ExxonMobil recently announced that some US$55 billion in investment in the Stabroek Block has been fully recovered and that Guyana is expected to receive higher oil revenues. In this case, only operating expenditure is to be reflected as recoverable costs.The 2016 Petroleum Sharing Agreement provides for the recovery of costs of up to 75 percent of the value of oil on a monthly basis, with the remaining 25 percent, known as profit oil, to be shared equally between the two parties to the Agreement.
With this announcement, the 75 percent cost recovery will be significantly lower, but by how much, it is unclear. Former Minister of Finance Winston Jordan estimates that oil revenue accruing to Guyana is likely to triple, a position echoed by the Leader of the Opposition.Mr. Jordan, however, warned that in the absence of ring-fencing provisions, costs that are unrelated to the Stabroek Block could be added to the recoverable costs, thereby having a negating effect on the expected increase in oil revenue.
It is of utmost importance that a robust system is in place for the audit of recoverable costs to ensure that only eligible expenditure are recognized and reflected in the monthly cost statements. Unfortunately, except in the case of first audit undertaken by IHS Markit, such a system is not in place, as the consortium of local auditors that was selected lacked the requisite competence and experience to undertake such an audit. It would have been more appropriate for IHS Markit to be retained for the subsequent audits with the local auditors participating to gain the necessary experience. Indeed, it is too risky for inexperienced auditors to be tasked with such an important assignment, as faulty audits can result in Guyana losing significant amounts of oil revenue.
The IHS Markit audit, which covered the period 1999 to 2017, found US$214 million in questionable transactions. After nearly five years since the related report was issued, the dispute is yet to be resolved via arbitration. If these charges are not removed from the cost recovery statement, Guyana will lose US$107.2 million in oil revenue.
Two subsequent audits covering the periods 2018-2020 and 2021-2023 were undertaken by VHE Consulting, the consortium of local auditors referred to above. It is unclear what is the outcome of these audits. The latest information is that the two related reports were forwarded to the Guyana Revenue Authority for review. The Minister of Natural Resources had promised that once the review is completed the report would be made public. More than a year after the issue of the last report, the public is still awaiting word from the Minister.
Last week, we began a discussion on the recently released preliminary report on the 2026 International Monetary Fund (IMF) Article IV Consultation on Guyana. We made some general comments in relation to the lack of consultations with the political opposition, some key civil society organisations and the independent media. We felt that had the IMF team done so, it would have benefited from a more balanced view of the performance and state of the economy and its future prospects.
So far, we have covered the team’s assessment of the Gross Domestic Product (GDP) growth, inflation, unemployment, and fiscal position. We felt that the use of the total GDP has to be interpreted with extreme caution, especially when assessing the fiscal deficit as a percent of GDP and debt-to-GDP ratio, among others, since such assessment will result in a more favourable performance of the economy than what actually prevails if the non-oil GDP had been used as the denominator. The total GDP, it is to be noted, includes total oil production, 87.5 percent of which belongs to ExxonMobil’s subsidiaries. We also referred to Guyana’s high income status which the IMF uses as a benchmark, at a time when 58 percent of the population lives below the poverty line, with 32 percent in extreme poverty.
In today’s article, we conclude our discussion on the 2026 IMF Article IV Consultation Report which we note will be subject to review by the IMF Board and issued as a final report.
Foreign exchange
The IMF team considered that the strong foreign exchange demand, especially from private investment with heavy import content, kept the foreign exchange market tight; and asserted that tight monetary conditions have helped maintain price and exchange rate stability. At the end of last year, the Bank of Guyana had gross international reserves of US$1.3 billion, representing approximately less than two months’ supply of foreign currency for the importation of goods and services.
It is public knowledge that there is a shortage of foreign currency, and many businesses have to wait weeks to get such currency from the banking system. At some cambios, the US dollar is trading at aroundG$237 to US$1 against the official exchange of G$208.5 to US$1. These observations are contrary to expectations that the influx of foreign currency resulting from oil and gas activities would have caused the Guyana dollar to appreciate in value. Instead, the reverse is happening, which the Authorities need to explain and address.
Natural Resource Fund
According to the IMF, the continued accumulation of oil revenue in the Natural Resource Fund (NRF) is helping to build external and fiscal buffers. One must note that the Authorities have been withdrawing the maximum allowable amounts from the Fund to finance approximately one-third of the National Budget. Section 3 (1) (c) of the NRF Act, however, makes it clear that funds have to be set aside for the benefit of future generations when it refers to the need for ‘fairly transferring natural resource wealth across generations to ensure that future generations benefit from natural resource wealth’. It follows that the balance on the NRF belongs to future generations and should not be taken into account in any consideration of Guyana’s economic outlook.
Infrastructure development
The IMF noted the large investments in physical and human capital in supporting non-oil growth and improving outcomes, especially in health and education. Many stakeholders will, however, argue that enough emphasis is not being placed on human capital, considering the low level of wages being paid to both public and private sector employees and the level of poverty that currently exists in the country. In this regard, we venture to state that there is an over-emphasis on infrastructure development, such as roads, bridges, schools and hospitals, which consume more than 50 percent of the National Budget. These expenditures are incurred at the expense of human development. Is it any wonder that trained employees, such as teachers, nurses and university graduates, are leaving the country in droves in search for better working and living conditions for themselves and their families?
While infrastructure development is necessary, so too is human development, and an appropriate balance needs to be struck between the two. Infrastructure development of necessity must involve projects that enhance productivity and support the most vulnerable groups in the country; be wisely undertaken having regard to the results of feasibility studies to determine economic and social viability; and ensure that the best value for money is obtained and the related expenditure is not considered extravagant and wasteful.
Economic outlook
According to the IMF, the economic outlook remains highly favorable with oil production continuing to expand along with high oil prices. It, however, warned that, while such an occurrence would further improve fiscal and external accounts, it could also intensify overheating pressures, leading to real exchange rate appreciation beyond the level consistent with a balanced expansion of the economy, with oil price volatility adding to fiscal risks. The IMF also stated that there are no clear signs of overheating or resource-driven competitiveness pressures. But strong wage growth and wage-based real exchange rate indicators need to be closely monitored. The non-oil economy is projected to grow by about seven percent on average over the next five years.
Except for stating that adverse climate shocks may negatively impact the economy, the team appears oblivious about the adverse effects of Guyana’s contribution to global warming and climate change, primarily due to the extraction and burning of fossil fuels. As UN Secretary-General António Gutteres stated, the earth is on fire. Currently, there are forest large fires in parts of Canada and Europe, with two rivers – Danube and Tiber – drying up, while in other parts of the world there are massive floods due to excessive rainfall.
The need to ensure that a sufficiently diversified economy is in the place to absorb shocks that may emanate from the volatility of oil prices cannot be over-emphasised. Additionally, sustained efforts need to be made to have alternative sources of energy, such as from solar energy and electricity generated from wind power. At the moment, we appear to be content having a mono-economy centred around oil production.
Public debt
The IMF spoke glowingly that Guyana has one of the lowest debt-to-GDP ratios in the hemisphere and that the authorities’ prudent borrowing strategy continues to support debt sustainability, with the risk of debt distress assessed as low. Again, we may point out the distorting effects of the use of the total GDP. Had the non-oil GDP been used, the debt-to-GDP ratio would have been significantly higher. At the end of 2019, the public debt was US$1.863 billion. It is projected to reach a staggering US$10.3 billion by the end of the year, an almost six-fold increase 2026! Suffice it to state that it is the future generations that will have to repay this debt which from all appearances represents reckless borrowing.
Governance
The IMF team asserted that continued strengthening of governance frameworks have helped sustain macroeconomic stability, support growth, and advance national development priorities. Many stakeholders will disagree with this assertion since the quality of governance has left much to be desired. For example, for the past 21 years there has been no substantive Chancellor of the Judiciary and Chief Justice. The National Assembly rarely meets, and several of the committees of the Assembly are not functioning.
The IMF referred to the timely availability of the audited public accounts, efforts to strengthen internal audit capacity, and the need to prioritise the audits of public enterprises and other State-owned/controlled entities. It is public knowledge that many State agencies are significantly in arrears in terms of financial reporting and audit, with the Audit Office having hundreds of draft financial statements waiting to be audited; while the auditing of the public accounts has so far been a cosmetic exercise to give the impression that there are timely audited accounts of the country.
These audits have over the years been lacking in risk assessment to determine priority areas on which the audit focus should be, with the current Auditor General not being a qualified accountant having served 21 years so far and has recently been given an extension of service by another two years! Additionally, most of the larger Ministries and Departments continue to lack internal audit capacity, and there is no evidence over the years of efforts being made to address the issue. Additionally, the Public Accounts Committee’s scrutiny of and reporting on the public accounts is now six years in arrears These matters have escaped the attention of the IMF team, which appeared to accept the Authorities’ explanations without any form of verification.
The IMF also referred to the Authorities’ efforts to further strengthen public procurement practices and ensure consistent compliance with the procurement framework as well as their strong commitment to strengthening AML/CFT and anti-corruption frameworks, including the continued strengthening of the Integrity Commission. Again, it is public knowledge that our procurement system is broken and that it facilitates corrupt behaviour and other undesirable practices. Additionally, the effectiveness of the work of the Integrity Commission is yet to be felt, as discussed in detail in previous articles.
Discussion