IMF cautions Guyana to watch deficit, despite oil

The Executive Board of the International Monetary Fund (IMF) says medium-term prospects for Guyana are very favourable as oil production is on schedule to begin in early 2020.

Directors of the Article IV consultation with Guyana show the country’s economic growth strengthened in 2018 with broad-based expansion across all major sectors.

The IMF said economic growth is projected at 4.4 percent in 2019, extending the broad-based expansion across all major sectors.

Public finances improved in 2018 as the central government deficit came in at 3.5 percent of GDP, lower than the budgeted 5.4 percent of GDP.

Georgetown, Guyana

The Fund said the current account deficit is estimated to rise to 22.7 per cent of GDP on the back of higher imports related to oil production, which will be largely financed by FDI in the petroleum sector.

“The commencement of oil production in 2020 will substantially improve Guyana’s medium- and long-term outlook.”

– The IMF

The oil sector is projected to grow rapidly, accounting for around 40 per cent of GDP by 2024 and supporting additional fiscal spending annually of 6.5 percent of non-oil GDP on average over the medium term, which will help meet critical social and infrastructure needs.

Public debt and the external current account deficit are projected to decline steadily following the onset of oil production.

IMF Directors welcomed the authorities’ Natural Resource Fund (NRF) legislation for managing Guyana’s oil wealth and emphasized the need to complement it with a fiscal responsibility framework to avoid fiscal deficits.

An Exxon Mobil drill rig which discovered a Guyanese oilfield. (Photo: ExxonMobil)

In a release on the consultation, they commended the NRF’s framework aims to save some of the resource income for future generations and contain the pickup in public spending.

To meet these objectives, Directors called for the authorities to constrain the annual non-oil deficit to not exceed the expected transfer from the NRF.

“This rule could be phased in over the next three years to allow a smooth widening of the non-oil deficit (in relation to non-oil GDP),” IMF board members said in their release.

Directors agreed that “monetary policy should gradually revert to a neutral stance to contain potential inflationary pressure as public spending increases, economic growth strengthens, and credit expands.”

Directors also supported strengthening anti-corruption frameworks, by facilitating the work of the Integrity Commission, improving governance, supporting investor confidence and promoting growth.