Weak institutions, fragile political environment pose great risk to oil-rich Guyana – World Bank

Apr 15, 2023 News

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Kaieteur News – The World Bank has stated that while Guyana has emerged as one of the fastest-growing economies in the world as a result of the developments of its oil and gas sector, there are several key factors that can hamper long-term development for the country.

This was stated in a March 2023 report by the bank titled “Latin America and the Caribbean: Macro Poverty Outlook (country-by-country analysis and projections for the developing world).”

Under Guyana’s outlook, it was stated that the country has a population of about 800,000 people. The World Bank highlighted that despite the Government of Guyana aggressive investment programme seeking to structurally transform the non-oil economy, “Guyana’s increasing reliance on the oil and gas sector, a weak institutional base and a fragile political environment pose great risk to long-term development.”

Since becoming an oil-producing nation in December 2019, Guyana has been operating with archaic petroleum laws.  Recently, the Vice President Bharrat Jagdeo was reported in the media as stating that the 1986 Petroleum Act is among oil and gas legislations that have been identified for updating and modernizing; a new draft will be in the public domain for consultations soon.

In December 2020, the Inter-American Development Bank (IDB) released a brief pointing out the glaring loopholes in Guyana’s legislative framework which essentially weakens the shield of protection that is needed for the oil sector.

Upon assuming office in August 2020, the PPP administration had promised an overhaul for Guyana’s petroleum laws. In fact, President Irfaan Ali during his inauguration address pledged to establish a Petroleum Commission to insulate the oil and gas sector from political interference. However, that has not been done and May 2023 will make eight years since Guyana is without an updated legislative and regulatory framework that is essential for the protection of the oil industry against mismanagement and corruption.

What the Government has done is to implement a Natural Resource Fund (NRF) to manage the oil proceeds. The NRF legislation allows for a Board of Directors, an Investment Committee and a Public Accountability and Oversight Committee. However, most of the members appointed to the committees responsible for the management of the oil monies have either been appointed directly by the President or chosen by the National Assembly, where the President’s party has a majority.

In Guyana’s outlook, the World Bank highlighted some key conditions and challenges.

Firstly, it was stated that, “Guyana is a small state with abundant natural resources including significant oil and gas (O&G) reserves and extensive forest cover. The development of its O&G sector is leading to a notable scale-up of investments in infrastructure to support the development of other industries including agriculture.”

It was explained that after two years of oil production, the closing balance of the country’s NRF amounted to about US$1.43 billion at end of 2022.

It was stated too that the country has advance initiative to sell carbon credits which represents an additional source of fiscal revenues for the country and will be partly employed in the sustainable management of its forest. The government has also advanced its Low Carbon Development Strategy (LDCS 2030) to counter anticipated increases in Green-House-Gas (GHG) emissions.

However, the bank reiterated, “Sound management of the O&G sector will necessitate strengthening governance, and fiscal and public financial management practices while boosting transparency and accountability to avoid increased social polarization.”

Moreover, the bank stated that Guyana’s real Gross Domestic Product (GDP) per capita is expected to reach US$32,479 by 2025, which is five times more than levels recorded back in 2019. Added to this, the bank highlighted that with more than 70 percent of the working-age population residing in rural areas, agriculture, forestry, and fishing remain relevant for jobs and poverty reduction.

It was underscored that Guyana’s resource wealth contrasts with the overall needs of the population with about half of the population living below US$5.50 a day in 2019.  “Poverty and social exclusion, including limited access to basic services, are particularly severe in Guyana’s hinterland and among Amerindians,” it was highlighted.

The bank said too that the rising budget resources present opportunities and risks for Guyana.  It was noted that the scaling up of the budget allowed the Government to respond to ongoing overlapping crisis, close gaps in infrastructure, education and social security systems to boost human capital and poverty reduction including in Guyana’s hinterland where public service provision is particularly weak.

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• Guyana, institutions, Inter-American Development Bank (IDB), legislative, World Bank

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