Introduction
The main focus of today’s column is to wrap-up consideration of the World Bank’s Staff Conclusions reached in its Guyana SCD (Systematic Country Diagnostic), 2020. The next section though first treats with priority area 4 and the recommended interventions, which due to lack of space, I was unable to treat with in last week’s column.
Following that, next week I offer a summation of a few crucial observations on the SCD, which I believe readers should keep to the forefront as this analysis unfolds going forward.
Priority Area / Intervention 4
For this priority area the SCD basically asserts that, “achieving sustainable long-term growth will require successfully converting depletable natural capital into a broad-based gains in human capital”. That requires expanded access to all essential public services and infrastructure.
Given that, 1] development indicators vary greatly across geographic areas, and 2] priorities must reflect the prevailing circumstances in each region; the service-delivery targets are complex and expensive.
The SCD advocates for major reforms to Guyana’s social protection system; expanding coverage and impact. Indeed, to implement conditional cash transfers, improved cash transfer mechanisms, a targeting system and social registry are needed. And, once coverage of basic services and infrastructure has been established, policymakers should focus on achieving universal health coverage
SCD Conclusions
The SCD arrives at five major Conclusions captured below.
The first Conclusion is “Guyana has the power to transform its newfound oil wealth into an engine of inclusive and sustainable growth”.
This is argued from the premise that fiscal revenues garnered from the oil sector will be adequate for speedily closing the country’s infrastructure gap and also supporting the development of a skilled workforce capable of competing in a dynamic global economy. The SCD urges that, on balance, the global experience indicates several encouraging examples of developing countries that have leveraged natural resource endowments to accelerate macroeconomic convergence by investing fiscal windfalls in physical, financial, and human capital. This is a most encouraging
Conclusion
The second Conclusion poses the central dilemma, which is, how can Guyana achieve and not assume that success will come easily or without considerable risk.
Despite the positive global experience cited under the first Conclusion stated above, that international experience also includes many cautionary examples of countries which failed to manage their resource wealth prudently. In particular some took weak precautions to avoid the erosion of their trade and external competitiveness. This resulted in their nonoil sectors deterioration over the years; while others squandered their fiscal resources on ill-conceived investments and unsustainable expenditures.
To quote “In the most extreme cases, formerly resource-rich countries fell deeper into poverty, inefficiency, and dysfunction as their resource wealth dwindled, demonstrating that resources can be a curse as well as a blessing”.
The third Conclusion is that, the quality of Guyana’s governance and the prudence of its policymakers will ultimately determine whether Guyana’s oil reserves lead to a brighter future.
The SCD observes that experience across countries reveals “institutional strength is a proven factor that affects all aspects of resource management”. Indeed public administrations that avoids the corrosive influence of resource revenues is a perquisite for the successful transformation of natural wealth into sustainable and inclusive growth. Countries with weak or deteriorating institutions have invariably fallen victim to the devastating manifestations of the resource curse.
The fourth Conclusion is to observe Guyana has taken a positive first step by establishing an overarching strategic vision that defines the oil sector’s role in the country’s long-term development but operationalizing this vision will pose a critical challenge.
Oil revenues are inherently unpredictable; they increase macroeconomic volatility and tend to damage the competitiveness of the nonoil sectors. Mitigating the risks generated by oil production while maximizing its positive spillovers will require a far reaching policy programme implemented by a highly competent public sector. Successful adoption of modern management would have to take into account that the economy of Guyana and the livelihoods of its people largely depend on the utilization of its rich natural resource base, which has been increasingly under pressure from human activities and climate change. Obtaining the necessary skills and experience to manage the oil sector will be vital to the success of the government’s agenda, and collaboration with experts and international partners will provide crucial support and external oversight as the authorities expand the capabilities of Guyana’s public institutions.
The fifth and final Conclusion is for Guyana to achieve the vision outlined here, policymakers must maintain a consistent focus on inclusion and sustainability
The SCD views Guyana’s oil sector as being “weakly connected to its nonoil economy, with limited potential for direct upstream or downstream linkages”. Given this context, fiscal revenue is the primary mechanism through which the benefits of the oil sector will be transferred to the economy and society. This is why investing in physical infrastructure and building human capital are essential to offset the adverse impact of oil exports on external competitiveness and enable sustainable economic growth and diversification. Finally, targeting social spending to the poorest regions and most vulnerable populations will help ensure an equitable distribution of benefits that is not constrained by the oil sector’s limited linkages to the livelihoods of households.
Conclusion
Next week’s column ends discussion of the Guyana SCD 2020 by offering some broad observations seeking to locate it at a conceptual or theoretical level in understanding the conjuncture at which Guyana presently stands.
