New IDB country strategy highlights risks
-cites frontloading from NRF, possible higher inflation `The country will require extensive and widespread consultation with stakeholders, rapid deployment of administrative reforms, utilization of technology to increase transparency, and a commitment fr
While adverting to Guyana’s booming economy, the IDB country strategy for 2023-2026 has cited risks to its successful implementation.
The Board of Executive Directors of the Inter-American Development Bank (IDB) has approved a new Country Strategy with Guyana for 2023 through 2026 and there is an indicative lending pipeline of US$550m.
A release from the Bank on November 30 stated that the strategy will be focused on resilient infrastructure, human capital development with an emphasis on improving health and education outcomes and social services and strengthening institutional capacity.
The strategy also pinpointed the risks. On the macroeconomic front, the strategy said that despite the current context of the global pandemic and increasing international oil prices, Guyana’s economy has remained stable and faces relatively low macroeconomic risk. The risk of macroeconomic imbalances from an overvaluation of the real exchange rate, it said, is mitigated by the existence of the Natural Resource Fund (NRF).
“However, the recent amendment to the NRF in 2020 frontloads transfers from the NRF to the budget, which reduces its mitigation effect. Significantly higher government spending levels could contribute to higher inflation and real exchange rate appreciation. Macroeconomic risks will be mitigated and monitored by close supervision of economic performance and policies to continue supporting corrective measures”, the strategy said.
There are also long-term risks related to global decarbonization efforts which would reduce demand for oil, the strategy posited. A mitigating factor for this risk here is the relatively low cost of production and the quality of oil.
“Finally, there is also the latent risk of an oil spill, which would have far-reaching political and economic consequences”, it said.
In terms of climate risks and natural/man-made disasters, the strategy pointed out that Guyana is exposed to a wide range of natural hazards and climaterelated events (such as extreme rainfall and flooding due to sea level rise) and is also exposed to seal-level rise itself, which poses risks to low-lying urban areas in the capital.
“In fact, heavy rains caused flooding along riverbanks across of Guyana in 2021, affecting more than 29,000 households prompting the president to declare a national disaster. In 2005, floods caused damage valued at approximately 60 percent (of) GDP. A natural disaster of significant proportions could undermine potential for growth and employment and contribute to the transmission of water-borne diseases, in the case of flooding”, the strategy said.
As an oil producer, the strategy said that Guyana faces the risk of an oil spill that would carry significant clean-up cost for the Consortium of oil companies.
With respect to climate change mitigation, the strategy said that the country has committed to diversifying its energy matrix as outlined in the Low Carbon Development Strategy 2030, significantly increasing energy production from less than 2,000 GWh per year currently to over 9,000 GWh per year in 2041, with heavy fuels-based energy declining to 2 percent to total production in 2040 and replaced by natural gas and renewable sources of energy such as hydro, solar, and wind energy.
In 2022, the strategy pointed out that the government planned to start implementing Guyana’s Climate Resilience Strategy and Action Plan, which will include sea defence enhancement, drainage and irrigation systems. For oil spill risk mitigation, the strategy said that the Environmental Protection Agency has required the oil Consortium to have high coverage insurance, which the Consortium stated meets international standards for all its petroleum activities in Guyana. There has been a raging public dispute over the quantum of the insurance coverage of ExxonMobil and its partners and a case is now before the courts on this matter.
For disaster risk management, the strategy said that the government is undertaking comprehensive monitoring of river systems, developing early warning systems, de-silting water courses regularly to maintain navigation channels, designating flood risk zones and taking measures to protect exposed assets.
Execution capacity
The strategy also underlined the risk of execution capacity. This had been a longstanding problem in the country.
The strategy said that as a new oil and gas-producing country, Guyana requires management and planning interventions that are executed in accordance with its evolving sector needs.
“The country will require extensive and widespread consultation with stakeholders, rapid deployment of administrative reforms, utilization of technology to increase transparency, and a commitment from the highest levels of government. The expansion of capital project(s) and the implementation of multiple infrastructure projects in transportation, health, and education, along with infrastructure projects planned by other multilateral or bilateral organizations are expected to provide additional challenges to procurement and project implementation systems”, the strategy noted.
It said that there is a high risk that the increased number of projects that must be managed could hinder the timely progress of infrastructure ventures.
“These risks are all related to governance and technical capacity challenges of numerous agencies. Similarly, the higher number of bank and non-bank projects could contribute to (i) economic and social disruptions in the lives and livelihoods of citizens and migrants, and (ii) environmental impacts affecting the country’s diverse natural ecosystems”, the strategy added.
To mitigate these risks, the strategy said that the IDB Group will (i) provide technical help at all levels of public financial management, with a focus on strengthening planning and procurement, two vital areas affecting all capital projects in Guyana; (ii) support the Government of Guyana through further training and expanding outsourcing opportunities, improving efficiencies and reducing bottlenecks, such that contract management and public works supervision are streamlined; (iii) coordinate closely with other development partners also embarking on public works projects, leveraging economies of scale and technical capacity and bolstering the management of infrastructure projects, including environmental and social safeguards; (iv) leverage opportunities to digitize administrative processes in planning, procurement, and project execution; and (v) seek to outsource project management and planning services to private sector companies as the government is looking for further support due to the number of large infrastructure projects.