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Jordan flags lack of measures by Gov’t to cushion economy from low oil prices expected next year
Kaieteur News- Former Minister of Finance, Winston Jordan has flagged the lack of measures by government to cushion the economy from the drop in oil prices predicted for next year.
During a recent programme, Jordan argued that the Natural Resource Fund (NRF) or the nation’s oil account is being drained with little resources left for savings in the event of unexpected circumstances.
This year, the government passed an amendment to the NRF Law to increase the withdrawals that can be made from the Fund.
The new formula stipulates 100% withdrawal of the first US$1 billion received in 2023, 95% of the second US$1 billion, 90% of the third US$1 billion, 85% of the fourth US$1 billion, 50% of the fifth US$1 billion, and 10% of amounts over US$5 billion.
Former Minister of Finance, Winston Jordan. (Jordan flags lack of measures)
For his part, Jordan reasoned, “In developing countries there are many rainy days. You will need that fund…and I am afraid because the outlook for next year is for oil prices to go down and when you think about (President of the United States, Donald) Trump coming back in- Trump is close to (Russia’s Head of State, Vladimir) Putin. (If) the war in Russia ends next year, let us say, Russia’s oil is now back on the market and you solve the issues with Iran. Iran’s oil is back on the market in full, rather than having to go around in dark corners and so on. What is the implication for prices and then what happens to Guyana?”
He pointed out that Guyana does not have adequate savings to help cushion the economy from a drastic drop in the price for the commodity.
The Government of Guyana (GoG) has withdrawn half of the country’s total earnings to date from oil and gas production.
According to the 2024 third quarter report for the Natural Resource Fund (NRF), published by the Bank of Guyana (BoG), the country has so far received a total of US$5.4B. Guyana began producing oil in December 2019 and received its first oil payment on March 11, 2020.
Following the passage of the NRF Act in 2021, the GoG in 2022 plugged US$607.6 million in oil money into the National Budget for first time. This was followed by another US$1B in budgetary support for the year 2023.
This year, the National Assembly has approved US$1,586,150,331 to be deducted from the Fund to support the country’s national development priorities
This means that by the end of this year, total withdrawals from the NRF will amount to close to US$3.2B.
Lower oil prices
In November, the World Bank in a report highlighted that an oil glut may lead to a substantial drop in global prices.
“Next year, the global oil supply is expected to exceed demand by an average of 1.2 million barrels per day,” the World Bank stated.
It was noted that the scale of this oversupply is difficult to overstate; these numbers have only been exceeded twice in history, in 1998 and 2020. As a result, a barrel of oil could cost less than US$60 within the next six years.
According to Oilprice, the World Bank’s Commodity Markets Outlook, warns that global oil supply is expected to surpass demand by an average of 1.2 million barrels per day by 2025, driven by factors including flatlined economic growth in China, rising electric vehicle sales, projected production bumps from non-OPEC+ nations, and persistent overproduction from OPEC+ members as well and increased natural gas-powered transportation.
(Jordan flags lack of measures by Gov’t to cushion economy from low oil prices expected next year)
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