More growth for Guyana — IMF

Guyana’s economic growth improved in 2018, with all major sectors recording growth, the International Monetary Fund stated in a recent release.

Photo: International Monetary Fund

“Real GDP (gross domestic product) grew by 4.1 per cent, led by construction and services sectors, up from 2.1 per cent in 2017. Inflation remained low at 1.6 per cent at end-2018,” the IMF revealed.

Public finances also improved in 2018 with central government deficit at 3.5 per cent of GDP, lower than the budgeted 5.4 per cent of GDP.

Notwithstanding, the South American country’s external current account deficit rose from 6.8 per cent in 2017 to 17.5 per cent of GDP. The IMF attributed the increase in the deficit to weaker exports and higher imports related to oil production, which was largely financed by foreign direct investment (FDI) in the petroleum sector.

Looking ahead, Guyana’s medium-term prospects are very favourable with oil production scheduled to begin in early 2020. The IMF is projecting economic growth at 4.4 per cent in 2019, extending the broad-based expansion across all major sectors.

In addition, 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 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 per cent 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.

“Directors welcomed Guyana’s broad‑based economic expansion in recent years underpinned by prudent macroeconomic policies. Directors noted that the medium‑term outlook is favorable but highlighted that the commencement of the oil production presents both opportunities and challenges,” the IMF stated in the assessment of the executive board.

“Directors emphasised that to ensure the effective use of windfall revenues, policies should focus on reducing macroeconomic vulnerabilities, addressing structural weaknesses, boosting inclusive growth, and promoting intergenerational equity,” the executive board assessment continued.

The IMF also welcomed the Guyanese Government’s  passing of the National Resource Fund (NRF) legislation for the management of the country’s oil wealth and emphasised the need to complement it with a fiscal responsibility framework to avoid fiscal deficits. The fund commended the NRF as the framework aims to save some of the resource income for future generations and contain the pickup in public spending. 

To meet these objectives, IMF 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).

Monetary policy should gradually revert to a neutral stance to contain potential inflationary pressure as public spending increases, economic growth strengthens, and credit expands, the directors said. Over the medium term, developing the infrastructure for greater exchange rate flexibility within the monetary policy framework would help sustain healthy economic growth while maintaining price stability and facilitating adjustment to oil price and other external shocks.

“It is important to further improve the quality, efficiency, and transparency of public financial management,” the directors noted. 

They recommended addressing the shortcomings identified by the 2017 Public Investment Management Assessment and expenditure review before public investment is significantly scaled‑up with oil revenues.

Directors recommended an asset quality review to assess the credit quality of banks with high nonperforming loans. They welcomed the progress made in implementing the 2016 FSAP recommendations and encouraged completing the remaining ones. Directors noted the authorities’ progress in strengthening the AML/CFT framework and called for further efforts in this regard.

Directors encouraged the authorities to use the opportunity presented by oil revenues to undertake structural reforms to support economic diversification, tackle skilled labour shortages, and achieve inclusive and equitable growth. Priority should be given to address infrastructure bottlenecks and upgrade the education system.

In addition, promoting more flexible working arrangements could help increase female labour participation. Directors underscored the importance of improving the business environment and enhancing competitiveness. They also recommended putting more efforts into developing climate‑resilient infrastructure networks.