Editorial Budget 2019 and the oil economy
As budgets go, the $300.7b one presented by Finance Minister Winston Jordan last Monday isn’t much different from its predecessors or indeed those of the previous government in their main constructs. Deficit financing of the budget continues to betray a tendency to expenditure beyond one’s means. What that philosophy portends for the expenditure of a windfall from oil is not very comforting and does raise numerous concerns. Given concerns over the spending outlook once oil revenues begin to flow, the 2020 presentation should aim for a balanced budget.
Some tax-burdened workers will benefit from the lifting of the income tax threshold and there is also tax relief at the corporate level and the usual small increase in old age pensions. There continue to be alterations to the VAT regimen in a sign of continued uncertainty over best practices and there has been a disconcerting decline in declarations from small gold miners.
The theme of the budget revolves around a trifecta of commitments: `Transforming the economy, empowering of people, building sustainable communities for the good life’. With oil revenues expected to begin flowing in 2020, it is meet that transforming the economy is one of the pillars of the budget speech. However, real signs of this intended transformation in Minister Jordan’s speech are slight to hazy.
Early in his budget speech, the Finance Minister said that “…discovery of very significant oil reserves has put Guyana at a critical point in its history, providing us with the opportunity to shift our development path, modernise our economy and transform the lives of our citizens. We are poised for rapid economic expansion, and our Government is committed to pursuing economic and social policies conducive to equitable, sustainable and environmentallyfriendly growth.
“We have embarked on a number of initiatives to ensure that we do not squander these resources. Already we have completed a Green Paper on the management of the revenues from petroleum and, just one week ago, a Natural Resource Fund Bill was introduced in this House to assure equitable distribution of national wealth across generations, among other objectives. Mr. Speaker, these new resources provide a momentous occasion for us to turn potential to prosperity. We intend to take advantage of this and will ramp up spending on infrastructure such as roads, bridges, airstrips, energy and telecommunications, in order to improve and induce domestic and foreign investment, which is critical to our growth and development prospects. Increased expenditure on education and healthcare is also projected, so as to ensure qualitative and quantitative enhancement of our human capital – our country‘s most valuable asset. Further, through appropriate policy measures, we will ensure that the appreciable economic growth that is expected, is felt at all levels, especially among disadvantaged, vulnerable and underprivileged groups and communities”.
These are all noble declarations by the Finance Minister but are not underpinned by a recognisable strategy that sets out how oil revenue will be applied to the modernization of the country and economy. While the minister speaks of ramping up outlay on “infrastructure such as roads, bridges, airstrips, energy and telecommunications, in order to improve and induce domestic and foreign investment” the intended objective is unclear. Is this expenditure being made for Guyana to benefit from cross-border trade because of its proximity to Brazil’s northern states or is the government at the beginning of a vast transformation of the bases of the economy which will move the country completely away from primary production? There is no hint of any such pathway probably as the government has not embarked in any significant way on such an examination with stakeholders.
Mention is made of the Green State Development Strategy (GSDS) on several occasions however it must be said that in its adumbration, there is no palpable nexus between the GSDS and development of the state fuelled by oil revenues. There is, of course, a gross incongruence in development of a green state while extracting crude oil in huge amounts.
Principle 5 of the GSDS speaks to Decarbonisation and climate resilience and aiming for a transition to a 100% renewable country by 2025.
While a 100% transition to renewable energy by 2025 is quite unlikely there is no discussion in the GSDS of how the intended decarbonisation will be reconciled with the pumping of maybe at least 200,000 barrels per day of carbon releasing fuels. The aspirational GSDS and the oil economy have to be plaited into a development strategy that makes sense.
Advising that oil will soon be the metric thorough which economic performance will be judged, the minister said: “Through this new lens, we will be able to track our progress towards achieving a more diversified economic base, that allows for stable economic growth and continued prosperity, long after our petroleum reserves have been depleted. In 2020, our real economy is preliminarily projected to grow by over 30 percent, and, as oil production ramps up, we expect further growth of over 20 percent and 10 percent in 2021 and 2022, respectively. At the same time, our non-petroleum economy is expected to experience accelerated growth, exceeding 5 percent in each of the years 2020, 2021 and 2022”.
Very optimistic declarations but again there is no detail of what this “more diversified economic base” will be.
Continuing his discussion of the GSDS, the minister said: it “will focus on modernising our traditional sectors, stimulating expansion in our highgrowth sectors and developing new high valueadding sectors such as tourism, business process outsourcing and agro-processing. Together, these actions will ensure that the economy can respond to and leverage new opportunities in the global shift to sustainable development. This economic transformation will be underpinned by investments in renewable power supply and efficient roads and infrastructure that reduce the day-to-day costs that businesses face, improve connections between the coast and the hinterland, and bring Guyanesemade products to global markets in a timely and efficient manner”.
Again, these promises are not founded on any known national plan and it is not clear what sensible schema exist for the modernising of the sugar, rice, bauxite, gold and forestry sectors.
Even while acknowledging grave human resource deficiencies and the need for building the capacities of Guyanese to benefit from the oil economy, the minister acknowledges that the Local Content Policy is still unfinished despite the fact that the administration has known about the country’s oil riches for the last three and a half years. In the meanwhile, local maritime workers have begun to complain about being left out of employment by ExxonMobil contractors without any examination of their grouses by government agencies.
In concluding his speech, the minister said in part that the 2019 budget “gives insights into our future and how we intend to manage our upcoming wealth from petroleum for the benefit of present and future generations.” There are indeed just mere insights into the oil future in this year’s budget. This government has much more work do in the next year to convince members of the public that it has a coherent plan for the management of the oil sector and revenues in a manner that really transforms the fortunes of its people and economy.