Event

The coalition government led by President David Granger’s A Partnership for National Unity (APNU) lost a vote of no confidence on 21 December 2018. According to the Guyanese constitutional mandate, elections must be held within 90 days of a no-confidence vote. However, a fixed date has not been set yet. Granger’s APNU government delayed scheduling an election, appealing the December 2018 vote to three separate courts. After the ruling was upheld in June 2019, the Guyana Elections Commission claimed it would need several months to update the national voter registry. A week ago, President David Granger announced the country would hold general and regional elections on 2 March 2020 ‘at the earliest’.

Impact

Upcoming elections increase the likelihood of the opposition’s People’s Progressive Party-Civic (PPP-C) returning to power. Following the vote of no confidence in December 2018, the PPP-C has not recognised any law, policy or contract made by the current government. The government is also unable to pass a budget for 2020 until elections are held. The political uncertainties affect the country’s stability and increase investment uncertainty. Furthermore, several diplomats from the USA and Europe expressed concerns and threatened to withhold foreign assistance to Guyana if new elections kept being delayed.

The political uncertainties come at a crucial time for Guyana, whose small economy draws on natural resources and relies heavily on gold, rice, sugar and bauxite. However, the country stands at an important crossroads of transformation thanks to the discovery of large offshore oil reserves. Indeed, Guyana is expected to become a significant oil-producing country in 2020, when oil production comes on stream. If this happens, real GDP growth will likely explode to 86%. Furthermore, current account receipts would quickly rise: estimates show they would more than triple in 2022 vis-à-vis their level in 2018. As a result, the very wide current account deficit (estimated at -22.4% of GDP in 2019) would improve in the medium term. However, the improvement would not be spectacular, as current account payments would quickly rise as well due to large-scale imports of equipment for oil extraction. In addition, the moderate external debt ratios vis-à-vis GDP (of around 43%) and vis-a-vis current account receipts (of about 80%) would halve. Lastly, the fairly low foreign exchange reserves (covering about 2 months of import in July 2019) would quickly rise.

The political uncertainty puts expropriation risk (currently in 4/7) under pressure. Indeed, the fact that the opposition has not recognised any law, policy or contract made by the current government since December 2018 makes contract alteration more likely if the opposition wins the elections. Guyana has a short-term political risk rating of 4/7 and a MLT political risk rating of 6/7. At this stage, none of these ratings are expected to change. That being said, the MLT political risk rating has a positive outlook which depends on oil production coming on stream and political uncertainties being solved. Other challenges include high levels of crime, Venezuela claiming around two thirds of Guyanese land and maritime territory and a slowing global economy. Furthermore, if oil revenues come on stream, the Dutch disease risks looming. This term refers to the woes of the Dutch economy after large gas reserves were discovered in 1959. The Dutch disease fuels macroeconomic distortions and inflationary pressures. It can also lead to rising unemployment, higher corruption, a weakened banking sector, increased social unrest and erosion of the competitiveness of non-oil sectors.

Analyst: Jolyn Debuysscher – J.Debuysscher@credendo.com