Economic diversification key to long-term development in Guyana, to avoid ‘Dutch Disease’ – Economist

Apr 20, 2023 News

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Kaieteur News – Caribbean Economist, Dr Meredith Arnold-McIntyre, in a recent article stated that economic diversification is the key to long-term development in Guyana in order to avoid the ‘Dutch-Disease.’

Given Guyana’s new-found oil wealth, many have argued that only focusing on oil can lead Guyana down the path of the Dutch-disease. “The rapidly expanding oil sector and associated rising oil revenues have placed Guyana on a path of economic transformation. However, the experience of other resource-rich countries urges caution,” Dr Arnold-McIntyre said.

The economist stated that many resource-rich countries have attempted to reduce their dependence on natural resources by pursuing economic diversification strategies focused on creating local linkages and productive employment, thereby reducing the potential for Dutch Disease.

“The results have been mixed. Oil producers in the Gulf Cooperation Council (GCC) like Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates have diversified into capital-intensive sectors such as finance and telecommunications, as well as oil-related downstream value chains such as petrochemicals and energy-intensive heavy industry,” it was added.

It was further stated that in the Caribbean Trinidad and Tobago’s diversification strategy promoted new industries, notably refining fuels, Liquefied Petroleum Gas (LPG), and petrochemicals together with other downstream activities from gas like methanol. It was underscored that utilizing the energy supply the manufacturing sector expanded to supply a variety of products, particularly consumer goods, to the Caribbean Community (CARICOM) regional market.

Dr Arnold-McIntyre stated that the government has made clear that economic diversification is a medium to long-term policy priority. To support diversification the economy-wide impediments to investment and growth will need to be addressed, including closing the infrastructure and skills gaps.

He added that Guyana’s road density is far below Latin America and Caribbean (LAC) countries and the limited road network constraints the movement of goods and people.

He said, “Transportation infrastructure is weakest in the interior, which limits access to public services and economic opportunities and contributes to deep regional disparities. Investments here are likely to have large economic impacts on the productivity of all sectors.”

In addition, it was stated that the lack of a deep-water port reduces Guyana’s export capacity. Added to this, he said increased electrification will require significant investment in grid rehabilitation and modernisation and that Guyana’s oil reserves could provide cheaper and cleaner electricity by enabling it to use natural gas to supplant its current reliance on carbon- and pollution-intensive heavy fuel oil (HFO).

He explained that with the low base in education in Guyana a concerted effort will be needed to build human capital – knowledge, skills, creativity and wellbeing through significant investments in the education and health systems.

Also, the economist underscored that a supportive business climate will be essential to promote investment and facilitate economic diversification. “Business facilitation reforms to reduce or eliminate bureaucratic delay and ‘red tape’ and with increased digitization of processes and the establishment of e-government. These reforms will rely heavily on improving labour force skills to utilise modern information and communication technology,” he said.

Moreover, it was stated that diversifying and modernising the agricultural sector also offers potential activities for economic diversification.

“In conclusion, developing and implementing an economic policy framework that protects Guyana from Dutch Disease includes adopting appropriate fiscal and monetary policy to contain inflation, mitigating pressures on the real exchange rate, and maintaining economic stability,” he said adding, “Macroeconomic policies need to be supported by structural policies that over the medium to long-term will support economic diversification, reducing dependence on the dominant oil sector and contribute to muting Dutch Disease that could result from the “booming” oil sector.”

Dr. Meredith Arnold-McIntyre has been an economist for over 30 years. He has worked in a variety of Caribbean regional institutions including the Caribbean Development Bank, Organization of Eastern Caribbean States, and the Caribbean Regional Negotiating Machinery in the 1990’s. Dr. McIntyre joined the International Monetary Fund (IMF) in February 2001 and worked on countries in Africa and the Caribbean including leading IMF country team missions to Guyana. Dr. McIntyre has published a book and a variety of articles on issues in macroeconomic and trade policy in small states. He is currently an Associate, Manchester Trade Ltd and a Fellow with the Caribbean Policy Consortium.

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• Caribbean Development Bank, Dr. Meredith Arnold-McIntyre, Guyana, Organization of Eastern Caribbean States, Trinidad and Tobago

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