Guyana to guard against steep revaluation of the dollar
Finance Minister, Winston Jordan on Friday said government would put place safeguards to prevent a steep revaluation of the Guyana dollar as a result of expected large inflows of United States (US) dollars from oil earnings.
“I will indicate to you that there could possibly be some appreciation of the Guyana dollar but we will have to guard against that using economic and financial policies to guard against any major appreciation of the currency,” he told a news conference.
Concerns have been repeatedly raised by local and foreign economists and other experts that Guyana’s traditional exports like rice, sugar and bauxite risk becoming to pricey to compete on the regional and international markets because production costs will soar if the Guyana dollar regains value. They have also advised Guyana against spending lavishly on things like wages and salaries and non-infrastructural projects.
The Finance Minister acknowledged that the value of the Guyana dollar will increase against the United States (US$1.00 = GY$213 selling), but declined to estimate how much that may be. He also decided against estimating what annual net oil revenues may be, saying that a number of models were being examined and he has to first decide what’s the price per barrel he has to use.
In such a situation where imports will become cheaper and exports more expensive, he said he was not worried that Guyana’s thriving agriculture sector would begin to lag, he said “I am not afraid of Guyana being prone to Dutch Disease” because “some of our industries are fairly well-established” and require significant injections of capital to become competitive.
The Finance Minister stressed that he personally does not support subsidies for businesses to cushion the impact of a higher value Guyana dollar
“I don’t want to talk too early about subsidies. I personally, this has nothing to do with government or anything,…don’t like subsidies. For me, it distorts resource allocation, it results in mismanagement; very often the people who should be the beneficiary don’t be the beneficiary and the people who you don’t want to be the beneficiary ending up being beneficiaries,” Jordan said while stressing that was his personal opinion.
He preferred the issue of subsidies to be discussed in the context of government’s Green State Development Strategy.
Jordan, a former Budget Director, said he was largely banking on the proposed Sovereign Wealth Fund (SWF) in which to park a lot of the unprecedented revenues instead of allowing it gush into an economy that cannot absorb huge amounts of foreign currency. “It also depends on what pace of development we are looking at and how much of the oil money gets seeped into the formal economy because, as I said, we will be holding it in the SWF (Sovereign Wealth Fund) out there so it’s not like its in the formal economy…and at what rate will depend on our capacity to absorb,” he said.
He noted that both the private and public sector do not have the capacity to spend on huge capital projects.
A SWF green paper and legislation, including Santiago Principles, are to be tabled at Cabinet next month before it is taken to Cabinet for further consultations and eventually to Parliament before year-end.
“One of them, of course, is the Sovereign Wealth Fund which the idea here is that all the monies that potentially coming from oil go there and we get out of that fund, based on the rules that we are putting in place and so on, enough to drive our developmental agenda,” he said. “To avoid Dutch Disease and all these kinds of things, we have to make sure that our dependence on oil is not a new dependence” as were the cases with bauxite and sugar, he added.
He said the governing coalition’s Green State Development Strategy would be Guyana’s medium term “economic blueprint” that will include resilient infrastructure, renewable energy sourcing and narrowing the socioeconomic gaps between the coast and the hinterland.
Jordan disclosed that government was beefing up its ability to conduct macroeconomic analysis and statistical development and management by Bank of Guyana. “Personally, I would like it to go a little faster but that happens when you don’t have money and you have to depend on arrangements like multilateral lending,” he said.
The United States oil giant, ExxonMobil, intends to begin commercial oil production in Guyana in 2020. Based on the latest discovery offshore, daily production is estimated at 500,000 barrels per day.