Previous Quarterly Editions
Expropriation Risk: 51 51 53 53 ► Political Violence Risk: 38 39 39 39 ► Terrorism Risk: 15 15 15 15 ► Exchange Transfer and Trade Sanction Risk: 35 35 25 25 ▲ Sovereign Default Risk: 47 57 47 47 ►
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Government's commitment on climate policy Weakest 1 2 3 4 5 Strongest
Guyana’s status as a major emerging oil producer is drawing attention to the government’s stance on climate change and the environment. Unlike many other economies attempting to transition towards cleaner energy to mitigate climate change, Guyana’s oil boom looks set to cement the country’s use of fossil fuels over at least the next decade.
The government of President Irfaan Ali has highlighted the economic benefits of expanding the oil industry and pledged some of the state oil revenues will be directed towards mitigating climate change and preparing for the energy transition. Guyana is signed up to the global Paris climate agreement (2015), with the bulk of Guyana’s climate change strategy therefore aligned with the Paris agreement framework and goals.
Under the agreement, all signatories have set a goal of limiting global warming to 1.5-2.0 degrees Celsius above pre-industrial levels. Each signatory then sets individual country level targets to achieve this global goal, known as nationally determined contributions (NDCs).
Guyana submitted its first NDC in 2016 and was scheduled to update it in 2021 as part of the so-called ‘ratchet mechanism’ by which NDC targets are gradually brought closer to the 1.5-2.0-degree goal. However, Guyana has not yet submitted its second NDC, having instead highlighted key commitments from an interim NDC, which is still being finalised.
Guyana is one of a group of Small Island Developing States (SIDS) which have warned their low-lying areas leave them vulnerable to rises in sea level. Guyana’s president directly referenced the challenges facing SIDS during a speech to COP26 attendees in November 2021, calling for a global commitment of USD100 billion per year to fund climate change initiatives.
Although Guyana has not yet submitted its second NDC, President Ali announced several planned key commitments ahead of the COP26 meetings. These include a commitment to reduce carbon emissions by 70% by 2030. While this is a less stringent target than the first NDC’s commitment to cut emissions by 100% by 2025, Ali blamed this revised goal on the failure of the previous government to put in place sufficient renewable energy initiatives to meet the 2025 target.
Ali also highlighted Guyana’s commitment to maintaining its forests, which store nearly 20 gigatonnes of carbon. The president noted these forests provide a global asset for climate change efforts, with Guyana’s draft Low Carbon Development Strategy aiming to promote private and international public sector financing for forest climate services.
The government is ramping up investment in renewable energy projects and is attempting to attract foreign investment into these initiatives. Flagship projects include the Amaila Falls Hydropower Project, which is expected to begin construction in late 2022, with completion by 2027. This will provide 165 megawatts (MW). Other renewable energy projects include five new planned solar farms. In addition, the 2022 budget outlines a new natural gas project. This will construct a new 300 MW power plant and a natural gas liquids plant, and is designed as an energy transition project.
Despite these strategies, the high-profile nature of Guyana’s oil expansion is likely to spark a backlash, focusing on the negative environmental and climate changes impacts of the extractives industry. Domestic and international campaigners are set to scrutinise Guyana’s oil industry closely. An indication of this came in May 2021, when a lawsuit was filed against Guyana’s government alleging oil exploration and development was unconstitutional since it damaged the environment and worsened the living environment for current and future Guyanese citizens. The case has yet to come to court but is indicative of the kind of scrutiny likely to be experienced as the oil sector expands.
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There is minimal risk of expropriation in Guyana. The government is focusing on maintaining an attractive investment environment and improving the regulatory framework to bolster foreign investment, particularly into the oil sector. Legislation is in place to protect foreign investments.
Guyanese society is divided along ethnic lines between the Indo-Guyanese and the Afro-Guyanese communities, and these tensions can occasionally spill over into violence. This is closely linked to the political situation, split between the predominantly Indo-Guyanese People’s Progressive Party (PPP) and the mainly Afro-Guyanese A Partnership for National Unity/Alliance for Change (APNU/AFC).
As leader of the PPP, President Ali has sought to promote an inclusive government. Part of this is his pledge to introduce a constitutional reform that would increase electoral transparency and reduce the potential for ethnically based friction. In February 2022, the attorney-general confirmed electoral reform was on the agenda for 2022 and that political consultation would take place throughout the year. The APNU/AFC raised concerns about the government’s slow progress in setting up legislative commissions, arguing this indicated a lack of commitment to in-depth consultation.
The expansionary 2022 budget, which draws on oil revenues to fund increased social spending, is intended to improve social conditions across the country and mitigate concerns that oil benefits would be disproportionately distributed to certain ethnic groups. Broad social spending changes include increasing pensions to GYD28,000 (USD134) from GYD25,000, transferring an estimated GYD2.3 billion to pensioners. In addition, the cash grant for students in nursery, primary and secondary education has been increased to GYD25,000 from GYD15,000, transferring GYD2 billion to families.
The Ali government will hope that boosting consumer incomes will reduce the risk of social frustration escalating into ethnic tensions and violence, although spending will continue to be closely monitored by the opposition to ensure equal distribution.
There are no active terrorist groups in Guyana and the country has not been mentioned by international terrorist groups as a specific target. There is a long-term risk the growing presence of international oil companies could prove a potential target for terrorist groups, but this is considered unlikely at present.
A greater risk is the country’s financial system, which remains vulnerable to misuse for terrorist financing despite several moves to strengthen its AML/CFT (anti-money laundering and combatting the financing of terrorism) regime in recent years. Despite several initial steps towards AML/CFT reform, including the completion of a National Risk Assessment process in 2020, no new legislation has yet been introduced.
However, Guyana’s Financial Intelligence Unit, which monitors and reports suspicious transactions, did release some updated guidelines throughout 2021. These included guidance on high-risk customers, suspicious transaction reporting and updated compliance guidelines for non-financial businesses and professions.
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There are no foreign exchange controls in place in Guyana and neither the government nor the central bank appear to be considering such controls. Instead, it is in Guyana’s interest to maintain an open foreign exchange and trade regime, to support the growing oil and oil services sector, which is dominated by foreign companies. Guyana maintains positive trade relations and is not the subject of any sanctions.
A steady increase in state oil revenues will mitigate the risk of a sovereign debt default. Guyana’s economy is set to grow by 47.5% in 2022, after growth of 19.9 % in 2021, with oil revenues driving this growth. The bulk of Guyana’s sovereign debt is via concessional loans from international bodies and development partners. As a result, Guyana has limited U.S. dollar-denominated debt, with most of its debt issued in local currency for a primarily domestic market. According to the United Nations Economic Commission for Latin America and the Caribbean in early 2022, Guyana has the lowest public sector debt in the region, totalling 36.6% of gross domestic product.
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