not clearly identify specific projects that would be funded through this revenue stream. It broadly states at Section 16 (2) that the withdrawals from the Fund shall “only be used to finance (a) national development priorities including any initiative aimed at realizing an inclusive green economy; and (b) essential projects that are directly related to ameliorating the effect of a major natural disaster.”

Following the passage of the legislation, Guyanese Economist Ramon Gaskin in an exclusive interview with this publication urged that an investment plan be drafted, after consultations with the Guyanese public.

But in addition to the investment plan approved by the country, Gaskin warned said that the oil revenue must not be used to fund other “non-priority” projects, citing police stations as an example.

“They need to set out in the law the principal priorities on how this money is going to be used, rather than leave it to the politicians to waste, squander and to steal. Politicians will steal the money because they do it all the time because they are involved in corrupt transactions,” he warned.

Instead, the Economist noted that the Government should consider directing funds towards reducing its external debts, as well as the creation of a stabilisation fund so that when the oil prices drop dramatically, it can tap into the fund to stabilise the price.

In February, government made its first withdrawal from the fund for this year. It was announced by the Ministry of Finance that US$200 million was withdrawn and deposited to the consolidated fund.

“The Minister [Senior Minister of Finance Dr. Ashni Singh] indicated that pursuant to Section 16 of the NRF Act 2021, US$200M equivalent to G$41.6B has been transferred from the NRF to the Consolidated Fund.”

A total of US$607.6 million was withdrawn in 2022, in keeping with the NRF Act 2021, to finance national development priorities and, as part of the Budget 2023 process, Parliamentary approval was granted for a total of US$1.002 billion to be transferred during fiscal year 2023.

It was reported that for the first quarter of this year, Guyana received a total of US$377,140,826.94 in oil revenue, inclusive of profit oil and royalty payments.

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• Caribbean, constructively, economy, oil, revenue

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