Guyana’s economic fortunes are set to be completely transformed as oil wells drilled off the coast continue to pile up reserves.
Winston Jordan, finance minister of the small South American nation of 730,000 people, said oil is a “game-changer.”
“We have a per capita income of $5,000 and oil will change this. We are going to have the opportunity to build a country that we have always dreamed about,” he told Global Markets on Friday on the sidelines of the Inter-American Development’s annual meeting in Paraguay.
He is not exaggerating. If plans work out, Guyana stands to earn approximately $40bn in revenue from reserves discovered by a consortium led by Exxon Mobil and including US-based Hess and China’s CNOOC.
Exxon Mobil announced positive results from its seventh well drilled on the 6.6m acre offshore Stabroek Block on Thursday. An eighth well should be drilled in the second quarter. Estimates from initial wells drilled are around 1.4bn barrels. Jordan said the new estimates were now closer to 2.3bn barrels. Under the current plan, Guyana should be added to Latin America’s oil producers in the second quarter of 2020.
Oil will easily replace gold as the country’s top income earner. There are currently two large gold mines in the country, Canada’s Guyana Goldfields and Australia’s Troy Resources. Russia’s Rusal and China’s Bosai Minerals Group mine bauxite and Bosai received permission in January to restart a manganese mine.
The Guyanese government is preparing for its future management of oil wealth. It is preparing a tax policy for revenue and the framework for a sovereign wealth fund. Jordan said there were no plans to borrow against future wealth, something that pleased the International Monetary Fund during its mission in the country in March.
“The mission commended the authorities for refraining from non-concessional external borrowing against future oil revenue and urged them to continue to maintain a prudent external debt stance,” stated the IMF.
The government also continues to work through a series of reforms that should ensure growth close to 4% and inflation at 2.5% this year. Its debt-to-GDP ratio has increased somewhat, likely topping 50% this year, but it is among the best in the Caribbean.
“Our debt to GDP last year was under 50%. We can smile now, because we have come a long way. At one time it was like 700% of GDP,” said Jordan.
Guyana, like many countries in the region, has also implemented tax reform. Unlike most others, however, it actually lowered most of its tax rates on January 1.
It lowered the value-added tax to 14% from 16%, but expanded its application to more products and services. It also reduced income tax two points to 28% and tax on manufacturing 2.5 points to 27.5%.
“We are going to experience some adjustments this year, but in the long run the tax return will broaden our tax base and increase revenue,” said Jordan.
Tax collection in 2016 was equivalent to 30% of GDP. The goal is to increase it to around 35%.