Guyana and the IMF
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The International Monetary Fund (IMF) today approved a three-year loan under the Enhanced Structural Adjustment Facility (ESAF)1 equivalent to SDR 53.76 million (about US$71 million), to support Guyana’s economic program for 1998–2001. The first annual loan of SDR 17.92 million (about US$24 million), will be available in two equal semiannual installments, the first of them shortly.
Over the last few years, the authorities have made important progress toward improving resource allocation and enhancing Guyana’s growth prospects. The economy has been liberalized, privatization of a large portion of economic activity has been accomplished, structural reforms have continued to reduce market distortions, and the financial system has been strengthened. As a result, economic performance has been satisfactory for half a decade, with an average real GDP growth of 7 percent a year during 1991–96, a decline in inflation from about 100 percent in 1991 to 4½ percent in 1996, a relatively stable exchange rate, and a strengthened balance of payments situation and level of international reserves.
Economic performance faltered, however, in 1997, because of the political disturbances surrounding the December elections -- a scenario further complicated by the adverse effects of the El Niño weather phenomenon on agriculture, and the deterioration in the external terms of trade.
Against this background, in December 1997, the IMF Executive Board determined that Guyana qualified for assistance under the Initiative for Heavily Indebted Poor Countries (HIPC)2 (see Press Release No. 97/64). Delivery of assistance under the HIPC Initiative is conditional upon the IMF’s approval of a three-year ESAF arrangement for Guyana and the completion of the midterm review of the first annual arrangement thereunder.
Medium-Term Strategy and the 1998–99 Program
The authorities’ medium-term program for 1998–2001 seeks to attain satisfactory growth within the context of low inflation, a strengthened balance of payments position, and a robust exit from the debt-rescheduling process after the delivery of assistance under the HIPC Initiative. The program aims at achieving average real GDP growth of about 4 percent a year; a reduction in inflation to about 3.6 percent (period average); and a narrowing of the external current account deficit while maintaining gross international reserves at the equivalent of 4–5 months of imports.The main elements of the program include a reduction in the fiscal deficit, a tightening of credit policy, a more flexible exchange rate policy, and the continuation of structural reforms.
The 1998–99 program aims at correcting the growth slippage that occurred in 1997, assuming a slowdown in real GDP growth to about 3 percent, reflecting a slow recovery in agricultural output from the lingering adverse effect of the El Niño phenomenon, and a slight increase of inflation to about 4.6 percent (period average). However, the external position would strengthen with an accumulation of gross international reserves to maintain the import cover at about 4½ months.
To achieve these objectives, the overall public sector deficit will be reduced from about 9 percent of GDP in 1997 to 2 percent of GDP in 1998, while credit policy remains restrained, consistent with the inflation and balance of payments objectives. New revenue measures include a sharp upward adjustment of fees and charge for government services, an increase in taxes on tobacco and related products, and the strengthening of tax administration. Central government expenditure will be reduced by 1½ percent of GDP, resulting from lower interest payments and cuts in capital expenditures in nonpriority areas.
Structural reforms will continue to focus on reducing the role of the public sector in the economy and creating an environment conducive to private sector development. To this end, efforts in 1998–99 will emphasize financial sector reform and improving the business environment, restructuring public enterprises, and civil service reform.
Financial sector reforms will include the modernization of central bank operations— including reorganization, recapitalization, and increased autonomy — to improve further its capacity for monetary management. Reform of the civil service will focus on enhancing its efficiency and service delivery through rationalization and improvement of the remuneration structure to attract and retain skilled personnel.
Addressing Social Needs
The authorities are aware of the need to maintain appropriate social and environmental policies. The government aims to improve the standard of living through increased emphasis on health and education and well-targeted poverty-reduction programs. A comprehensive set of reforms has been developed with the assistance of international financial institutions and other donors to raise enrollment rates in primary education and reinvigorate primary health care through greater awareness campaigns and increased provision of essential drugs to low-income groups. The management of Guyana’s abundant natural resources and the improvement of urban areas are also major concerns of the authorities.
The Challenge Ahead
Although progress has been made in establishing the necessary economic and social infrastructure to foster economic diversification and growth in Guyana, the general administration of the central government needs to be strengthened further; the public sector needs to be made more efficient in the delivery of services; and the infrastructure for the social sector needs to be expanded to strengthen the foundation for lasting progress.
Guyana joined the IMF on September 26, 1966, and its quota3 is SDR 67.2 million (about US$89 million). Its outstanding use of IMF financing currently totals SDR 30 million (about US$39 million).
1 The ESAF is a concessional IMF facility for assisting eligible members that are undertaking economic reform programs to strengthen their balance of payments and improve their growth prospects. ESAF loans carry an interest rate of 0.5 percent a year and are repayable over 10 years, with a 5½-year grace period.
2 The HIPC Initiative entails coordinated action by the international financial community, including multilateral institutions, to reduce to sustainable levels the external debt burden of heavily indebted poor countries which pursue IMF- and World Bank-supported adjustment and reform programs, but for whom traditional debt relief mechanisms are insufficient.
3 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 share in the allocation of SDRs.
IMF EXTERNAL RELATIONS DEPARTMENT