Guyana’s GDP growth this year is set at 20.9% on the strength of the oil sector but its foreign reserves have once again fallen below the internationally recommended levels as the Bank of Guyana (BOG) used these sums to finance a first quarter deficit of US$53.8 million.
“BOG international reserves amounted to US$626.8 million and was equivalent to 1.5 months of import cover at the end of the first quarter of 2021,” the quarterly report of the Bank of Guyana said, explaining that the overall Balance of Payment deficit was financed by a drawdown on the Bank’s foreign reserves.
The last time the BOG reported reserves below the internationally recommended levels of three months’ import cover, then Opposition Member of Parliament and now President Irfaan Ali had told the House that it was a sign that the country’s financial architecture is on the verge of imploding.
At that time, July 2018, the Bank had reported in its quarterly report that gross international reserves, which amounted to US$498.5 million, were equivalent to 2.6 months of import cover.
According to this year’s report while calculations using oil exports have actually lowered that 2021 deficit from US$76.7 million for the same period last year, the non-oil economy has recorded a current account deficit of US$147.9 million, 47.7 % higher than the end-March 2020 deficit of US$100.2 million while there has been a decrease in the Capital surplus due to outflow of oil revenues to the Natural Resource Fund (NRF) and oil cost recovery (withdrawal of equity) by Esso Exploration and Production Guyana Limited (EEPGL).
“The current account recorded a lower deficit of US$115.4 million from a deficit of US$377.2 million the previous year, mainly due to a merchandise trade surplus of US$369.2 million….reflecting a growth in exports to US$992.0 million….US$674.1 million of which stemmed from crude oil and US$20.9 million from bauxite,” it states.
The non-oil current account deficit increased by nearly 50% because of a higher non-oil merchandise trade deficit of US$265.9 million compared to US$38.9 million a year ago. This was attributed to higher import costs as well as lower export receipts.
The report explains that lower export receipts were from gold, ‘other exports’, rice and timber by US$36.2 million, US$7.3 million, US$4.4 million and US$0.1 million, respectively while merchandise imports increased by US$9.4 million owing to higher consumption and intermediate goods by US$32.8 million and US$62.4 million, respectively.
The services account recorded a wider deficit of US$692.4 million, an increase of 33.2 % or US$172.5 million from one year ago. This resulted from higher payments for factor services by US$56.8 million the net payments for which increased by US$61.7 million to US$121.8 million due mainly to the repatriation of income on equity (oil profits) by the oil and gas sector.
Net payments for non-factor services was greater by 24.1 % as a result of higher payments for construction, technical, trade related and other business services and operating lease, all for the oil & gas sector. Net unrequited transfers rose by 44.5 % or US$64.0 million to US$207.9 million, reflecting increased inflows to bank accounts.
The capital account has meanwhile registered a lower surplus of US$40.8 million due to outflow of oil revenues to the Natural Resource Fund (NRF) and oil cost recovery (withdrawal of equity) by Esso Exploration and Production Guyana Limited (EEPGL) and its partners.
Loans disbursed to the non-financial public sector increased by US$30.6 million to US$45.7 million and short-term private capital net recorded a higher outflow of US$33.1 million from US$25.5 million one year ago reflecting commercial banks’ accumulation of foreign assets.
Foreign direct investments also decreased by 66.7 percent or US$251.7 million to US$125.7 million again due to the oil cost recovery by EEPGL and partners.
For the rest of the year the Bank expects the external current account to continue to improve largely due to oil exports coupled with higher export prices for gold and rice.
Foreign currency
Total receipts of foreign currency by the Bank of Guyana are estimated to increase to US$902.3 million while total payments are targeted at US$838.9 million and Central government’s overall balance is anticipated to marginally improve to G$90,285 million as economic activities pick up, leading to increased revenue earnings from taxation despite the anticipated growth in expenditure.
In the report the Bank reiterated Budget projections for economic growth in 2021 stating that real oil GDP is likely to grow by 20.9% with the non-oil economy growing by 6.1% if there is no lockdown.
“This performance is expected to stem from expansions in all the major sectors due to the reopening of the economy as the ongoing vaccination programme continues and the COVID-19 restrictions continue to be lifted. However, the new variants of the coronavirus pose a threat to this outlook, as there is the possibility of another lockdown,” the bank’s quarterly report explains.
This they explain is in line with a projected global growth of 6.0 % for 2021, an upward revision of 0.5% from the previous forecast.
The worldwide optimism like the local predictions are predicated on re-opened economies on the back of the optimism surrounding vaccine rollouts as well as renewed fiscal and monetary countermeasures in several major economies.
The optimism is however tempered by the spread of new virus strains, new infection waves and unequal access to vaccines by emerging and developing economies.
In Guyana there has already been increased output in the most agriculture sub-sectors. Rice production has increased by 79.9 %, fish and shrimp by 9.2 %, sugar by 0.5 %, eggs by 0.4 % and poultry meat by 0.1 %.
“Rice production soared notwithstanding the adverse weather conditions experienced during the first crop while the fish and shrimp subsector managed to perform favourably despite challenges such as piracy and the ongoing COVID-19 pandemic,” the report stated adding that increased sugar output was attributed to rehabilitation works at the functioning estates, critical investments in machinery by GUYSUCO and high workers’ morale during the first crop for 2021.
Forestry
The forestry subsector, has however, recorded a 12.3 % decline in production for the period January to March 2021.
The mining and quarrying sector has also recorded lower output of sand, crushed stone, bauxite and gold which contracted by 82.1 %, 37.9 %, 33.5 % and 17.9 %, respectively.
The decline in the gold industry was attributed to lower declarations by one large scale mining company and the small & medium scale miners by 68.6 % and 8.1 %, respectively.
Meanwhile crude oil and diamonds saw significantly higher outputs of 82.8 % and 44.8 %.
“Crude oil production increased to 11 million barrels at end-March 2021, as daily oil production increased significantly when compared to one year earlier,” the reports states.
Over in the manufacturing sector increases were recorded in the production of liquid pharmaceuticals, nitrogen gas, oxygen, paints and alcoholic beverages by 35.8 %, 31.8 %, 23.3 %, 22.1 % and 17.5 %, respectively while declines were registered in the production of acetylene, ointments, tablets and detergents by 42.8 %, 42.2 %, 34.6 % and 26.1 %, respectively.
The report further states that the construction sector recorded positive performance on account of increased public and private construction while the performance in the services sector improved, albeit not to pre-pandemic levels as authorities lifted COVID-19 restrictive measures.
“There was increased activity in the wholesale and retail trade and repairs; arts, entertainment and recreation; accommodation and food services; transport and storage and financial and insurance subsectors,” it states.
Along with increased production there has also been increased prices. According to the Bank the Urban Consumer Price Index (CPI) recorded inflation of 0.6 % for the first quarter of 2021 primarily on account of increase in prices within the categories of transport and communication by 1.1 %, food by 0.8 %, education by 0.5 %, housing by 0.5 % and furniture by 0.1 %.
Conversely, price declines were recorded in the categories of clothing by 0.9 %, footwear and repairs by 0.3 % and miscellaneous goods and services by 0.2 %.
Inflation is expected to rise to an end of year rate of 1.6 % due to increased economic activities as the economy picks up.
