By Bobby Gossai Jr.
Whether the natural resources of a country will be a blessing or a curse, depends on various factors. The recent oil discoveries of Guyana can induce an appreciation of the real exchange rate, de-industrialisation and bad growth prospects, and these adverse effects are more severe in a volatile economy with bad institutions and lack of rule of law, corruption, presidential democracies and underdeveloped financial systems. Another supposition is that a resource boom reinforces rent grabbing and civil conflict especially if institutions are bad; induces corruption and keeps in place bad policies.
Therefore, for a resource rich economy such as Guyana, the fiscal and legal governance frameworks must ensure that the economy can successfully convert depleting exhaustible resources into other productive assets. Hence, there should be some welfare-based fiscal rules that will harness the resource windfall. Guyana must develop opportunities from which the petroleum resources will provide for economic growth and development and thus overcome the challenge of ensuring that natural resource wealth leads to sustained economic growth and development.
The best available empirical evidence suggests that countries with a large share of primary exports in Gross National Product (GNP) have bad growth records and high inequality, especially if quality of institutions, rule of law, and corruption are bad (van der Ploeg 2011). This potential curse is particularly severe for point-source resources such as minerals and precious metals. The resource curse is, however, not cast in stone. Nevertheless, for a resource rich country such as Guyana, it must ensure that over time, it develops better institutions, open more trade channels and increase investments in exploration technology. This could allow the economy to enjoy the fruits of its natural resources wealth.