Press Release: IMF Executive Board Completes Fourth Review of Guyana Under a PRGF Arrangement
September 12, 2005
The Executive Board of the International Monetary Fund (IMF) has completed the fourth review of Guyana's economic performance under its SDR 54.55 million (about US$80.5 million) Poverty Reduction and Growth Facility (PRGF) arrangement, (see Press Releases No.02/42, No.03/152, No. 04/160, and No 05/11). Completion of the review makes a further disbursement in an amount equivalent to SDR 9.27 million (about US$13.7 million) immediately available to Guyana under the arrangement.
The Executive Board also approved Guyana's request for waivers on non-observance of one quantitative and two structural performance criteria. The staff report for the Fourth Review under Guyana's PRGF may be made available at a later stage if the authorities consent.
Following the Executive Board's discussion of Guyana, on September 9, 2005, Mr. Takatoshi Kato, Deputy Managing Director and Acting Chair, said:
"Guyana has made welcome progress under the PRGF arrangement. Despite the significant damage caused by the record floods in early 2005, program implementation has been broadly on track. Although growth has been severely affected, macroeconomic stability has been maintained and inflation has remained low. Moreover, even in the face of sharply higher world oil prices, the overall balance of payments position continues to be in line with projections. Nevertheless, strong implementation of the reform agenda set out in the arrangement remains critically important.
"The severe flooding necessitated some relaxation of the 2005 fiscal deficit target to accommodate the additional expenditure for flood relief, repairs, and the strengthening of infrastructure. However, the widening of the fiscal deficit was contained, reflecting the authorities' efforts as well as an increase in grant financing from donors. Nonetheless, given Guyana's already large fiscal deficit and public sector debt, it is imperative that fiscal developments be carefully monitored, and that actions be taken if needed to avoid further slippages.
"Over the medium term, stronger fiscal performance will be essential for sustaining macroeconomic stability and achieving debt sustainability, especially in face of higher world oil prices and unfavorable prospects for prices of Guyana's main export--sugar. In this context, it is important that the rolling five-year prioritized public sector investment program (PSIP) be completed satisfactorily, which would help guide efforts to establish a more sustainable public investment program, with a focus on improving the quality of public sector projects. Moreover, the authorities need to limit new borrowing and continue to make efforts to increase its concessionality, to help avoid any further deterioration in the already very high debt ratios.
"Going forward, continued implementation of structural reforms is essential for ensuring the achievement of program's objectives. The work required for the implementation of the VAT by next July is well underway, but it remains critical that the implementing regulations be issued in a timely fashion. As a first step, the authorities are encouraged to quickly complete the work on the tax exemption study.
"Looking forward, the private sector's role in increasing growth and reducing poverty also needs to be strengthened further. In this regard, the government is encouraged to take further steps to enhance governance, maintain financial stability, reduce financial intermediation costs, and improve the investment climate, including to expedite the efforts to streamline regulations for business registration and licensing. It will also be important to ensure that the newly created private sector company to build and operate the Berbice River bridge strictly adheres to market principles without the support of government guarantees. Other key priorities in the reform agenda include the restructuring of the sugar sector, and completion of a Financial Sector Assessment Program (FSAP) in collaboration with the World Bank," Mr. Kato said.
The PRGF is the IMF's concessional facility for low-income countries. PRGF-supported programs are based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners and articulated in the Poverty Reduction Strategy Paper (PRSP). This is intended to ensure that PRGF-supported programs are consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. PRGF loans carry an annual interest rate of 0.5 percent and are repayable over 10 years with a 5½-year grace period on principal payments.