Economist Joel Bhagwandin says Guyana’s oil-driven transformation has created a new economic management challenge, with the country moving from an era of scarce resources to one where the focus must increasingly be on how effectively the economy can absorb its growing wealth.
In a recent post examining Guyana’s economic situation, Bhagwandin argued that the country is no longer dealing with the same constraints that characterised much of its modern economic history.
“We have moved from managing scarcity to managing abundance,” he said.
Bhagwandin noted that Guyana previously grappled with high sovereign debt, limited fiscal space, inadequate foreign exchange, insufficient capital and significant development needs.
He said the current Government has demonstrated experience managing those conditions through recovery from severe debt distress, restoring macroeconomic stability, rebuilding fiscal space and creating conditions for economic growth.
However, according to Bhagwandin, oil has fundamentally changed the nature of the challenge.
Guyana now has significantly greater fiscal resources, expanding liquidity and incomes, a large public investment programme and strong private-sector demand.
As a result, he said the question is increasingly shifting from where the country can find money to “how much money can the economy productively absorb, and how quickly?”
Bhagwandin cautioned that if government spending, liquidity, consumption and investment grow faster than the country’s labour supply, domestic production, infrastructure and institutional capacity can accommodate, the pressure will emerge elsewhere in the economy.
He identified higher prices and wages, increased imports and foreign-exchange demand, execution bottlenecks and declining purchasing power among the possible consequences.
The economist contended that managing an economy with significantly more resources requires different institutional capabilities from those needed during periods of scarcity.
“Managing scarcity required fiscal discipline, resource mobilisation and rebuilding productive capacity. Managing abundance requires a different kind of discipline: expenditure sequencing, liquidity management, stronger monetary transmission, deeper financial markets, greater institutional capacity and deliberate expansion of the economy’s absorptive capacity,” Bhagwandin said.
He described Guyana’s oil transformation as more than a resource boom, arguing that it represents a “macroeconomic regime transition” from managing scarcity to managing abundance.
Bhagwandin said the issue is also becoming central to the hypothesis he intends to examine in his PhD dissertation, particularly whether Guyana’s monetary, fiscal and financial-market systems have adapted sufficiently to the fundamental changes taking place in the economy.
“We have accumulated considerable experience managing scarcity,” he said. “The defining economic-management test of this generation may ultimately be whether we become equally competent at managing abundance.”
