GROUP PROJECT REPORT

EMERGING MARKET ECONOMIES

Faculty In-charge
Dr Sangeeta Kamdar
Date of Submission
24th August, 2021

COUNTRY - GUYANA

Submitted By

Name Roll No
Shubhangi Gupta G003
Abhinav Narayana G013
Shashwat G033
Sonal Bajoria G043
Tanvi Maheshwari G057
Anosh Mody E031
 UNDERSTANDING ECONOMY OF GUYANA MACROECONOMICS PERSPECTIVE

1. INTRODUCTION
1.1 About Guyana
Co‐operative Republic of Guyana is a country located on the northern mainland of South America. It
is considered part of the Caribbean region due to its close cultural, historical, and political relations
with other Caribbean countries and the Caribbean Community (CARICOM). Guyana crosses the
Atlantic Ocean to the north, Brazil to the south and southwest, Venezuela to the west and Suriname
to the east. With a surface area of 215,000 square kilometers (83,000 sq. mi), Guyana is the 3rd largest
sovereign state in mainland South America after Uruguay and Suriname; it is also the second-largest
sovereign state in South America after Suriname.
1.2 About Guyanese economy
• The Guyanese economy has seen modest economic growth in recent years and is primarily focused
on agriculture and extractive industries. The Guyanese economy is reliant on the export of 6
commodities- timber, sugar, gold, shrimp, bauxite, and rice-which account for almost 60% of the
country's GDP and are highly vulnerable to weather conditions and variability in commodity prices.
With a record gold output of 700,000 ounces in 2016, gold production in Guyana is balancing the
economic impact of declining sugar production. An estimated 3.2 billion barrels of oil were found
offshore in January 2018 and Guyana is expected to become a petroleum producer by March 2020.
• Guyana has seen growth almost every year over the last decade. Inflation has remained under
pressure. Despite recent progress, the government is still jingling high external debt with the urgent
need for increased public spending. In 2007 March, the American Development Bank, Guyana's
largest donor, cancelled Guyana's almost $470 million debt, equal to 21 per cent of GDP, which,
along with the other Highly Indebted Developing Country debt forgiveness, took the debt-to-GDP
ratio down from 183 per cent in 2006 to 52% in 2017. Guyana had become heavily indebted because
of the inward-looking, state-led paradigm of growth followed in the 1970s and 1980s. Chronicissues
include a lack of skilled workers and a lack of infrastructure.

2. OBJECTIVE OF THE ANALYSIS

• The objective of this study is to understand the growth and development of the Guyanese economy
over the past decade, which is linked with several macroeconomic parameter that determine the
functioning of the economy.
• The analysis also aims to understand the impact & compare the Guyanese economy with respect to
the world economy. Macroeconomic concepts like inflation, population, GDP, unemployment, and
multiple other factors have been used to compare the economies.
• Further the macroeconomic policies implemented by the Guyanese economy would be examined
from the perspective of the need of such policies, their appropriateness, and their contribution to the
growth momentum of the nation
• Finally answer the question whether Guyana is an emerging market economy or not.

3. ANALYSIS OF THE MACROECONOMIC SCENARIO OF THE GUYANESE ECONOMY

3.1 Before the Past Decade
• The Dutch were the first to settle in Guyana in the 1600s, engaging in trade and establishing
plantations. The soil and climate were ideal for growing sugar cane and slaves from Africa were
brought in to work on these plantations and the economy prospered.
• After a relatively good start following independence in 1964, Guyana's economy has declined
almost continuously since 1967. In 1970, during Burnham’s presidency, every sector of the industry
was nationalized as socialism was of great interest at that time. Initially, government intervention
was successful to some extent to boost growth. Owing to weak management skills and world
commodity prices and competition, it was not able to sustain for long. In 1965, Guyana joined
the Caribbean Free Trade Association (CARIFTA), now called the Caribbean Community
(CARICOM)
 • Agriculture and mining were Guyana's most important economic activities. Other than these sugar,
bauxite, rice, and gold accounted for 70–75 percent of export earnings. Ocean Shrimp exports
represent 11 percent of export earnings in 2000. Other minor export items include timber, diamonds,
garments, rum, and pharmaceuticals. The value of these other exports was on rise.

3.2 The Past Decade

• The Guyana economy has had modest economic growth in the recent years and is mainly focused
on agriculture and extractive industries. The economy is heavily dependent on the export of 6
commodities-sugar, gold, shrimp, bauxite, timber, and rice. It accounts for almost 60% of the
country's GDP. Basically, 60% of Guyanese GDP is subjected to volatility due to adverse weather
conditions and fluctuations in commodity prices. Guyana sugar production in 2018 reduced to
147,000 ton which is less than half of 2017 production due to closing and consolidation of several
sugar estates in 2017.
• Much of Guyana's growth in last decade has come from a surge in gold production. It produces a
record-breaking 700,000 ounces of gold in 2016. The gold production even offset the economic
effects of declining sugar production.
• Guyana's long-standing economy was dramatically changed in 2015 with the discovery of a rich
offshore oil field in the country's waters, about 120 miles from Georgetown. By the end of 2020,
another 17 oil fields had been discovered in the Stabroek Block of Guyana, and it was estimated
that by 2025 these fields would yield around 750,000 barrels of oil every day.

3.3 Studying the economy using Macroeconomics indicators

GDP : $6.806 billion (nominal, 2020 est.)

GDP rank : 148th (nominal, 2020) 158th (PPP, 2018)
GDP growth : 4.4% (2019), 86% (2020 forecasted)
GDP by sector : agriculture: 15.4% industry: 15.3% services: 69.3%
Unemployment : 12.2% (2018)

4. UNDERSTANDING ECONOMY BY ANALYSING MACROECONOMIC INDICATORS

4.1 Nominal GDP or GDP at Current Prices
It represents the total value of goods and services produced within a country during one year at current
prices i.e., making no adjustment for inflation.

Since the inflation in Guyanese economy is under control, GDP at current prices and at constant prices
would not vary much. The production of goods and services in the country is about to explode. It can be
attributed mainly to oil production which will show its effect in coming years. According to projections, it
will grow threefold to 14.08 billion USD in 2025 from 5.174 billion USD in 2019.
4.2 Real GDP Growth Rate
The GDP growth rate contrasts one year (or quarter) of the GDP of a country to the previous year (or
quarter) to calculate how quickly the economy is growing. Usually expressed as a percent figure, this
indicator is common with economic policymakers because GDP growth is, however, closely relatedto
main policy goals such as inflation and unemployment.
Since its independence, Guyanese economy has seen many years of negative growth rate or very low
growth rate even being a developing economy. This all is set to change as it registers a 26.2% growth
rate even in times when the whole world economy is crashing due to covid-19 pandemic.

It is also attributed to the oil reserves which makes the growth rate of 5.4% in 2019 climbs to 26.2% in
2020.

4.3 GDP per capita at current prices

It is a measurement of the GDP per person in a country's population. It indicates the amount of output
or income per person in an economy. It is also indicative of average productivity or average living
standards.

Since Guyana has a very less population, it has a very good GDP per capita as compared to other
emerging economies which has a huge population.
GDP per capita is almost constant throughout the decade but 2020 registers an increase due to increase
in nominal GDP. Hence, the output per person is also on the rise as population is constant.
4.4 GDP at Purchasing Power Parity (PPP), current price
Economists often face problem comparing GDP of a country to another. Hence, this parameter measures
GDP in international dollars using the method of Purchasing Power Parity (PPP). It adjusts for local
prices as well as difference in cost of living and gives real picture of cross-country comparisons.
In 2020, it increases to 13.66 billion USD as compared to 10.67% in 2019. It is quite a significant change
indicating that the increase in GDP is attributed to economic activities, not due to inflation or any
difference in global parameters.

4.5 Inflation Rate, Average Consumer Prices Index (CPI)

It is percent change in average CPI. CPI is average level of prices based on cost of a basket of goods
and services in each period. In short, the inflation rate measures a broad fall or rise in prices that
consumerspay for a standard basket of goods or services.
Pre 1995: The rise in petrol prices in 1979 appears to have had a continuing impact on the economies
of Guyana in the early 1980s. Moreover, insufficient domestic policies have helped to intensify the
inflation crisis in the country. In Guyana, the inflation rate jumping in 1987, resulting in the devaluationof
the local currency, was the product of production bottlenecks and a marked rise in public spending.
Post 1995: The average value for Guyana during that period was 4.6 percent with a minimum of -0.9
percent in 2015 and a maximum of 12.2 percent in 1995. In 2019, the inflation rate is 2.1 percent. It is
quite lower than the world average as the world average in 2019 is 3.8 percent (average of 149 countries).

Instead of taking average we can also take inflation rate at end of period, but those results are quite
synchronous in this case.

4.6 Population
The Population of Guyana is growing steadily at a predicted, reliable, and unchanging pace. It has only
grown from 764000 in 1980 to 787000 in 2020.
Guyana has a highly educated population, although 50% of them have migrated to the United States,
Canada, and the United Kingdom. Brain drain has been a common issue for Guyana over the past several
decades, in addition to the development challenges due to a declining population base to support
productive activities in a relatively small economy.
However, the overseas diaspora of Guyana also contributes greatly to the economic growth of Guyana
through the large number of remittances sent home. The birth-rate in Guyana is also dropping and
combined with out-migration, the population growth for the country will continue to be stagnant in the
future.
A low population is also good in the sense that per capita income is rising sharply due to that. Every
citizen can have access to prosperity, and it can be beneficial to the country as a whole.

4.7 Current Account Balance as percentage of GDP

The ratio of the current account balance to the Gross Domestic Product provides an indication of the
country's level of international competitiveness.
 The current account deficit is projected to decrease from -22.7 to -18.4 percent of GDP from 2019 to
2020, with the commencement of oil exports. The deficit would be funded primarily through FDI inflows
anddonor-supported spending. In the medium term, the balance of the current account will continue to
increase as oil-related imports decrease with the completion of oil fields and as oil exports from Liza II
begin in 2022.Public debt (including guarantee) is expected to peak at 56.6 per cent of GDP in 2019,
with a sharp fall from 2020 to 15.8 per cent of GDP by 2024, as the incoming oil revenues substantially
reduce borrowing needs and raise GDP. Guyana's Debt-Sustainability Analysis (DSA) indicates that the
probability of external and global debt distress remains moderate at present, but the debt dynamics will
change dramatically as oil production starts, as will give the country ways to absorb volatility in the market

5. ANALYSIS OF THE MACROECONOMIC SCENARIO OF THE GUYANESE ECONOMYWITH

RESPECT TO GLOBAL BLOCS, GROUPS OR REGIONS
CARICOM Community
Guyana is no longer a remote nation on the north-eastern shoulder of South America, as it once was.
The convergence of major oil discoveries strengthened global connectivity and a better-connected
diaspora in North America, the United Kingdom and the Caribbean means that Guyana is no longer on
the periphery of the global economy. It has drawn major multinational corporations, including
ExxonMobil and Hess, Spain's Repsol, and China's CNOOC.

100%
80%

60%

40%

20%

0%
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Antigua and Barbuda Bahamas, The Barbados
Belize Dominica Grenada
Guyana Haiti Jamaica
Montenegro Saint Kitts and Nevis Saint Lucia
Saint Vincent and the Grenadines Suriname Trinidad and Tobago
6. STRENGTHENING COMPETITIVENESS AND BOOSTING GROWTH WITH STRUCTURAL REFORMS
6.1 Addressing skilled labor shortages –
The lack of skilled labor continues to constrain medium to long term growth. The school enrolment
ratio at tertiary levels for Guyana is about 12 percent, much lower than the Latin America and the
Caribbean average of 44 percent. The current low expenditure on education of 10 percent relative to
the Caribbean average of 18 percent of total government expenditure highlights the need to increase
expenditure on education policy reforms to expand and improve the curriculum to better connect to
modern labor market, access to education, and enhancing vocational training. This would address the
skill gaps and satisfy an expected increase in labor demand, Guyana could adopt more liberal or open
immigration policies, including free movement of allcategories of workers from other CARICOM
countries. Female labor participation declined slightly from 42.6 percent to 41.2 percent from 2017 to
2018. Promoting more flexible working hours and by providing better facilities could lead to increase in
female labor participation.
6.2 Improving Infrastructure –
Inadequate infrastructure remains a key barrier to investment. Efforts are in progress to improve access
to electricity, roads and telecommunication services to enhance shared growth, employment
opportunities and help to reduce economic disparities between coast and the hinterland. Given
Guyana’s vulnerability to climate risks and related natural disasters, more effort should be put on
developing climate resilient infrastructure networks.
6.3 Improving the business environment will unlock the potential of the private sector-
Guyana continues to rank underperform according to
the regional average, at 134th out of 190 countries,
reflecting challenges in dealing with construction
permits, getting electricity and resolving insolvency;
but ranks well in protecting minority investors.
Reforms to the ‘doing business’ environment is
necessary to ensure that non-oil industries remain
competitive. Key reforms that can be used to improve
the business environment are:
• Amendments to the code of practice to
simplify the issuance of construction permits
and inspections improving the procedures
and reducing the time and cost of accessing
electricity
• Strengthen the legal framework for dealing
with insolvency and judicial liquidation
 6.4 Energy sector - High energy costs remain a constraint to growth. Using Guyana’s natural gas
resources for power generation will help to improve the cost-effectiveness, energy efficiency and
sustainability of the current energy matrix, while providing cleaner energy solutions. By increasing the
generation and transmission capacity of GPL immediate energy needs can be met while renewable
energy initiatives such as solar, wind and bio energy are being pursued. Low Carbon Development
Strategy, according to which Guyana commits to reduce emissions and deforestation in exchange for
development assistance bodes well for the transition to the green economy.

7. GOVERNMENT POLICIES TO PROMOTE INVESTMENT

FDI inflows to Guyana surged significantly in 2019, hitting USD 1.7 billion, up from USD 1.2 billion in
2018, according to the UNCTAD's 2020 World Investment Report. In 2019, the total stock of FDI was
anticipated to be USD 6.3 billion. According to a recent announcement by the United Nations
Conference on Trade and Development (UNCTAD), GUYANA has topped the CARICOM region in
terms of Direct Foreign Investment (FDI), second only to the Dominican Republic.
Traditionally, transportation, communications, mining, and agriculture have accounted for the majority of
foreign direct investment, but with the commercialization of oil and gas, the investment portfolio has
shifted to reflect the new and changing dispensation. This is good news for the country, especially in the
wake of the COVID-19 pandemic, which has resulted in a global economic slowdown and a subsequent
reduction in development aid.

Openness to, and restrictions upon, Foreign Investments:

The Government of Guyana (GoG) supports the Guyana Office for Investment (GO-Invest). The Guyana
Office for Investment (GO-INVEST) administers investment rules for the country. Agriculture and agro-
processing, manufacturing, services, energy, tourism, forestry, information and communication
technology and mining are among the top areas to invest in Guyana, according to them. All the
investments go through GO-Invest, and many are rejected basis lack of sufficient capital. Thus, over
involvement of state ends up hampering the prospective FDIs.
Investment Act, 2004: Guyana has sufficient legislation to allow foreign investment, but the country's
implementation of that legislation is extremely poor. The Investment Act of 2004 aims to promote
socioeconomic growth by attracting and retaining investment foreign investment facilitation.

In the World Bank's Doing Business report 2020, the country was placed 134th out of 190 countries for
its business environment, unchanged from the previous year. Despite the government's commitment to
foster public-private partnerships, foreign direct investment in the country is low due to a lack of
attractiveness and a weak domestic market, but it has recently increased due to the attraction of the oil
and energy sectors. The Republic of Guyana, on the other hand, provides a favorable economic climate
for foreign investors. The government provides many investment incentives, including a flat business tax
rate, customs duty waivers, export tax exemptions, and unrestricted profit repatriation.
Infrastructure difficulties (roads, irrigation, sanitation) are addressed through loans from the Inter-
American Development Bank (IDB), freeing up funds for other projects. Since entering CARICOM (the
Caribbean Community and Common Market) over a decade ago, regional investment has expanded.
The tourism industry is particularly appealing to investors since the government provides tax exemptions
for a variety of industries, including hotels, resorts, lodges, and tour companies, among others. Rising oil
revenues in Guyana are likely to make a big difference in the country's future development.

However, a stable regulatory and fiscal environment is required for Guyana to realize its full potential
with the finding of these resources. Oil and gas companies have committed over USD 8.1 billion in
exploration and development efforts in Guyana's offshore industry since the discovery of offshore
reserves in 2015. According to the government, the arrangement with Exxon Mobil will bring in USD 300
million in 2020, and will increase to USD 5 billion by 2025. In 2020, Hess plans to invest USD 1.3 billion
in capital and exploration in Guyana.
Risks
➢ Poor infrastructure
➢ Currency fluctuations
➢ Commodity-dependent, hence sensitive to fluctuation in commodity prices
Opportunities
➢ The Guyanese government is pushing for public-private partnerships
➢ Offers investment incentives including flat business tax rate, waivers for custom duties, export tax
allowance and no restrictions on repatriation of profits
➢ Steps to boost infrastructure in roads, irrigation and sanitation
➢ Agriculture and agro-processing, manufacturing, services, energy, tourism, forestry, information
and communication technology, and mining are the top sectors to invest in Guyana.
➢ Tourism sector is particularly attractive for investors. The government offers tax breaks for various
segments within this sector, like hotels, resorts, lodges, and tour operations
8. CONCERNS, CONCLUSION AND SUGGESTIONS
• According to the IMF, Guyana's economy grew an estimated 4.7% in 2019, driven mainly by the
country's agriculture and extractive industries - which are highly susceptible to weather and variations
in commodity prices. However in 2020, the IMF expects the Guyanese economy will grow 52.8%,
thanks to the large quantity of oil discovered offshore, which has made it the country with the most
amount of oil per person in the world. The discovery of the of oil reserves, and the subsequent
opportunities is considered a transformative opportunity for the country's economic prosperity.

• Government balance had a deficit of -3.7% of GDP in 2019 but it is projected to improve to -0.6% and
-1.6% in 2020 and 2021, respectively. The inflation rate remained low at 2.1% in 2019, and it is
expected to decrease to 1.8% in 2020 and increase to 3% in 2021, according to the latest World
Economic Outlook of the IMF.

• Government debt grew to 55.5% of GDP in 2019, but it is expected to decrease to 24.6% and 23.1%
in 2020 and 2021. Less than 50% of Guyana's debt is owed to external creditors which is a key
indicator of financial health.

• Guyana is currently ruled by President David Granger, who heads a multi-ethnic coalition led by two
parties, A Partnership for National Unity (APNU) and the Alliance for Change (AFC). He vowed to end
the racial divisions that have dominated the country's politics since its independence in 1966. This
political change has impacted the territorial conflict with Venezuela regarding the Essequibo region,
especially after oil was discovered off the region's coastline and Granger granted explorationcontracts
to Exxon-Mobil, which Venezuela sees as a violation of the Geneva Agreement.

• The government programs also include infrastructure development and a reduction in emissions and
deforestation in exchange for development assistance given that the country faces a depletion of its
mining resources and a reduction in the sector's business activities. The growth has been restrictedby poor
quality infrastructure, and a lack of skilled labor - particularly in the fields of science, technology, and
engineering. To fully utilize opportunities related to oil development, the Government has also carried
out structural reforms to improve the business environmentand fight corruption.

• Guyana needs to heavily invest in its infrastructure. As an American Development Bank report in 2019
observed: “The infrastructure stock is inadequate to support delivery of public services or facilitate
private sector growth. The country’s transportation infrastructure needs to be substantially improved
to support growth in the private sector.” High energycosts, dependability of electricity and upgrading
the country’s telecommunications system also needattention. By increasing their infrastructure, they
can improve the business environment and attract foreign investment in the country.

• Guyana has a lot of scope to grow as a country and with the recent discovery of oil rich sources they
can expect to grow at a much faster rate. Due to the oil sources, they have also increased their
connectivity with other countries which will also help boost trade. They should utilize this opportunity
to increase their trade in agricultural sector which already contributes heavily to their GDP.

• Guyana can introduce a “regulatory sandbox” similar to what Singapore implemented. They created
special areas where certain regulations were relaxed for private sector companies by providing them
benefits such as tax benefits. This method can be used to encourage companies to setup businesses
in Guyana
PLAGIARISM REPORT
REFERENCES
1. https://www.britannica.com/place/Guyana/Economy
2. https://theglobalamericans.org/2020/10/guyana-and-the-next-economic-
wave/#:~:text=The%20combination%20of%20massive%20oil,outskirts%20of%20the%20glob
al%20economy.
3. https://www.imf.org/en/Countries/GUY#countrydata
4. https://marquee.gs.com/l/?authLevel=40000&From/guyana
5. https://www.gbm.hsbc.com/countryanalysis/guyana
6. https://markets.jpmorgan.com/region/guyana
7. https://www.bloomberg.com/opinion/articles/2020-09-01/guyana-s-oil-bonanza-could-inflame-
its-ethnic-divisions