IMF Executive Board Completes Fifth Review of Guyana's PRGF ArrangementPress Release No. 06/20
February 1, 2006
The Executive Board of the International Monetary Fund (IMF) has completed the fifth review of Guyana's economic performance under its SDR 54.55 million (about US$78.7 million) Poverty Reduction and Growth Facility (PRGF) arrangement (see Press Release No. 02/42). Completion of the review makes a disbursement in an amount equivalent to SDR 9.27 million (about US$13.4 million) immediately available to Guyana. The Executive Board also approved Guyana's request for waivers of non-observance of three performance criteria.
Following the Executive Board's discussion of Guyana, Mr. Takatoshi Kato, Deputy Managing Director and Acting Chair, said:
"Guyana has continued to make progress under the PRGF arrangement. The exchange rate remained stable, the external current account position was better than anticipated, and the structural reform agenda moved ahead. However, economic activity declined sharply in 2005, owing largely to adverse shocks, and inflation was higher, reflecting the pass-through of world oil prices.
"The 2005 macroeconomic program was on track, seen in particular in a solid fiscal performance. Strong revenues and delayed spending for the Skeldon sugar modernization project more than offset an increase in current and other capital spending and a shortfall in grant disbursements.
"However, there have been slight delays in completing the tax exemption study and the five-year rolling Public Sector Investment Program (PSIP), and in adopting implementing regulations for the VAT and the excise tax. Progress has now been made in all these areas.
"A key focus of the 2006 program is fiscal retrenchment. This will require maintaining the revenue effort, keeping a tight rein on current and capital spending, and improving the balance sheets of the public enterprises. It will be critical for the authorities to resist pressures for additional spending—especially related to the Cricket World Cup—and to monitor fiscal developments closely.
"Monetary and exchange rate policies will continue to be geared to meeting the program's inflation objectives and maintaining competitiveness. The recent increase in inflation underscores the importance of careful adherence to the program's monetary targets. The authorities are encouraged to develop an action plan to strengthen the financial sector, on the basis of the FSAP recommendations.
"The 2006 program maintains the momentum of structural reforms. Preparatory work for the introduction of the VAT will be intensified to ensure its smooth implementation after the elections. Wide-ranging reforms planned in other key areas will lay the basis for private sector-led growth.
"Sustained fiscal adjustment and a restructuring of the sugar sector will be critical to cope with pressures on the balance of payments coming from high world oil prices and the reform of EU sugar import policies. While Guyana's debt indicators have improved—reflecting a better revenue and growth outlook, as well as the delivery of debt relief under the Multilateral Debt Relief Initiative (MDRI)—prudent fiscal policies will be needed to maintain debt sustainability into the future, and to enable the resources set free under the MDRI to be used effectively in support of poverty reduction," Mr. Kato said.