IMF urges Guyana to reverse tax reductions as oil production surges
The International Monetary Fund (IMF) on Tuesday recommended cautious policies. Guyana’s oil production is set to more than double this year and will continue growing at an average pace of 30% per year until 2026.
Earlier in September, Guyana’s government had predicted 2022 growth of 56% overall and a non-oil growth of 9.6%.
The Exxon Mobil Consortium discovered oil off Guyana’s coast in 2015, with an estimated 11 billion barrels of recoverable oil discovered so far, which the International Monetary Fund (IMF) says is one of the highest levels per capita worldwide.
Reuters says Guyana exports its oil largely to Europe as the region seeks alternatives to Russian crude and expects to bank around $1.25 billion this year from the sale of its oil share and royalties.
In a statement on Tuesday, the IMF said that while its directors agreed that surging oil output could help address development needs and buffer the economy, it also faces risks from volatile oil prices, a slowing global economy, and possible difficulties managing the resource.
The IMF welcomed Guyana’s “restraint” and prudent management of the surging oil revenues and advised the country to develop its financial and foreign exchange markets as production ramps up, flagging a possible eventual revision to its monetary policy to allow for a more flexible exchange rate.
IMF directors called for Guyana to continue “moderately ramping up public investment” by ensuring its annual non-oil overall fiscal balance does not exceed its expected oil transfers.
Since tax measures are poorly targeted tools, the IMF recommended gradually unwinding the general subsidies provided through the tax system and moving to full pass-through of international prices to domestic prices since the shock does not appear to be temporary.
Therefore other forms of government support are more appropriate. Earlier this year, Guyana removed excise tax on fossil fuels – gasoline and diesel- to cushion the impact of spiralling oil prices due to the Russia-Ukraine war.
The government has also issued billions of dollars to Guyanese in the form of grants for flood relief, Covid-19, children with disabilities, house construction supplies, school-aged children, and women’s entrepreneurial projects.
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