Call Participants

ATTENDEES

Kristen Hallam

Nicolás Suárezn

Presentation

Kristen Hallam

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Kristen Hallam

Guyana registered the world's highest real GDP growth rate in 2022 at a whopping 62.4%. Driven by its booming oil sector, the economy grew 33.9% in 2023. S&P Global Market Intelligence estimates that Guyana's economic growth will stay in the fast lane in 2024 and beyond. How is this growth making itself felt?

Guyana registered the world's highest real GDP growth rate in 2022 at a whopping 62.4%. Driven by its booming oil sector, the economy grew 33.9% in 2023. S&P Global Market Intelligence estimates that Guyana's economic growth will stay in the fast lane in 2024 and beyond. How is this growth making itself felt?

Nicolás Suárez

Thank you very much for the opportunity, Kristen.

Question and Answer

Kristen Hallam

So what is our latest estimate for Guyana's real GDP growth for 2024 and 2025?

Nicolás Suárez

Thank you, Kristen. We recently updated Guyana's real GDP growth projection. Now we are forecasting Guyana's real GDP, it will expand by 45% in 2024 and by 10.3% in 2025. Therefore, given our growth expectations, Guyana's economy will record double-digit growth rates for 6 consecutive years.

Kristen Hallam

That's incredible. Those are some big numbers there. What's your rationale for those estimates, Nicolás?

Nicolás Suárez

Well, first, we are basing our economic forecast on the assumption that the country's output will rise from 384,000 barrels per day in 2023 to 632,000 barrels per day in 2024, representing a 64.4% year-over-year increase.

For 2025, we assume that oil production will increase by around 12% year-over-year and the projected oil production expansion in the next 2 years is mainly attributed to further increases in the Payara Field development throughout 2024 and to the Yellowtail project, which is expected to come in line by mid-2025.

Kristen Hallam

So the main driver of growth is the oil sector. How fast is that sector growing?

Nicolás Suárez

Well, this is a great question, Kristen. Just to give some context first, since 2015, the country's economic landscape changed drastically following the initial oil discovery. And since then, it became the worldwide leader for offshore oil discoveries, accounting for about 30% of the global total since then.

For instance, in 2023, the share of the oil and gas sector stabilized at 57% of the total GDP compared with the 0.04% share registered in 2013. On the other hand, the share of the agricultural sector has kept declining and reached an all-time low of 9.7% in 2023.

So I must say that Guyana has completely transitioned from being driven by agricultural to a hydrocarbon-led economy. And this has been the result of expanding oil production from 72,000 barrels per day in 2020 to 384,000 barrels per day in 2023, which represents a 52% compound annual growth rate over 2020 through 2023.

Kristen Hallam

52%, another big number there. So what's spillover effect is that having on other sectors of the economy, Nicolás, like construction and services, for example?

Nicolás Suárez

Well, there was dynamism in the oil and gas sector continue to have positive second-round effects on the construction and services sectors, principally. The first sector expanded by around 27% in 2023, registering a double-digit growth rate for the third consecutive year, driven by robust development of private and public infrastructure projects around the country.

On the other hand, the services sector expanded by around 10% in 2023, largely attributed to the growth registered in the administrative and super services, the retail sector, the transport and the hotel and restaurant sectors.

Kristen Hallam

I imagine all this growth is attracting foreign investment into the economy. What has the government been doing to attract foreign investors to Guyana and what are expectations for foreign direct investment in the coming years?

Nicolás Suárez

This is a great question, Kristen. Beyond the oil sector, the current government of Guyana will keep focusing on infrastructure and economic diversification. The country has set out a robust infrastructure plan, including countrywide road network expansion and improvement and also they are seeking to increase the country's power generation capacity.

The government has emphasized that they need to diversify the economy beyond the oil and gas sector with a particular focus on agriculture, health care, education and utility sectors. Up to now, the country has been able to fund some project using its natural resource fund, which is the country sovereign world fund decided to accelerate the economic development and help mitigate macroeconomic vulnerabilities.

Although the natural resource fund withdrawals are a major source of financing these projects, the country will still need support from private investments. So that's why we still foresee, Guyana will keep offering economic incentives to investors outside the old sector over the medium term in order to have a robust development of its non-oil economy.

Kristen Hallam

Right. Now Nicolás, when one sees rapid growth like this, one also tends to expect an uptick in inflation. What is your forecast for consumer price inflation in 2024 and 2025?

Nicolás Suárez

In our business scenario, we are projecting annual consumer price inflation, it will hold at around 2.5% in 2024 and at 2.3% in 2025.

Kristen Hallam

That's not too bad actually. I think other parts of the world might envy those numbers actually. What's your rationale for those estimates?

Nicolás Suárez

Our main assumption is that food prices will continue to be the main driver of consumer price inflation over the short term. For instance, historically, annual food inflation has averaged around 3.7%. And in March 2024, it amounted to 4.6% despite the high base of comparison.

Kristen Hallam

Are there any other areas where we might see spikes in inflation, for example, maybe in wages or housing?

Nicolás Suárez

Wages and services sector also. But overall, the inflation balance of risk over the next 2 years remains biased to the upside, principally due to the following two factors. First, higher government spending over the next years could generate an expansion of credit and money supply that the local economy is unprepared to observe, potential increase in inflation across many sectors.

And second, adverse climate conditions to a strong La Niña climate phenomenon over the second half of 2024 could negatively impact the country's agricultural output increasing upside pressures on domestic food prices over the short term.

Kristen Hallam

We can't forget about La Niña, can we?

Nicolás Suárez

Yes. That's right

Kristen Hallam

So what is happening to Guyana's currency amid all this growth? And how is that impacting the economy?

Nicolás Suárez

Well, Guyana's exchange rate against the U.S. dollar has remained quite stable. However, the largest scale and rapid withdrawals from the natural resource fund into the domestic economy will exert substantial upward pressure on the Guyana's dollar over the medium term. This will threaten to around the competitiveness of traditional exporting sectors, such as agriculture and mining.

So an active monetary and exchange rate policy by the Bank of Guyana, which is the central bank of the country, will be required to avoid overheating in the domestic economy and to smooth external shut pressures. Therefore, maintaining exchange rate stability will require expanding exchange rate intervention by the Bank of Guyana to sell currency and purchase U.S. dollars.

Kristen Hallam

That sounds like one to watch. Let's pivot to Guyana's public finances. How is the government building and deploying the influx of money coming into the economy?

Nicolás Suárez

The current expansionary fiscal policy stance will continue to be financed mainly by oil revenue. So the country's natural resource fund remains the core of its public finances. This fund has grown significantly since it was established in March 2020. Initially, the fund accounted for USD 54.9 million and up to March 2024, the natural resource fund net assets amounted to USD 2.3 billion, representing around 52% of the country's total public debt.

Kristen Hallam

And what are you expecting in terms of government debt levels, Nicolás, do you see any debt payment risk?

Nicolás Suárez

This is a great question, Kristen. I will say that fiscal consolidation is ongoing as the country has managed to keep decrease in its debt to GDP ratio from 46.8% registered in 2011 to 27% in 2023, which is one of the lowest ratios among the Caribbean region. Over the medium term, we are projecting it will hold at around 53%.

And for 2024, we forecast that 60% of the total public debt will be domestic debt, principally financed through treasury bills. And regarding external debt, Guyana's cost of servicing debt is relatively light, thanks to the concessional terms of debt relief programs in which the country participates.

Over this 60% of total external debt is honed to multilateral lenders, especially the Inter-American Development Bank, which often comes on generous terms. Finally, Guyana has good relations with most external creditors, but carries a legacy of hostile policies towards multilateral agencies in the 1970s and 1980s. So the countries therefore unlikely to jeopardize these external relations, both volatile and polarized domestic politics could increase uncertainty over the medium term.

Kristen Hallam

Well, I'm sure I could ask you many more questions about Guyana, but it's time to wrap up our discussion, Nicolás. Any final thoughts or top takeaways for our listeners?

Nicolás Suárez

Thank you, Kristen. Well, to conclude, Guyana remain the fastest-growing economy they were in 2023 for the fourth consecutive year. The country's robust oil and gas sector will continue to be the main driver of the economy, having positive second-round effects, principally on the construction and services sectors.

Therefore, S&P Global Market Intelligence projects Guyana's non-oil real GDP will increase by 12.2% in 2024 and will expand by around 7% throughout 2028. Therefore, investment opportunities in Guyana remain ample.

Kristen Hallam

All right. And there you have it on the world's fastest-growing economy. Thank you so much, Nicolás, for sharing your insights with us today. And thanks to you, our listeners, for tuning in. Please join us next week to learn more about the forces, creating risks and opportunities for businesses in 2024.

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