AS Guyana prepares for oil production in 2020, Finance Minister Winston Jordan has said it would have to guard against the Dutch disease by using economic and financial policies to prevent any major appreciation of the local currency.
Speaking Friday with reporters, Jordan said it is accepted that with the budding industry and the expected large inflows of US dollars from oil on the horizon, there could be appreciation of the Guyana dollar, but noted that it all depends on the pace of development and how much of the oil money seeps into the formal economy.
He made the statement against the backdrop of establishment of the Sovereign Wealth Fund (SWF) which is geared at holding revenues derived from the oil and gas sector.
“It is like the special account for the signature bonus… but it will seep into the economy, but it depends on what rate—what rate depends on our capacity to absorb,” Jordan explained.
He noted that with a population of 750,000 people, there is a great need for capacity-building. He said oftentimes, there is money available to be spent, but cannot [be spent] because there is a lack of capacity to do so.
“I want us to guard against, in that case, people wanting to consume it as opposed to having it invested in the public sector and other investment programmes. We don’t have the capacity, we need to start building it — not only in the public sector but also in the private sector,” the finance minister said.
He gave the example of when Guyana celebrated its 50th independence anniversary in 2016. Then, there was a large influx of foreigners to Guyana and a high circulation of foreign money (US dollars). During that period, he said the rate appreciated.
“The rate appreciated, because you have far more supply of US dollars than people are demanding, so to get rid of the US dollar or for the market to clear the rate appreciated [price had to drop]. Appreciation in small economies like ours is not very good, because it has issues of competitiveness of products that you sell,” Jordan explained.