Development within the context of Guyana is pursued through the lens of market liberalism, which centres economic growth over human, social and environmental wellbeing. Its economy from the beginning of colonialist expansion, has largely been bolstered by extractive industries. Even when agriculture remained its top income earner, industries such as bauxite and gold have been large contributors towards the country’s Gross Domestic Product. With Guyana’s discovery of oil in 2015, and subsequent finds in following years, Guyana quickly moved from being a low-income country to an upper middle-income one in 2016, and finally being reclassified as high-income in 2023. Guyana’s economy grew by 57.8% in 2022, with its public debt increasing by 16% in that same period. This rapid growth and increased debt, matched with the economic fallouts of the COVID-19 pandemic and changing weather patterns as a result of climate change have resulted in higher inflation, with decreased access to food and a heightened cost of living.
Guyana’s income levels, outside of the oil industry remain uncompetitive, impacting the standard of living of its citizens through climbing housing, service and food rates. These coalescing factors now see Guyana’s poverty rate standing at 48% and food insecurity at 58% even as it is considered one of the wealthiest oil-producing nations in the world based on its reserves. While the government in 2022 was commended by the IMF for reducing its debt, Guyana’s massive spending against oil wealth can spell disaster for the near future and there needs to be caution around increasing debts.
The pursuit of development by the government which follows the strict industrialisation model of roads, buildings and foreign businesses is a dangerous one. Guyana historically has a structurally weak economy that it has largely been unable to transform, with extractive industries such as sugar and bauxite allowing it to service its debt. While the MoF stated the government is not solely relying on projected oil income, and referenced the importance of diversification of the export industry to aid in Guyana’s infrastructural and social development, their plans still primarily centre on other extractive industries such as bauxite and gold. Diversification, however, also needs to include the agricultural sector to ramp up local food security and increase Guyana’s agricultural exports which can aid in economic growth outside of extractive industries.
Given the volatility of oil prices which are forecast to average $92/bbl in 2023 and $80/bbl in 2024, which is down from a projected $100/bbl, Guyana’s projected oil earnings can significantly be hampered by other factors that can impact demand and supply globally. This can be compounded by Guyana’s unfair contractual agreement with ExxonMobil, which has loopholes that can see the oil company recovering the 10% royalty for new blocks, while clean up of potential oil spills could be left to Guyana. The contract specifies that Exxon is not liable to clean up the project area after production is done. Should Guyana have to bear these economic and environmental costs, it would cripple the country’s economy, potentially also environmentally impacting other Caribbean countries which can open Guyana to hefty lawsuits, essentially bankrupting the country. Currently, Guyana is increasing its debt against projected income from oil to undertake development projects particularly related to infrastructure. Borrowing against projected oil income, however, is a slippery slope given its instability on the world market. A warning example is seen in Guyana’s neighbour, Trinidad & Tobago which stood as the largest oil and natural gas producing nation in the Caribbean. With the lowering of oil prices in 2008 however, the economy of Trinidad crashed significantly and has been unable to regain its economic foothold in the region. Trinidad is currently trying to re-grow its economy through diversification of its export industries.
In July 2023, the government of Guyana took a bill to Parliament to increase its debt ceiling for external loans from $650,000,000,000 to $900,000,000,000 and domestic debt from $500,000,000,000 to $750,000,000,000. This is the second increase in 30 months, with the Ministry of Finance arguing that as a growing oil economy, the government needs to take on additional debt to sustain its development. While not all debt is bad debt, and Guyana does need additional resources for its infrastructural and social development, there needs to be caution in increasing the country’s external debt as Guyana historically has struggled with heavy debt burdens that impact its people’s social and economic well-being. An example of this was seen in the late 1970s-1980s in Guyana. Guyana’s external debt in 1978 stood at US$404.4 million, doubling to US$807.3 million in 1982. The inability to service its debt resulted in a prolonged period of economic turmoil that resulted in widespread food instability, absolute poverty and lack of adequate social services, contributing towards heightened migration levels.
Given that governments often raise taxes in an effort to raise revenue for debt repayment, the people ultimately suffer from higher costs of living and the reduction of future savings. The relief often garnered from lending institutions is often at a minimum, while borrowing countries are required to pay a crippling percentage of their budget on debt service, with countries such as Guyana owing even larger sums due to their assumed capacity to pay a larger part of their debt. It does not augur well for the country to have been reclassified as a high-income economy, as Guyana has been cut off from accessing finance that could equip them to respond to crises such as natural disasters and pandemics. It also means that Guyana’s debt repayment rates have exponentially increased, resulting in the country having to pay even more on debt financing, potentially impacting the amount of money available for social and economic investments. With Guyana’s debt in the billions, it would be wiser for the government to utilize projected oil income to pay off its debt as this would result in future savings and ease the social and economic burden on its citizens. It would also decrease the potential impact of a plummet in the oil market on the country’s economy.
The Ministry of Finance needs to be extremely cautious against borrowing against projected oil wealth as the industry is prone to market volatility and could cause extreme market shocks within Guyana that have the potential to plunge the country into debt that it cannot service. Guyana needs to shift its export industry from relying primarily on extractive ones, service its current debt and advocate for lower debt rates with longer repayment times. While Guyana is a high-income country based on its GDP, the economic reality on the ground is vastly different, leaving many vulnerable to price inflation, climate impacts and other negative concerns. It is important for borrowing increases to be done based on the non-oil economy, and it is necessary for the government through relevant ministries to implement measures that include community perspectives and realities, and stabilise the economy to decrease absolute and relative poverty.
