Oil in Guyana: A Blessing or a Curse?
Photo Courtesy: Richard Masoner via Creative Commons
Since ExxonMobil discovered over 11 billion barrels of oil in 2015, Guyana has undergone a rapid economic transition. President Irfaan Ali has now initiated a new round of grand designs to help ensure that all Guyanese citizens benefit from this newfound national wealth. In a one-off handout, President Ali announced that every adult citizen would be given a G$100,000 (£369) cash grant. The handouts are part of a larger scheme to use oil revenues to raise disposable income, reduce poverty, and eliminate inequality. Besides the grant, the government has lifted over 200 taxes and plans to eliminate tuition fees at the University of Guyana as of January 2025. But with Guyana’s GDP soaring by an unprecedented 62.3% in 2022, the question is: how sustainable are the measures, and what long-term consequences might they have? Will oil wealth make for a pampered nation or push Guyana toward the pitfalls of the notorious ‘resource curse’?
The term ‘resource curse’ highlights the economic challenges that countries with abundant non-renewable resources often face, and it is a significant concern for many developing nations. It underscores the crucial role of leadership in shaping a sustainable financial future. Oil windfalls can create a false sense of wealth among policymakers, leading them to neglect diversification and adopt unsustainable fiscal policies.
If Guyana becomes oil-dependent, it could become another country that squanders its resource riches through bad policy. For example, Venezuela, Trinidad, and Tobago have faced economic turmoil and civil unrest after years of reliance on oil exports. Guyana's leadership should heed these cautionary tales as it plots its financial future.
Effective management of oil wealth requires strong institutions that ensure transparency and accountability in government spending. This poses an immense challenge for a country where institutional mechanisms are still maturing, especially given the additional corruption risk in resource-rich countries. Furthermore, Guyana is already feeling the pull of foreign powers, particularly China. Dozens of Chinese companies have won contracts for projects ranging from construction to energy infrastructure, often backed by loans that carry political and economic conditions. These loans can lead to ‘debt-trap diplomacy’, where recipient countries like Guyana risk becoming overly reliant on Chinese funding and, consequently, more susceptible to influence over their domestic policies. This reliance can undermine Guyana’s ability to make sovereign decisions about its resource management, economic strategy, and foreign relations, as politicians may feel compelled to align with Chinese interests to maintain financial support and development momentum. The potential threat this dynamic poses to Guyana's policy-making independence and its ability to prioritise long-term national interests should be carefully considered.
To avoid the resource curse and secure long-term stability, Guyana should diversify beyond oil by investing in agriculture, tourism, and renewable energy. Economic diversification helps mitigate the effects of volatile oil prices, reducing the chance of fiscal instability and providing jobs to a broader population segment. Norway, for example, has achieved consistent growth through investment in education, healthcare, and infrastructure, which makes future citizens less dependent on oil. Guyana founded its Sovereign Wealth Fund in 2019, and its success will depend on whether it is used for sustainable development or political window-dressing.
Guyana now finds itself at a watershed moment. If managed well, the nation's oil wealth could usher in a period of prosperity through investment in education, infrastructure, and other essential aspects of the country. Yet the dangers of the resource curse are genuine, and the problem is getting increasingly severe. The key to success is not just in managing the wealth but in learning from countries that have successfully transformed their oil wealth into broad prosperity–and from those that have failed. With strategic planning and disciplined governance, the development of the world’s last petrostate could defy the fate that history predicts, securing Guyana's future.