Last week, Frontera Energy – a Canadian petroleum exploration company – announced it had found significant oil deposits in Guyana’s offshore Corentyne block. This latest discovery will be well received by the government which is embarking on an ambitious petroleum-fuelled spending spree.
An academic and economist based in Guyana explained, “This year’s budget is significantly larger than any previous budget, primarily because it’s being funded by oil revenue. However, Guyana has been struggling with the implementation of capital projects – the government needs something to show for its high level of expenditure which is why infrastructure is the key focus.”
“Guyana has been struggling with the implementation of capital projects – the government needs something to show for its high level of expenditure”
President Irfaan Ali plans to spend USD 2.65bn in 2022, 43% more than in 2021. This increase will be driven by a 109% increase in public investment in energy, transportation and housing. The government is also assigning USD 100m to developing a gas pipeline and a 300MW power plant which the administration says will generate electricity from offshore natural gas and cut electricity costs by half.
Frontera’s promising results will cement the company’s footprint in Guyana and galvanise exploratory activities from competitors, not least Exxon which dominates the country’s oil exploration and production. Since 2019, Exxon has uncovered reserves of more than 10 billion barrels of crude from the Stabroek block.
Daily average oil production has risen to 340,000 bpd after operating the second phase of its Liza block. Frontera plans to establish a second well in the Corentyne block later this year.
High levels of production have created attractive employment opportunities in the oil and gas sector. This has helped fuel a migration of labour from the public sector to higher paying jobs in the private sector, spurring the government to demand that companies such as Exxon prioritise the hiring of Guyanese nationals.
Contractual negotiations between Exxon and the government can foment disagreements from time to time too, “There are quite a few problems with the contract between the government and Exxon and both sides of the political spectrum are blaming each other for what’s been agreed,” explained the academic.
The budget has been broadly well received. A former public sector economist and financial analyst remarked, “Guyana has huge deficits in many areas – infrastructure, human, social and workforce capital. To address these, money needs to be spent on improving infrastructure and confronting development needs – I can understand why the budget is ambitious in this regard.”
“Guyana has huge deficit in many areas – infrastructure, human, social and workforce capital.”
Public sector economist and financial analyst, Guyana
Nearly a quarter of the budget will be financed from the Natural Resource Fund, a sovereign wealth fund set up in 2019 to manage Guyana’s oil revenue. Controversial new rules allow the government to withdraw the fund’s entire balance this fiscal year. The opposition is concerned that the government will misuse oil revenue and that public contracts could go to political cronies.
An infrastructure-focused budget should help address Guyana’s socio-economic deficits. Better infrastructure will spur meaningful economic diversification. This is important because whilst the government is flush with cash now – Georgetown cannot rely on fossil fuel revenue forever. “There is a clear vision now, five years ago, we didn’t know where we were heading. We are starting to see the light at the end of the tunnel,” added the financial analyst.