Guyana is the fastest growing economy in South America. So much so that it has eliminated taxes and returned $2,000 per home

The new “gold rush” some call it, while another part of the planet does not know very well whether to raise an eyebrow or praise it. We are referring, of course, to that boom that is being experienced in some Latin American countries with “black gold”, the oil that is literally bathing some areas and their economies, even too much. While half the planet seems to be moving towards reducing its carbon emissions, there are countries that They demand their full right to embrace crude oil. And none like a tiny country that is setting record numbers.

Guyana. We are facing a certainly small South American country with a population of around 800,000 people. An authentic oil explosion has occurred here like in no other territory. The world’s largest oil discovery in a generation transformed the nation from one of the region’s poorest performers to fastest growing economy in the world for two consecutive years.

So much so, that it is projected that the Caribbean nation will pump more crude oil per capita than Saudi Arabia or Kuwait by 2027 and is on track to overtake Venezuela as South America’s second-largest oil producer, after Brazil. The country’s economy grew by 49.7% in the first half of 2024 (the oil sector represented 67%, of course). President Irfaan Ali raised Guyana’s annual growth estimates to 42.8%.

They have so much “wealth” that the time has come to engage in politics among citizens, that is, to talk about money and taxes.

One peak per family. The government has just announced one of those measures that will be looked at closely: a program that will give $2,000 to each homein an effort to share that growing oil wealth “and alleviate the costs of living.” President Mohamed Irfaan Ali was in charge of communicating the initiative, which, according to the president, seeks to reduce economic inequalities and improve the quality of life of citizens.

Not only that. The government also has eliminated more than 200 taxes and feesincluding those on fuel, water and basic foodstuffs, in an effort “to combat inflation and economic pressures.”

Economic impact. The program, which will affect around 264,000 homes, represents 1.5% of the national GDP and 7.9% of the natural resources fund of the country. Is this really feasible? According to some experts, as Nicolás Suarezeconomist at S&P Global Market Intelligence, although the plan is designed to improve the well-being of families and increase private consumption, it could increase inflationary pressures in the long term, since increased public spending could generate a rise in prices.

To put this in perspective, Guyana’s inflation has risen from 2.3% annually before the pandemic to 3.3% in August of this yeara fact that only highlights the economic challenges facing the country.

Satellite image of Guyana

Distribution of wealth and concept of universal income. The payment of those $2,000 per household has been positively received by defenders of universal basic income, who see certain similarities in the measure and a step towards a more equitable redistribution of wealth.

That said, it is not a universal basic income in the traditional sense, as it is a one-time, non-recurring payment. For philosophy expert Karl Widerquistwe are looking at a “core capital” or a “participation subsidy”, a significant measure to ensure that all citizens benefit from national wealth. In this regard, Cleo Goodman, a basic income expert at the Autonomy Institute, also praises the effort, although she points out that a guaranteed and recurring income would be a more complete solution to distribute the newly discovered wealth.

It’s the oil, friends. History cannot be understood without the discovery of Exxon when it discovered vast oil reserves off the coast of Guyana in 2015. That It meant a radical change for the countryexperiencing unprecedented economic growth.

As we said at the beginning, it is estimated that Guyana could produce 1.3 million barrels of oil per day in 2027, which would put the country among the 20 largest producers in the world. from there the “monstrous” increase in the nation’s GDPwhich grew by 62% in 2022 and 33% in 2023, or GDP per capita, which has gone from $7,000 in 2020 to $26,000 in 2023, which underlines the positive impact of the oil boom on the country’s economy.

Comparison. Experts have quickly focused on a more or less similar example of resource management: Norway. There they use their sovereign oil fund to stabilize its economy and generate long-term savings. The Norwegian fund, which owns assets of more than 1.7 trillion dollarsis considered one of the most successful in the world (hence Norway is one of the richest countries, with a GDP per capita of $88,000).

At least initially, Guyana appears to be following a similar path, creating its own natural resources fund in 2019 to prudently manage oil profits, protecting its economy from volatile energy prices.

The future and the asterisks. There is no doubt, the short-term future of the nation seems more or less assured. But as experts highlightconcerns about inflation and the need for a more comprehensive long-term approach to wealth management persist.

The challenge will be to maintain the balance between economic development and equity, but there is more. Suriname is expected to experience a similar boost after the discovery of significant oil reserves in the so-called Block 52, and the black gold rush is not limited to the North Atlantic: Argentina, Ecuador and Costa Rica also want to expand their oil industries. If the expected “energy transition” ends up installing an oversupply in the market, what will happen to all these enclaves and their infrastructure?

And the planet? It is the last of the legs to be resolved, although surely no less important. We are referring to the way in which Guyana and the rest of the countries that are making wealth with the “black gold” reach those climate objectives that the planet seems to demand so much.

One thing seems clear: right now it is reasonable to seriously doubt any of those objectives, at least in the short term.

Image | amanderson2, FreeMalaysaTodayNASA

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