Highlights from the Staff Concluding Statement of the 2018 Article IV Mission to Guyana:
- Economic growth slowed in 2017, but became more broad-based
- Weaker than expected export growth and higher oil prices contributed to current account balance turning negative
- Fiscal deficit remained stable in 2017
- Medium-term prospects are stable (driven by oil production)
- Debt sustainability concerns weakened by future oil revenues, but financing short term deficits should be carefully managed
- Mission supports efforts by authorities to enhance quality and efficiency of government expenditure and tax administration
- Productivity-enhancing reforms needed to improve competitiveness and facilitate inclusive growth
- Amid 2017 slow-down, BoG’s monetary policy stance is appropriate.
Full Statement Below (Source: IMF)
A staff team from the International Monetary Fund (IMF), led by Mr. Marcos Chamon, visited Georgetown during April 23–May 3 to hold discussions for the 2018 Article IV Consultation. The team met with Finance Minister Winston Jordan, Natural Resources Minister Raphael Trotman, Central Bank Governor Gobind Ganga, other senior officials, representatives from the private sector, the opposition party, labor unions, and other stakeholders.
Economic growth slowed in 2017, but became more broad-based. Real GDP grew by 2.1 percent, down from 3.4 percent in 2016, on the account of weaker than expected mining output and weak performance in the sugar sector. Nonetheless, non-mining growth rebounded to 4.1 percent following a contraction in 2016. Construction expanded significantly, buoyed by higher public and private investments, and rice production recovered from weather-related shocks in the previous year. In 2018, the mission projects real economic growth of 3.4 percent, driven by continued strength in the construction and rice sectors, and a recovery in gold mining. Inflation remained subdued at 1.5 percent at end-2017, largely driven by food items, while core inflation was close to zero.
Weaker than expected export growth and higher oil prices contributed to the current account balance turning negative. In 2017, the current account recorded a deficit of 6.7 percent of GDP from a 0.4 percent surplus in 2016. That deficit was largely financed by FDI, particularly in the oil and gas sector, and higher loan disbursements to the public sector. Reserves stood at 3.2 months of imports, and the mission projects it to remain around that level in 2018–19.
The fiscal deficit remained stable in 2017. The central government deficit was 4.5 percent of GDP, lower than the budgeted 5.6 percent. This better than expected outturn was largely supported by higher revenue arising from improvements in tax administration. In 2018, the deficit is projected to widen to 5.4 percent of GDP due to the cost of restructuring the sugar industry, including severance payments to displaced workers, as well as an increase in infrastructure related capital expenditure.
Guyana’s medium-term prospects are favorable. The commencement of oil production in 2020 will be a turning point. The main direct effect on the domestic economy will be through higher fiscal revenue, and spillovers to supporting activities. The balance of payments will swing sharply to positive after 2020. Oil revenue significantly improves the fiscal outlook, and is expected to place the public debt on a downward trajectory. The mission welcomed the progress made on establishing a comprehensive fiscal framework for managing oil wealth.
Debt sustainability concerns are attenuated by future oil revenues, but the financing of short-term deficits should be carefully managed. The mission supports the authorities’ prudence towards private external borrowing. The authorities were encouraged to rely to the extent possible on Development Banks, including non-concessional financing, and to follow-up on their plans to develop the domestic bond market. The mission stressed the importance of settling government balances at the Bank of Guyana (BoG), which will be achieved by the issuance of Treasury Bills.
The mission supports continued efforts by the authorities to enhance the quality and efficiency of government expenditure and tax administration. It commended the steps taken in response to the Public Investment Management Assessment (PIMA) in 2017, but cautioned that scaling up public investment without addressing remaining shortcomings could undermine its effectiveness. The mission also recommended moderating spending increases and the consideration of an expenditure review which could provide opportunities for safety net reform and more effective action on inclusive growth. The mission welcomed the authorities’ intent to conduct their third Public Expenditure and Financial Accountability (PEFA) assessment during 2018. In addition, reforms to modernize revenue administration and strengthen public financial management capacity ahead of oil production remain critical near-term priorities for the authorities, and are being supported by IMF Technical Assistance.
Productivity-enhancing reforms are needed to improve competitiveness, and facilitate inclusive growth. Infrastructure bottlenecks and high energy costs remain obstacles to growth. Meanwhile, notwithstanding significant upside benefits, the prospect of revenue from the oil sector could lead to real exchange rate appreciation, eroding competitiveness in some sectors.Therefore, regulatory and administrative measures should aim to reduce the relatively high costs of doing business in Guyana. The mission noted the small improvement in the World Bank’s Doing Business indicator that measures the Distance to Frontier of regulatory best practice. Accessing Guyana’s natural gas for power generation could provide a cleaner and more affordable energy alternative, meeting immediate needs while renewable energy initiatives are pursued. The reduction of economic and social disparities between the coast and the Hinterland remains a priority for the authorities. The mission welcomed the ongoing restructuring of the sugar sector, but underscored the importance of training displaced workers and providing an adequate safety net to contain the short-term economic and social costs.
Amid the slowdown in economic activity in 2017, the BoG’s accommodative monetary policy stance is appropriate. However, as the economic recovery strengthens, monetary policy should gradually revert to a neutral stance. Exchange rate flexibility should continue to help cushion external shocks.
The authorities continue to strengthen financial sector resilience. Significant progress has been made in implementing the 2016 Financial Sector Assessment Program (FSAP) recommendations, including enhancing the supervisory power of the BoG and establishing an emergency liquidity assistance framework, a national payment system and a deposit insurance scheme. The mission welcomed the establishment of a Financial Stability Unit within the BoG to assess macro-financial vulnerabilities.
The IMF Executive Board is expected to discuss Guyana’s Article IV consultation in June 2018. The mission expresses its sincere thanks to the authorities and other Guyanese stakeholders for their warm hospitality, cooperation and candor.
Raphael Anspach RAnspach@imf.org