Guyana and the IMF
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The International Monetary Fund (IMF) today approved the second annual loan for Guyana in an amount equivalent to SDR 17.92 million (about $26 million) under the enhanced structural adjustment facility (ESAF)1 to support the Government's economic reform program for 1996. The loan will be disbursed in two equal installments, the first of which will be available on April 30, 1996.
Within the framework of the present ESAF arrangement, Guyana's economic performance in 1995 was satisfactory. Real GDP growth was 5 percent, a decline from the 8.5 percent growth achieved in 1994 that reflected stagnant sugar production due to drought and lower output of gold and bauxite, inflation was halved to 8.1 percent in 1995, from 16.1 percent in 1994, as the Bank of Guyana continued to pursue a cautious monetary policy, and the overall deficit of the nonfinancial public sector was contained at an estimated 8.5 percent of GDP. As a result of a planned large increase in public investment, the external current account deficit widened to 12 percent of GDP in 1995, from 9 percent of GDP in 1994, while gross international reserves, which the program required to be not less than seven months' imports, stood at the equivalent of eight months of imports at the end of 1995, after 10 months in 1994. After some delays, implementation of structural reforms picked up in the latter part of the year, and significant efforts were made in accelerating steps toward integrating the cambio and official foreign exchange markets; liberalizing the exchange and trade system; and strengthening tax administration. All performance benchmarks were observed.
Medium-Term Objectives and 1996 Program
Guyana's medium term objectives for 1996-98 are to achieve real GDP growth of about 5 1/2 percent a year; to reduce inflation to about 4 percent by the end of the period; and to strengthen the balance of payments sufficiently for official reserves coverage of imports to be maintained at around current levels. Consistent with these medium-term goals, the macroeconomic objectives of Guyana's 1996 program, which the ESAF loan supports, are to reach a growth rate of about 6.5 percent; to reduce inflation to an annual rate of 5.6 percent; and to maintain international gross reserves at the equivalent of eight months of imports.
Fiscal policy-supported by monetary and structural reforms-will play a central role in achieving these ends. The budget for the Central Government and the operational plans of the nonfinancial public enterprises aim at reducing the overall deficit of the nonfinancial public sector by more than 2 1/2 percentage points of GDP to 5.6 percent. Public sector savings are programmed to almost double to 10 percent of GDP, and investment outlays are targeted to rise by 2 ½ percentage points to 18 percent of GDP. These objectives will be achieved through the reorientation and containment of current outlays; strengthening tax administration; and improving the performance of the public enterprises.
Monetary policy is geared toward a further deceleration of inflation and safeguarding the international reserve position, while supporting private sector activity. To support the program's aim of moving toward external payments viability in the context of a liberalized exchange and trade system, the exchange rate will continue to be market-determined, and it is intended fully to integrate the official and cambio markets by the end of 1996. As part of its debt-management strategy, the Government is seeking debt reduction from the Paris Club and other bilateral creditors, as well as an increase in the concessionality of the remaining debt and future debt flows.
In addition to strengthening tax administration as noted above, structural reforms will focus on a) increasing the efficiency of the public sector through reforms which include the privatization of a number of financial and nonfinancial enterprises; b) improving utility services, in particular power and water supply; c) implementing sectoral programs to exploit the potential of the natural resource base on a sustainable basis; d) protecting the environment; and e) strengthening the statistical base. On the trade side, the authorities are committed to further liberalizing the regime along the lines established under the Caribbean Community.
Addressing Social Problems
The Government has been following a two-pronged strategy aimed at achieving sustainable progress in poverty reduction. Through its macroeconomic policies, it has been seeking to foster the creation of employment opportunities and it has been targeting basic social services to the poor. The Social Impact Amelioration Program, introduced in 1988 o alleviate poverty and the possible adverse effects of economic adjustment on the poor, is to be reorganized to improve its efficiency and to ensure that its benefits are well targeted.
The Challenge Ahead
Over the medium-term, Guyana's main challenge will be to maintain economic growth that is sufficient to reduce unemployment and poverty, while establishing a sustainable external position. The authorities' strategy emphasizes raising the level of domestic savings, improving further the conditions for investment by the private sector, and encouraging a steady inflow of foreign savings. For this approach to succeed, it will be important that Guyana continue resolutely to pursue prudent fiscal and credit policies, intensify and deepen the process of structural reform, and secure comprehensive debt restructuring and a significant increase in concessional financing in the years ahead.
Guyana joined the IMF on September 26, 1966; its quota2 is SDR 67.2 million (about $97 million). Guyana's outstanding use of IMF credit currently totals SDR 108.9 million (about $157 million).
Sources: Guyanese authorities and IMF staff estimates.
1. The ESAF (enhanced structural adjustment facility) is a concessional IMF facility for assisting eligible members that are undertaking reform programs to strengthen their balance of payments and improve their growth prospects. ESAF loans carry an interest rate of 0.5 percent and are repayable over 10 years, with a 5-1/2-year grace period.
2. A member's quota in the IMF determines, in particular, the amount of its subscription, its voting weight, its access to IMF financing, and its allocation of SDRs.
IMF EXTERNAL RELATIONS DEPARTMENT