Caribbean & Central America - March 2024

Supported by surging oil revenues, Guyana is the world’s fastest-growing economy. That poses some unique challenges for management of the 2024 budget, which was approved by the national assembly on 2 February.

Offshore oil was first discovered in 2015 and production has gone from zero to 645,000 barrels per day (bpd) in less than a decade. Output is now expected to double to 1.2m bpd per day by 2028. Last year government revenue from oil was US$1.6bn; this year that number will go up to around US$2.4bn. With a population of just over 800,000, Guyana is on its way to overtake Kuwait as the world’s highest per capita crude oil producer. GDP expanded by an estimated 38.4% in 2023, with the government predicting a further 34.3% for 2024. The United Nations Economic Commission for Latin America and the Caribbean (Eclac) predicts growth in 2024 at a slightly lower 28.9%.  

At first sight the budget problem might be seen as simple – finding a way to spend this bonanza and to spread the benefits. This year’s spending budget is indeed set at GY$1,146tn (US$5.496bn), a massive increase of 46% on 2023. These plans imply a proposed public sector budget deficit equivalent to 8.5% of GDP. A Chinese company is building a new bridge across the Demerara River. A four-lane highway is being built from the airport into Georgetown. A new oil and gas training institute is being developed for around 4,500 students. Seven hotels are under construction, alongside a new hospitality institute. There are plans for a water-treatment plant, a major gas-to-energy project, a refinery and a university, more housing, and a golf course.

Finance minister Ashni Singh said that the aim of the budget was to benefit all Guyanese. It includes plans to boost health, pension, and housing provision, as well as investing in clean energy projects. Apart from the big increase in spending, Singh outlined an increase in the income tax threshold, tax breaks for life and medical insurance, and VAT exemptions for sports and mobile equipment. There were also measures to support small businesses, reduce freight charges, and promote employment.

If the question is “what could possibly go wrong”, Guyanese and outside experts have a number of answers. One is simply that without careful planning, the surge in spending will rapidly create supply-side bottlenecks and lift inflation. Back in 2016 retail inflation was 0.8%; last year it was an estimated 6.6%. Over-reliance on oil could lead to corruption, wasteful spending, stagnation in the non-oil economy and an over-valued currency. There is concern that the country’s ethnic composition, with an Indo-Guyanese elite and lower-earning Afro and mixed-race groups, could come under strain.

There is also a focus on the operation of country’s natural resources fund (NRF). This sovereign wealth fund was set up to create a buffer against oil price fluctuations and to invest in diversification. Last year the fund received US$1.6bn of oil revenues and spent around US$1bn, ending the year with a balance of US$1.97bn. Much of the money went to fund infrastructure projects. Opposition legislator Khemraj Ramjattan said “these monies should have been spread across rather than being given largely to what I regard as 1,000 contractor crony capitalists”. Government plans to change NRF disbursement rules, allowing a greater annual spend, are viewed with suspicion by the opposition.