February 26 ,2021
Dear Editor,
There is great concern that, over the next 25 years, Guyana will become infected with the oil ‘Dutch Disease’ in its economic, financial, social and political sectors.
In the 2021 National Budget, the government states that it will “avoid the pitfalls of oil producers that are infected with ‘Dutch Disease’ by setting up a strong institutional and regulatory framework that will operate on best practices and principles, and by using oil resources responsibly and transparently to catalyze development and create opportunities for all Guyanese. The Low Carbon Development Strategy (LCDS) will be expanded into a comprehensive strategy based on an energy mix of oil, gas, solar, hydro, wind, agro-energy and biomass, while preserving our pristine environment”. “The economy will be restructured with new Corridors of Development across Guyana by using oil funds to build infrastructure for energy projects, roads, bridges, sea and river defenses, drainage and irrigation canals, ferries, internet broadband, and for new housing areas”.
In the economic sector, countries with ‘Dutch Disease’ exhibit the following symptoms: very little economic diversification; foreign and local investments are skewed towards the oil and gas sector; small businesses receive little support; local businesses in the non-oil sectors are not competitive; and there is dependence on all kinds of imports, including food and raw materials that could be produced in the country. In Budget 2021, the government states that it is committed to building a “diversified and competitive economy in traditional, new and emerging sectors that will create meaningful and rewarding jobs and a dynamic entrepreneurial small business sector”. The Budget provides detailed information on expanding the non-oil sectors: agriculture, manufacturing, construction, transportation, financial, engineering, Information and Communications Technology [ICT], forestry, mining, tourism and housing. Research and Development (R&D) will be funded to make the local private sector more competitive through a National Entrepreneurship and Innovation Council; through business incubators for start-ups and existing medium and small businesses; through agro-processing and packaging facilities; through forestry conservation services; through industrial estates such as the new Wales Development Authority; and through agricultural diversification such as the Intermediate Savannahs Development Initiative.
In the financial sector, countries with ‘Dutch Disease’ exhibit the
following symptoms: over-dependence on crude oil exports for government revenue; borrowing from the forward sales of crude oil; bad budget planning; unrestrained public spending; inefficient and ineffective implementation of capital budgets; and bad management of government debt with large debt-to-GDP ratios. In Budget 2021, the government states that it is committed to “strengthening revenue administration by decreasing the financing of the government deficit to 8.7% of GDP from 9.4% in 2020 to allow better access to financing for the private sector; carefully targeting and managing government expenditure, especially for capital projects; and prudently managing government debt (US$2.6 billion) by sourcing development financing and servicing debt obligations at the lowest possible cost”. To avoid the risk of overheating the economy, the government projects that “the foreign exchange rate will not appreciate significantly so that the non-oil economic sectors are not negatively affected. The level of external reserves will be increased and the inflation rate will be kept low at 1.6%. The debt-to-GDP ratio of 47.4% will not be significantly increased”.
In the social sector, countries with ‘Dutch Disease’ exhibit the following symptoms: high crime rates; education systems that do not produce many graduates for the non-oil sectors; more jobs in the public service than in the private sector; few job and business opportunities for youth; unequal pay for national professionals compared to foreign professionals; high pay for political office holders and low incomes for workers and farmers; inadequate health services; unequal development of indigenous communities; brain drain; and an ineffective immigration policy. In Budget 2021, the government has increased funding: to provide equal access to a well-balanced quality education system across the country; to technical and vocational centres for meeting the new demands in the labour market; to create jobs and businesses for young people through a Youth Advisory Council, a Youth Innovation Program and a National Job Bank; to expand specialty care in mental health and suicide prevention services; to Indigenous (Amerindian) communities that include the Land Titling program, a Youth Entrepreneur-ship and Apprenticeship Program, boats, tractors, roads, solar projects; potable water, the internet, scholarships, and the hiring of Community Service Officers; and finally to aggressively involve the diaspora through a Diaspora Council and a Diaspora Engagement Strategy and Plan of Action. Increased funds have also been allocated: for COVID relief; for ending violence against women; for empowering persons with disabilities; for increased pensions to seniors; for people on social assistance; for mortgage interest relief; for assistance to students in nursery, primary and secondary schools; and for local civil society organizations.
In the political sphere, countries with ‘Dutch Disease’ exhibit the following symptoms: political instability, inter-ethnic conflicts, and weak, ineffective and corrupt public institutions.
In Budget 2021, the government states that it is committed to “practicing democracy; respecting the Constitu-tion and the rule of law; governing in inclusive ways; safeguarding justice; securing the environment; and by improving the quality of public services and reforming government systems to make them more accessible, inclusive, transparent and accountable”.
Funds have been allocated “for the Constitutional Reform Committee, the Law Reform Commission and the One Guyana Commission; for strengthening the justice sector; and for improving operational efficiencies in key agencies namely the National Procurement and Tender Administration, the National Insurance Scheme (NIS), the Guyana Police Force, the Customs Adminis-tration, the Bureau of Standards, the Bureau of Statistics, and the National Democratic Councils [NDCs]”.
These are comprehensive and impressive plans. However, to ensure their successful implementation, these key challenges have to be addressed. To avoid ‘Dutch Disease’ in the economic sector, it is fundamental that the government fund marketing institutions to support businesses in the non-oil sectors to expand exports. Most businesses need support to successfully pursue export opportunities for their products and services in current and new export markets. We have to start with the markets (demand) and then work back to production (supply). Secondly, to avoid ‘Dutch Disease’ in the social and political sectors, the government has to outline detailed programs: for regular and genuine consultations with Guyanese at home and in the diaspora; for measuring and reducing rural and hinterland poverty; for minimizing corrupt activities and ending the culture of impunity where corrupt politicians and officials escape sanctions, fines, convictions and dismissals; for reducing the crime rate; for avoiding ‘square pegs in round holes’; for generating brain circulation from the diaspora; and for a new immigration policy to manage the recruitment of skilled labour from overseas.
Sincerely
Geoffrey Da Silva