IMF projects oil will contribute 40% of Guyana’s GDP by 2024

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The Liza Destiny FPSO 

The International Monetary Fund (IMF), having concluded its Article IV consultations in Guyana, has come up with projections that oil will dominate Guyana’s Gross Domestic Product (GDP) by as much as 40 per cent.

This is contained in the Fund’s concluding statement, which estimates that this shift in GDP share and financial contribution will occur by 2024. This is also the time when Guyana is expected to really start earning its share of oil revenues, once cost oil has been accounted for.

“The oil sector is projected to grow rapidly, accounting for around 40 per cent of GDP by 2024 and supporting additional fiscal spending annually of 6.5 per cent of non-oil GDP on average over the medium term, which will help meet critical social and infrastructure needs”.

“Public debt and the external current account deficit are projected to decline steadily following the onset of oil production,” the IMF said, adding that for this year, the current account deficit is expected to reach 22.7 per cent of GDP owing to higher oil sector-related imports.

According to the Fund, these imports will mostly be financed by Foreign Direct Investment (FDI) in the oil sector. However, it was optimistic of Guyana’s overall economic outlook around the time of the commencement of oil production, pegged for early next year.

“Real GDP grew by 4.1 per cent, led by construction and services sectors, up from 2.1 per cent in 2017. Inflation remained low at 1.6 per cent at end-2018. The external current account deficit rose to 17.5 per cent of GDP, from 6.8 per cent in 2017, due to weaker exports and higher imports related to oil production”.

“Public finances improved in 2018 as the central government deficit came in at 3.5 per cent of GDP, lower than the budgeted 5.4 per cent of GDP. Economic growth is projected at 4.4 per cent in 2019, extending the broad-based expansion across all major sectors,” the Fund added.

As of the middle of this year, no single sector had more than a 15 per cent share of the GDP. According to the Finance Ministry’s 2019 mid-year report, the highest individual bite of the GDP came from the wholesale and retail trade, which had a 13.4 per cent share of the GDP.

Combined, agriculture, fishing and forestry has just a 15.6 per cent share of the GDP, with major sectors like sugar, rice and forestry having just 0.9 per cent, 3.5 per cent and 1.7 per cent respectively.

Back in 2016, before the closure of the sugar estates by the coalition Government and the redundancy of thousands of workers, sugar had a 1.5 per cent share of the GDP and agriculture, fishing and forestry combined had 17.4 per cent.

Meanwhile, the mid-year report also showed that critical sectors like gold and manufacturing had 9.4 per cent and 6.5 per cent respectively. For a single sector to have 40 per cent is therefore a significant portion of the GDP.

Exxon Mobil, which announced its 14th oil find only on Monday (the very day as Tullow announced its 2nd), has pegged oil production at 120,000 barrels of oil per day utilising the Liza Destiny FPSO. Furthermore, Liza Phase 2 is expected to start up by mid-2022, after Exxon made a final investment decision after getting regulatory approval earlier this year. It had been reported that the project would use the Liza Unity FPSO to produce up to 220,000 barrels per day.

The Liza Destiny, Guyana’s first oil production vessel, arrived in Guyana’s waters at the end of last month after travelling nearly 11,000 nautical miles for 42 days from the Keppel Shipyard in Singapore.