In a recent interview with the Stabroek News, outgoing United States Ambassador Sarah-Ann Lynch stated the United States government does not involve itself in negotiations on behalf of its private sector and that it acts only as a facilitator to ensure companies know what investment options are available in foreign territories. This was in reference to the 2016 Petroleum Sharing Agreement (PSA) between ExxonMobil (and its two subsidiaries) and the Government of Guyana where there have been persistent calls from a wide cross-section of the populace for the contract to be renegotiated so that Guyana gets a better share of the revenue derived from the extraction of crude oil off its shores.
There can be no doubt that the PSA is overwhelmingly weighted in favour of the U.S. oil giant due mainly to the previous Administration’s failure to secure terms and conditions that are more favourable to the country. For example, the absence of ring-fencing provisions results in higher recoverable thereby reducing Guyana’s share of profit oil. Then, there is the two percent royalty, which is perhaps lowest in the world, not to mention the over-generous fiscal provisions as well as the requirement for Exxon’s corporation tax to be paid by the Government from its share of profit oil.
It should not be over-emphasised that Guyana’s natural resources belong to all of its citizens, present and future, and should be exploited in such a manner that they derive the maximum benefit. Earlier in the year, the Ambassador had referred to contract sanctity, implying that the PSA cannot be renegotiated when in fact there is provision for renegotiation if both parties to the Agreement agree to do so. In our view, renegotiation of a contract does not destroy its sanctity. Only if one refuses to honour the terms and conditions of a contract, then contract sanctity is affected in which case there is recourse to judicial review or arbitration proceedings.
In its 2020 election manifesto, the present Administration had stated that it would renegotiate the PSA if elected to office. So far, it has refused to do so, arguing that any attempt to do so adversely affect the sanctity of the contract and will scare foreign investors. That argument should have come from the U.S. oil giant and not the Government, raising questions as to whose interest the latter is protecting. That apart, why in the first place did the ruling party not seek the necessary legal advice before deciding to insert this item in its manifesto. Or, was the advice given, and there has been a change of heart on the issue? And what percentage of the population might have voted for the PPP/C on the promise that it would renegotiate the contract?
An election manifesto is in effect a social contract between a political party and the electorate. As such, its sanctity will be adversely affected when there is a refusal to honour any commitment made in the manifesto. One would have thought that, once elected to office, the Government would have immediately written to Exxon requesting a renegotiation of the PSA. If Exxon declines to do so, the Authorities have the ways and means to force it to the negotiation table. At least, citizens would have been satisfied that the Government was trying its best to not only honour its commitment but also put the country’s interest above all other interests.
On 28 August 2023, the Minister of Finance issued the 2023 Mid-Year report on the execution of the annual budget and the performance of the economy. The report has been prepared in accordance with Section 67 of the Fiscal Management and Accountability Act which requires the Minister of Finance to present to the National Assembly within 60 days of the end of the first half-year of each fiscal year, a report on the year-to-date execution of the annual budget and the prospects for the remainder of that fiscal year. The report is to include:
An update on the current macroeconomic and fiscal situation, a revised economic outlook for the remainder of the fiscal year, and a statement of the projected impact that these trends are likely to have on the annual budget for the current fiscal year;
A comparison report on the out-turned current and capital expenditures and revenues with the estimates originally approved by the National Assembly with explanations of any significant variances; and
A list of major fiscal risks for the remainder of the fiscal year, together with likely policy responses that the Government proposes to take to meet the expected circumstances.
In today’s article, we provide a summary of the main points of the report.
Real GDP growth
An overall real Gross Domestic Product (GDP) growth of 59.5 percent was recorded in the first half of 2023, compared with 36.4 percent for the corresponding period last year, due mainly to the enhanced performance of the oil economy. Non-oil GDP growth was 12.3 percent, compared with 8.3 percent in the first half of 2022. This was mainly as a result of the continued spin-off from the oil and gas sector as well as improved performance of the other sectors of the economy. However, there was a decline in production in gold, bauxite, diamond and manganese by 11.4 percent, 11.1 percent, 21.2 percent and 21.9 percent, respectively. All the other sectors of the economy have recorded growth, including rice, sugar, forestry, fisheries, sand and stone, manufacturing, and services and construction. The overall real GDP growth for 2023 is estimated at 28.2 percent, with a non-oil growth projected at 9.3 percent
In several of our articles, we expressed the view that the overall GDP growth must be interpreted with some degree of caution since 87.5 percent of the value of the production of crude oil does not belong to Guyana; and that greater emphasis should instead be placed on the non-oil growth as a measure of the country’s economic performance. It is the overall GDP growth that the World Bank has used in determining that Guyana is now a high income with a GNI per capita of more than US$15,000 at a time when almost 50 percent of the populations lives on less than US$5.50 per day.
Balance of payments
The current account recorded a surplus of US$ 64.1 million, compared with a higher surplus of US$780.4 million for the corresponding period last year, a reduction of US$716.3 million. This was mainly on account of payments for goods and services outpacing receipts from merchandise exports. On the other hand, the capital account recorded a deficit of US$238.7 million, compared with a deficit of U$$939 million for the first half of 2022. This significant reduction in deficit on the capital account was mainly attributable to transfers totalling US$658.4 million to the Natural Resource Fund. The overall balance of payments deficit (after certain adjustments) was US$196.4 million. This deficit was financed by drawdowns from the Bank of Guyana foreign reserves which stood at US$736 million at the end of June 2023.
Inflation
The consumer price index declined by 0.3 percent, from 4.9 percent for the corresponding period last year, to 4.6 percent. This was due mainly to lower food and energy prices. The report noted that inflation rates in several countries, including the United States, are slowing; while some other
Countries are still experiencing inflationary pressures mainly due to country-specific factors. In the case of Guyana, the Government continues to be ‘proactive to prevent persistent hikes like those observed last year’. However, this assessment of the rate of inflation does not appear to concur with the reality of the situation where there have been persistent complaints about high food prices and the cost of living. The year-end inflation rate is forecast to be 3.8 percent.
Interest rates
Interest rates at the end of June 2023 remained largely unchanged, compared with those at the end of 2022. The 91-day and 364-day Treasury Bill yields were 1.54 percent and 1.09 percent, respectively, while the 182-day Treasury Bill yield declined from 1.00 percent to 0.99 percent. Commercial bank small savings rate was 0.81 percent while the weighted average lending rate was 8.29 percent.
Exchange rate
The official exchange rate of the Guyana dollar to the US dollar in June 2023 remained stable at $208.5 in June 2023. The market mid-rate, however, moved from $207.8 in December 2022 to $210.3.
Revenue
Central Government current revenue collections, net of the Guyana REDD + Investment (GRIF), the NRF withdrawal and carbon credit inflows, amounted to $191.4 billion representing an increase of 26.5 percent, compared with the corresponding period last year. Tax revenue increased by $36.7 billion due mainly to higher collections of income and value-added taxes. Non-tax revenue collections also increased by $3.4 billion, reflecting growth in the private sector and Bank of Guyana profits.
Withdrawals from the NRF accounted for $83.2 billion of the total revenue, while $4.7 billion was deposited from carbon credits inflows. In the second half of the year, it is estimated that $125.2 billion will be withdrawn from the NRF, while an additional $26.5 billion will be deposited from carbon credit inflows. Total revenue for 2023 is forecast at $608.8 billion.
Expenditure
Central Government expenditure amounted to $287.3 billion, a 56.5 percent increase over the corresponding period last year, and reflected 38 percent of the implementation of the budget. Current and capital expenditures accounted for 58.9 percent and 41.1 percent, respectively. Under the Government’s Public Sector Investment Programme (PSIP), amounts totalling $118.1 billion were expended, 152.5 percent increase over the corresponding period last year. This was due mainly to several initiatives taken, including the construction of education and health facilities, community roads and drainage and irrigation infrastructure. The PSIP is estimated to cost $469.2 billion for 2023.
To be continued –
