GEORGETOWN, Guyana, CMC – The International Monetary Fund (IMF) says the Guyana economy, which had been negatively impacted by the coronavirus (COVID-19) pandemic and the floods last year, has recovered well supported by the oil boom, and policy actions.
It said following the pandemic-induced recession and the delayed political transition in 2020, economic growth recovered in 2021, with non-oil Gross Domestic Product (GDP) growth reaching 4.6 per cent.
The Washington-based financial institution said the war in Ukraine exacerbated inflationary pressures this year, due primarily to higher fuel and food prices, but that the government implemented measures to mitigate the impact on vulnerable households and the economy.
“Even though the current account deficit widened significantly in 2021 in part reflecting increased capital imports, the foreign exchange (FX) reserve position improved, due to the new Special Drawing Rights (SDR) allocation,” said the IMF, noting that a mission, headed by incoming mission chief, Alina Carare and including the outgoing mission chief Meredith McIntyre, had held virtual discussions during the May 18-June 1 Article IV consultation for this year.
The IMF said that after deteriorating markedly in 2020, the fiscal position remained appropriately supportive in 2021 and that in response to the pandemic, the authorities reallocated expenditures towards cash grants and transfers and ‘shovel ready’ public investment projects, primarily improving road networks and providing affordable housing, and eased the tax burden on the most vulnerable.
It said that the public debt stood at 42.9 per cent of GDP at the end of last year, “one of the lowest in the region”.
The financial institution noted that as a result of the political situation in the country following the no-confidence vote in December 2018 and the controversial March 2020 general election, the new administration took office only in August 2020.
“As a result, the 2020 budget was approved only in September, affecting confidence, and forcing increased reliance on direct financing from the central bank. Guyana’s medium-term prospects are more favourable than ever before, with increasing oil production having the potential to transform Guyana’s economy.”
The IMF said oil production is expected to increase significantly with the coming on stream of two large oil fields in the Stabroek Block during 2022-26 and that Guyana’s commercially recoverable petroleum reserves are estimated to be well over 11-billion barrels, the third-largest in Latin America and the Caribbean, and one of the highest levels of oil reserves per capita in the world.
“This could help Guyana build up substantial fiscal and external buffers to absorb shocks while addressing infrastructure gaps and human development needs. However, increased dependence on oil revenues will expose the economy to volatility in global oil prices,” the IMF warned.
It said that a slowing global economy and the repercussions from the war in Ukraine could also adversely affect non-oil exports.
“On the other hand, higher global oil prices and additional gas and oil discoveries could significantly improve Guyana’s long-term economic prospects. Staff strongly support the authorities’ goals to transform the economy, address development needs in an inclusive way, and protect the long-term economic well-being of the country.”
The IMF said the mission also “strongly supports the authorities’ efforts to reduce electricity costs, improve transport infrastructure, diversify the economy, improve access to and quality of social services, and advance more broadly towards the Sustainable Development Goals”.
The mission also commended the authorities’ efforts outlined in the Low Carbon Development Strategy 2030 to maintain the country’s forest coverage and address climate change challenges by shifting towards renewable energy sources, while entering the international carbon credits market.
The IMF said the recent amendments to the 2019 Natural Resource Fund (NRF) Act set clear ceilings on withdrawals from the Fund for budgetary spending and promote transparency in the management and use of oil resources.
The IMF is also welcoming the emphasis on public investment and policies to sustain growth into the longer term but urged caution in determining the pace of ramping up public investment.
“While pressing development challenges still face the country, a large surge in public investment could add inflationary pressure, affect the competitiveness of the non-oil economy, lead to an eventual loss in FX reserves, and might not be sustainable over the medium-term.”
The IMF is urging Guyana to simultaneously strengthen the capacity to manage public investment, based on recommendations from the 2017 PIMA report, recommending annual budgets within a fiscal framework that, over the medium term, constrains the annual non-oil overall fiscal deficit, after grants, to not exceed the expected transfer from the NRF, to anchor fiscal policy in a sustainable way.
“This rule will also ensure that fiscal spending, including capital spending, is increased at a measured pace, to address development needs without macroeconomic imbalances,” the IMF said, also recommending “further analysis of the oil transfer rules, to ensure the long term sustainability of the NRF and intergenerational equity”.
The IMF said that Guyana’s financial sector is well capitalised and stable. Macro-financial risks are well monitored with eight indicators, including credit to GDP measures and the systemic risk matrix. It said the capital to risk-adjusted assets ratio, at about 29 per cent, is much higher than the regulatory minimum of eight per cent.
Guyana has recently strengthened the anti-money laundering/financing of terrorism (AML/CFT) framework and recommends further advances in this area.
It noted that Guyana has been removed from the Caribbean Financial Action Task Force (CFATF) and the European Commission’s Money-Laundering Blacklists.