IMF Executive Board Concludes 2013 Article IV Consultation with GuyanaPress Release No. 13/534
December 19, 2013
On December 9, 2013, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 with Guyana.
During the last decade, Guyana’s strong macroeconomic performance has contributed to a reduction in public debt levels and sustained poverty reduction. The economy has experienced seven years of uninterrupted growth averaging about 4 percent annually. The key pillars of the macroeconomic resurgence have been sustained reforms, in particular the implementation of VAT, favorable commodity prices, significant inflows of Foreign Direct Investment (FDI) and debt relief under the Heavily Indebted Poor Countries Initiative (HIPC) and Multilateral Debt Relief Initiative (MDRI) initiatives.
Real economic activity expanded by 4.8 percent in 2012 on the back of broad-based growth in agriculture, manufacturing, mining, construction and other services. Twelve-month inflation remained low at 3.4 percent, notwithstanding higher energy and food prices. In FY2012, the overall fiscal deficit was 4.5 percent of Gross Domestic Product (GDP), virtually unchanged from the 2011 outturn. Central government revenues net of grants declined by 0.8 percent of GDP, reflecting lower income and consumption tax receipts, and non-interest current expenditures rose by 1 percent of GDP mainly on account of higher transfer payments to the electricity and sugar companies. The deterioration in the central government balance was offset by improved performance of state-owned enterprises whose financial position shifted from deficit to surplus. The external current account balance was broadly unchanged from 2011 and gross international reserves stood at 4.2 months of imports at end-2012. Meanwhile, the banking soundness indicators have remained strong, with capital adequacy ratios well above the regulatory minimum requirement, non performing loans (NPLs) between 5 and 6 percent over the last three years, and provisioning for bad loans at comfortable levels.
The macroeconomic outlook is generally positive for 2013 and the medium term. Growth is projected at 4.8 percent in 2013, continuing the broad-based robust expansion in economic activity. Twelve-month inflation is expected to remain low at around 3.5 percent by year-end. The revised 2013 budget envisages an overall fiscal deficit of 5.2 percent of GDP, largely related to worsening performance of public enterprises which are projected to return a deficit of 0.4 percent of GDP compared to a surplus of 1.3 percent in 2012. Higher VAT receipts are projected to raise central government non-grant revenue by 0.9 percent of GDP. Meanwhile, central government capital expenditure is projected to rise by 0.4 percent of GDP, while the public wage bill as a percent of GDP will remain broadly stable and transfers will decline by 0.7 percent of GDP. The current account deficit is expected to widen to 16.8 percent of GDP in 2013, driven by higher fuel imports, lower commodity prices, and lower remittances, which are projected to fall with slowing activity in major host countries. At the same time, with larger disbursements related to an ambitious public investment program and resilient FDI, gross international reserves are projected to remain adequate at 3.6 months of imports.
Executive Board Assessment2
Executive Directors welcomed Guyana’s strong growth over the past several years, underpinned by favorable commodity prices and robust foreign direct investment. While the medium-term economic outlook remains positive, Directors encouraged the authorities to persevere in their commitment to sound policies and reforms to strengthen policy buffers, promote more inclusive growth, and further reduce poverty.
Directors underscored the importance of prudent fiscal consolidation anchored in a medium-term policy framework that safeguards debt sustainability, bolsters fiscal and external buffers, and addresses unmet development needs. Priority should continue to be given to implementing reforms to boost the efficiency of public enterprises and replacing universal subsidies with better-targeted social assistance.
Acknowledging the potential benefits of a more stable and reliable source of energy, Directors encouraged the authorities to ensure that the large hydroelectric project under consideration remains financially and economically viable to curb fiscal risks. In this context, they saw merit in strengthening the project and debt management framework, and pursuing international best practices as regard public-private partnerships.
Directors considered that a modestly tighter stance of monetary policy and continued exchange rate flexibility would help safeguard international reserves, contain inflationary pressures, and reduce the current account deficit.
Although risks appear generally limited, Directors recommended continued vigilance over the financial sector. In light of rapid credit growth in recent years and high loan concentration, they advised frequent on-site inspections for larger banks and a better integrated supervision of financial business groups. It is urgent to address remaining gaps in the regime to combat money laundering and the financing of terrorism.
Directors commended the authorities for the progress so far in poverty reduction. However, they considered that further efforts are needed to ensure a more even distribution of the benefits from economic growth. In this regard, efforts to lower the cost of energy, address skill mismatches, and improve the business environment represent important policy initiatives. Steps to increase productivity in traditional sectors, such as agriculture and mining, should also be part of a strategy to foster more inclusive growth. Directors also encouraged further improvements in data provision and dissemination.