Thread by @marcgayle

There are so many gems from @Marladukharan in this webinar about Guyana and the impact their oil find will have on the economy.

I am going to breakdown just a few in this thread. But if you have any interest in this stuff at all, you should watch it.

//Thread

https://twitter.com/jerviscapital/status/1180123130779574278

Marla wondered if Guyana will have any desire/need to re-enter international bond markets (borrow from international lenders) and Arnold (IMF, Mission Chief to Guyana) replied that they should have no need to.

Just based on oil revenues to the govt...

Guyana will be able to massively increase spending on social programmes (ie widen the social safety net) and also aggressively pay down their debt. The IMF projects that their debt-to-GDP ratio can drop from about 56/57/58% of GDP in 2019 to about 19/20% of GDP over 5 years 🤯

Think about that for a second. The revenue from Oil is going to be so substantial that in the first 5 years they will be able to cut their debt stock by about 66%!!!

This is while they have significantly increased spending.

Contrast that to our experience in JA.

We have reduced our debt stock by 33% (from about 150% to 100%) in about 10 years. So half the debt reduction in twice the time.

Yet we did it by tightening our belts. Guyana will be able to do it while spending more. 🤯

There is more.

There is no need for Guyana to accumulate debt, they can finance all development plans with oil revenue.

The production sharing agreements are not atypical from what you normally see.

The initial phases of production, most of the revenue goes back to the companies taking risk

Which allows them to recover the costs incurred for doing all of the exploration, drilling & extraction.

In this phase, this is called “cost recovery”. Then after that phase is finished, it transitions to “profit oil” and the revenue share is split 50/50.

During cost recovery, Guyana gets 12.5% of 25% of profit oil and a 2% royalty for a total of 14.5%.

Pause for a moment. The cost recovery period is about the first 7 years.

Remember what I said earlier about their debt being reduced by 66%, that was in the 1st 5 years.

So all I highlighted above re: the debt reduction and the increased social spending happens WITHIN this cost-recovery period.

In other words, this happens at the stage of the oil revolution when Guyana gets the smallest portion of the profits.

The major question now is how will policymakers actually use this revenue and actually build a robust economy and not create a dependency state.

I haven’t finished watching it yet....so I will probably add more to this thread as I finish. But just wanted to share these.

Arnold mentioned that in all of his discussions with the govt and oil companies the notion of Guyana setting up a refinery wasn’t discussed, so he doesn’t believe it is in their short-term or medium term plans.

Non-Performing Loans in Guyana are a bit high, but the majority are concentrated in 2 banks.

Growth in credit and financial sector development is likely to be very rapid.

Residential Mortgages for the 1st 4 months in 2019 increased 16% YoY. That’s significant growth.

A lot of it is private sector building out homes for those in the oil sector.

Guyana needs A LOT of skilled professionals all throughout the economy.

#FinanceTwitterJa

Arnold mentioned that he was surprised that the Min of Finance of Guyana actually mentioned (proudly) about Guyana’s efforts in renewable energy. He was very proud of their initiatives in Wind & Hydro Energy. They have a strategy around the development around renewable energy.

They apparently want to pursue energy diversification while dealing with the pursuit of the windfall of oil.

That’s very encouraging to hear and very responsible of them if they do that, even though they just discovered 6 billion barrels of oil deposits.