IMF Executive Board Concludes 2010 Article IV Consultation with GuyanaPublic Information Notice (PIN) No. 11/29
March 4, 2011
Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.
On February 16, 2011, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Guyana.1
Despite external and domestic shocks, the Guyanese economy demonstrated resilience and registered a fifth consecutive year of robust growth in 2010. Real Gross Domestic Product (GDP) expanded by around 3.4 percent, slightly more than in 2009, supported by expansion in the gold and services sectors, which helped offset lower output in the sugar sector. End-year inflation rose to 4.4 percent, from 3.7 percent in 2009, reflecting higher food prices. Although the external current account deficit is estimated to have widened to 11.4 percent of GDP, a steady inflow of public external financing and foreign direct investment were sufficient to finance the deficit and strengthen foreign reserves to the equivalent of 5 months of imports.
In 2010, the overall fiscal balance is estimated to have weakened by close to 1 percentage point of GDP, to 4.3 percent of GDP, due to weak performance in public enterprises, not fully offset by a decline in investment and despite strong central government revenues. Public debt was broadly unchanged, at 61 percent of GDP. Meanwhile, bank prudential indicators have remained stable, with banks generally liquid and well capitalized. In September 2010, the authorities started making payouts to Colonial Life Insurance Company (CLICO) policy holders, in line with their plans to minimize fiscal costs.
During 2010, structural reforms focused on improving the policy framework and supporting long term growth. In the area of fiscal policy, efforts to improve the Guyana Revenue Authority (GRA) continued. Its new functional organization was consolidated, improving further the integrated tax information system (TRIPS), the profiling of taxpayers, and on-site inspections at the country’s ports of entry. In support of long-term growth, the authorities continued their modernization plans in the sugar industry with the reorientation of cane fields to accommodate mechanization. In the financial sector, the authorities passed the Credit Bureau Act, and widened the regulatory perimeter by bringing the New Building Society under the jurisdiction of the Bank of Guyana. On the infrastructure front, major refurbishment and upgrading of the electricity transmission and distribution network, along with the access road to the Amaila Falls hydro power plant project site, have commenced. In the area of statistics, the authorities have signed on to the IMF’s General Data Dissemination System (GDDS).
Guyana’s outlook remains positive for 2011, an election year, and through the medium term. Road projects, construction of a large hydropower plant at Amaila Falls (AFHP), and implementation of the Low Carbon Development Strategy (LCDS) should sustain growth levels above the long-run trend of 3 percent, at around 5 percent over the medium term before tapering off in 2015 as one-off projects are completed. Downside risks include those linked to fiscal pressures arising from lagging productivity in Guyana Sugar Corporation (GUYSUCO), the need to strengthen the finances of the National Insurance Scheme (NIS), and a possible fall off in aid commitments.
Executive Board Assessment
Directors commended the authorities for macroeconomic policies that have supported resilience in the face of external and domestic shocks. They noted that the development of forestry-based environmental services, private sector plans for the exploitation of Guyana’s natural resources, and large infrastructure investments are supporting Guyana’s medium-term growth prospects.
Directors welcomed the authorities’ continued commitment to fiscal prudence and recommended contingency measures to mitigate risks from volatile grant disbursements. In this regard, a few Directors called on the donor community to fulfill their development assistance commitments. Directors noted that further strengthening the fiscal position calls for far-reaching reforms in the National Insurance System and key public enterprises. Directors also encouraged the authorities to monitor carefully the fiscal risks associated with the construction of a large hydro power plant, advising the adoption of international best practices for public-private partnerships.
Directors considered that monetary management has been key to macroeconomic stability. They noted that there may be scope for early tightening, if increases in commodity prices were to threaten the authorities’ inflation objective. Directors agreed that Guyana’s exchange rate regime has served the country well. Going forward, some Directors supported a gradual approach toward greater exchange rate flexibility, while others considered the current policy to be appropriate.
Noting that financial sector indicators had improved, Directors stressed the need for continued close prudential oversight. They welcomed the laws establishing the licensing and supervisory framework for credit bureau operations and bringing the mortgage bank under the supervision of the central bank.
Directors endorsed the authorities’ Low Carbon Development Strategy, which seeks to boost competitiveness and private investment. Its successful implementation, with international support, will lift Guyana’s long-term growth prospects and reduce poverty. Considering the authorities’ intention to finalize soon their poverty reduction strategy, Directors encouraged a continued dialogue with all stakeholders to maintain consensus on the development agenda.
Directors noted the improvements in data quality achieved in 2010 and welcomed the authorities’ decision to subscribe to the Fund’s General Data Dissemination System.