## cr17175 - 3.5 percent in 2017, supported by an increase in public investment, continued expansion in the

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### Growth outlook and key macro projections
- Real GDP growth: 3.5 percent in 2017; 3.6 percent in 2018.
- Real GDP per capita growth: 3.2 percent in 2017; 3.3 percent in 2018.
- Twelve-month inflation: expected to remain low at around 2.6 percent by year-end 2017.
- Consumer prices (average): 2.3 percent in 2017; 2.7 percent in 2018.
- Consumer prices (end of period): 2.6 percent in 2017; 2.7 percent in 2018.
- Terms of trade: -7.8 in 2017; -0.2 in 2018.
- Drivers of 2017 growth: increase in public investment, continued expansion in the extractive sector, and a recovery in rice production.
- Medium-term projection assumption: oil production starts mid-2020 at 100,000 barrels per day for up to 8 years, then gradually declines.

### Fiscal outlook and public finances
- Fiscal deficit (nonfinancial public sector overall balance after grants): projected to widen to -7.2 percent of GDP in 2017; -6.3 percent in 2018.
- Revenue and grants: 26.1 percent of GDP in 2017; 26.8 percent of GDP in 2018.
- Expenditure: 33.3 percent of GDP in 2017; 33.1 percent of GDP in 2018.
  - Current spending: 24.6 percent of GDP in 2017; 24.3 percent in 2018.
  - Capital spending: 8.7 percent of GDP in 2017; 8.8 percent in 2018.
- Tax revenue: projected to remain stable at about 21.5 percent of GDP (text).
- Public sector gross debt (end of period): 55.1 percent of GDP in 2017; 58.5 percent of GDP in 2018.
  - External debt: 34.2 percent of GDP in 2017; 34.6 percent of GDP in 2018.
  - Domestic debt: 20.9 percent of GDP in 2017; 23.9 percent in 2018.
- Staff recommendation: moderate fiscal consolidation of a cumulative 2½ percent of GDP spread over 2017–19 to slow debt accumulation and safeguard against adverse shocks.
- Staff fiscal-adjustment specifics: narrow the deficit by 0.5 percent of GDP in 2017 and 1 percent in 2018–19 (textual recommendation elsewhere).

### External sector and reserves
- Current account balance: narrative projects -3 percent of GDP; table: -2.0 percent of GDP in 2017; -4.1 percent of GDP in 2018.
- Current account balance (US$ millions, end period): -71.4 in 2017; -153.8 in 2018.
- Gross official reserves (end period, US$ millions): 664.6 in 2017; 755.1 in 2018.
- Months of imports of goods and services: 3.6 in 2017; 3.8 in 2018.
- Net international reserve cover: projected to remain stable at 3.6 months of imports at end-2017.
- Recent improvement: current account balance improved to 0.4 percent of GDP in 2016 from a -5.7 percent deficit in 2015 (text).
- External financing: projected to be financed by investment inflows and donor-supported investment.

### Monetary policy, monetary aggregates, and credit
- Private credit growth: declined to 2.1 percent in 2016 from 6.2 percent in 2015.
  - Credit to businesses: -2.9 percent (2016).
- 91-day Treasury rate: declined to 1.68 percent at end-2016 from 1.9 percent at end-2015.
- Broad money (end-period annual percentage change): 14.9 in 2017; 10.2 in 2018.
- Domestic credit of the banking system: 11.5 in 2017; 8.2 in 2018.
- Monetary stance: currently accommodative; staff view that it should gradually move toward neutral in 2017 given low inflation but remain ready to tighten if inflationary pressures emerge.
- Transmission constraints: monetary policy transmission constrained by credit losses at some banks; need to monitor pass-through from exchange rate and VAT reform.

### Banking sector risks, supervision, and crisis preparedness
- Nonperforming loan (NPL) ratio: 12.9 percent of total loans at end-December 2016 up from 11.5 percent at end-2015.
- Provisioning: remains very low; provisioning has increased significantly per authorities but staff note under-provisioning and loan misclassifications.
- Concentration: one domestic bank accounts for about a half of NPLs while having extended only a fifth of loans.
- Reported risk-based capital-asset ratio (2016): 25.4 (Table 6).
- FSAP stress tests: under an extreme stress scenario some institutions would require recapitalizations of up to 4 ½ percent of 2016 GDP.
- CARICOM securities exposure: banks’ holdings about 30 percent of the banking system capital could generate valuation losses under regional fiscal stress.
- Supervisory recommendations (selected):
  - Improve oversight consistency from routine supervision to intervention and resolution.
  - Undertake more timely and effective remedial actions; seek prompt corrective actions from banks.
  - Raise the minimum capital adequacy requirement to 12 percent.
  - Eliminate reduced provisioning requirements for “well-secured” portions of NPLs.
  - Discourage overdraft lending and align “related parties” definitions with international standards.
- Crisis preparedness and resolution:
  - Amend the Financial Institutions Act (FIA) to give BoG resolution powers and operationalize crisis management and Emergency Liquidity Assistance (ELA).
  - Draft deposit insurance scheme (DIS) exists; staff caution DIS should follow an effective resolution regime and formalized ELA.
- Data and monitoring: enhance collection of bank and non-bank data, map bank ownership linkages, and expand stress-testing toolkit.

### Correspondent Banking Relationships (CBRs) and AML/CFT
- Number of CBRs: fell from 42 in 2011 to 34 in June 2016.
- Transactions: value and number of CBR transactions dropped by 15 and 32 percent, respectively over the same period.
- Replacement CBRs obtained; largest banks continue to have CBRs; overall impact limited.
- AML/CFT: Guyana exited the FATF/CFATF follow-up process in October/November 2016 and was removed from the list of countries with strategic deficiencies.
- Staff advice: continue strengthening AML/CFT framework drawing on the National Risk Assessment; monitor global de-risking and seek CARICOM solutions.

### Executive Board assessment and authorities’ views
- Board views:
  - Broad agreement with staff appraisal; welcomed continued economic growth, improved external position, and positive medium-term outlook supported by expected start of oil production in 2020.
  - Emphasized vulnerability to external shocks and domestic challenges; importance of preserving macroeconomic and financial stability while making growth more broad-based and inclusive.
  - Welcomed plans to establish a comprehensive framework for managing oil wealth and stressed transparency and rules-based arrangements before oil production starts (expected mid-2020).
- Authorities’ views:
  - Acknowledge one-off factors affecting 2016 fiscal performance and agree on need to reduce deficits over the medium-term but prefer a more gradual approach reflecting development and social objectives.
  - Committed to avoid non-concessional external borrowing and to develop domestic capital markets, using grants and concessional loans for large infrastructure projects.
  - Plan to anchor future oil wealth management in a comprehensive legal framework; seek Fund advice on Natural Resource Fund legislation and work on Petroleum Law and Petroleum Commission.

### Policy recommendations (staff and Board)
- Preserve macroeconomic stability:
  - Implement moderate fiscal consolidation of a cumulative 2½ percent of GDP over 2017–19.
  - Moderate growth of current expenditures.
  - Reform public enterprises, notably GuySuCo and electricity companies, while providing safety nets for affected workers.
  - Establish a fiscal framework for managing oil revenue before 2020.
  - Allow greater exchange rate flexibility; move monetary policy from accommodative toward neutral in 2017.
- Strengthen financial stability:
  - Align supervisory and regulatory frameworks with 2016 FSAP recommendations.
  - Enforce timely and effective remedial actions from banks; address high NPLs and under-provisioning.
  - Amend the Financial Institutions Act to operationalize crisis management and emergency liquidity assistance.
- Support broad-based and inclusive growth:
  - Improve the business climate, diversify the economy, and pursue structural reforms of key sectors to remove long-standing impediments to growth.
- Public investment management and domestic debt instruments:
  - Enhance public investment management (project selection, procurement, investment management); IMF PIMA TA noted as useful.
  - Develop longer-term domestic debt instruments to lengthen maturity profile (current domestic debt consists of short-term T-bills up to 1 year); authorities requested Fund TA.

### Debt dynamics, DSA findings, and oil scenarios
- Historical debt decline: debt-to-GDP ratio reduced to 49.6 percent of GDP as of 2016 following HIPC, enhanced HIPC and MDRI initiatives and growth over a decade.
- Baseline public debt projections:
  - Public debt-to-GDP: projected to increase from 49.6 percent in 2016 to about 61 percent in 2019 then decline with oil-related revenues.
  - Total public sector gross debt (end of period): 55.1 percent of GDP in 2017; 58.5 percent of GDP in 2018.
- DSA baseline assumptions for oil:
  - Oil production start: mid-2020.
  - Oil price path: US$43 per barrel in 2016 rising to about US$57 by 2022 and converging to US$60 thereafter (January 2017 WEO).
  - Total oil production assumed: 100,000 barrels per day from mid-2020 to 2028; 80,000 during 2029-32; 60,000 during 2033-37.
  - Government oil revenue treatment: government’s oil revenue equals 50 percent of “profit oil” after paying 75 percent of total revenue as “cost of oil” (implying initial government share 12.5 percent of gross, rising to 33 percent under conservative assumptions).
  - Fiscal treatment: government spends all oil revenue during 2021-24, saves one third during 2025-29, and saves 50 percent afterwards.
- Macroeconomic impacts (Text Table 1 selected):
  - Real GDP growth (%): 2015 3.1; 2016 3.3; 2017 3.5; 2018 3.6; 2019 3.7; 2017-22 13.4; 2023-37 1.4; 2017-37 4.9.
  - Consumer prices (eop): 2015 -1.8; 2016 1.5; 2017 2.6; 2018 2.7; 2019 3.0; 2017-22 2.9; 2023-37 2.4; 2017-37 2.6.
  - Overall balance (after grants): 2015 -0.2; 2016 -2.9; 2017 -7.2; 2018 -6.3; 2019 -6.0; 2017-22 -5.5; 2023-37 -0.5; 2017-37 -2.0.
  - Current account balance: 2015 -5.7; 2016 0.4; 2017 -2.0; 2018 -4.1; 2019 -4.7; 2017-22 -1.8; 2023-37 1.5; 2017-37 0.5.
- Oil-related downside (no-oil) scenario:
  - Total public debt increases to about 67 percent by 2022 and 80 percent of GDP by 2037 in absence of oil and without consolidation.
  - Staff estimate: an average deficit of about 1.5 percent of GDP will be needed to bring debt to GDP ratio down to 35 percent by 2037 in the no-oil scenario.
- Risk of debt distress: assessed as moderate (borderline moderate/low in some analyses); stress tests show vulnerability to shocks to primary balance and interest rates on new borrowing.

### Recent developments, sectoral reforms, and data issues
- 2016 growth: GDP increased by 3.3 percent, buoyed by very large increases in gold output; non-mining GDP contracted by 1.9 percent.
- Inflation: 1.5 percent (y/y) as of end-2016.
- NFPS deficit widened to -2.9 percent of GDP in 2016 (central government deficit was -4.5 percent of GDP).
- Public investment in 2016 was 23 percent lower than budgeted, containing total expenditure growth.
- Oil discovery: Exxon Mobil discovery in 2015 conservatively estimated to hold between 800 and 1,400 million barrels; commercial production planned to commence by mid-2020 with an output of 100,000 barrels/day (text). Staff’s projections include a conservative ad hoc inclusion of oil production from 2020 onwards.
- VAT reform (2017): broadened the tax base to include electricity and water consumption, reclassified zero-rated items as tax exempt, and reduced the rate from 16 to 14 percent; on balance tax revenue as a share of GDP is projected to increase by 0.1 percentage points.
- Data gaps and statistical plans:
  - Authorities intend to rebase GDP with a new benchmarking exercise for annual GDP estimates for 2018 and start publishing quarterly GDP by end-2017.
  - Staff encouraged revisions to national accounts and BOP statistics to include the oil sector, submission of Financial Soundness Indicators data, compilation of house price statistics, and seeking technical assistance to address statistical weaknesses.

### Key statistics (selected table entries preserved verbatim)
- Production and prices (2017 / 2018): Real GDP 3.5 / 3.6; Real GDP per capita 3.2 / 3.3; Consumer prices (average) 2.3 / 2.7; Consumer prices (end of period) 2.6 / 2.7; Terms of trade -7.8 / -0.2.
- National accounts (percent of GDP, 2017 / 2018): Investment 16.9 / 17.1; Private sector 8.2 / 8.3; Public sector 8.7 / 8.8.
- National saving (2017 / 2018): 14.9 / 12.9.
- External savings (2017 / 2018): 2.0 / 4.1.
- Nonfinancial public sector (2017 / 2018): Revenue and grants 26.1 / 26.8; Expenditure 33.3 / 33.1; Current 24.6 / 24.3; Capital 8.7 / 8.8; Overall balance (after grants) -7.2 / -6.3.
- Total public sector gross debt (end of period, 2017 / 2018): 55.1 / 58.5.
- Broad money (end-period annual percentage change, 2017 / 2018): 14.9 / 10.2.
- Domestic credit of the banking system (2017 / 2018): 11.5 / 8.2.
- External sector (US$ millions, end period, 2017 / 2018): Current account balance -71.4 / -153.8; (Percent of GDP) -2.0 / -4.1; Gross official reserves 664.6 / 755.1; Months of imports of goods and services 3.6 / 3.8.
- Nominal GDP (G$ billion, 2016 / 2017 / 2018): 709.7 / 755.1 / 800.4.
- Per capita GDP, US$: 4,475 (2016); 4,662 (2017); 4,817 (2018).

### Governance, SOE reform, and natural-resource management
- SOE reform priorities: curtail growth of current expenditures, reform GuySuCo and electricity companies, provide safety nets for affected workers.
- Oil management: staff commended draft Natural Resource Fund legislation; authorities plan to join the Extractive Industries Transparency Initiative and adhere to the Santiago Principles for SWFs.
- Annex II best-practice highlights: link SWF law to a fiscal responsibility law, channel hydrocarbon revenues through the state budget, coordinate SWF investment activities with Ministry of Finance and Bank of Guyana, and evaluate stabilization fund size in a SALM framework.
- Communication: emphasize public communication and transparency for legitimacy and credibility of SWF.

### Surveillance cycle recommendation
- Staff recommendation: the next Article IV consultation with Guyana be held on the standard 12-month cycle.

*International Monetary Fund staff report for the 2017 Article IV consultation with Guyana (selected extracts).*

### 3.5 percent in 2017, supported by an increase in public investment, continued expansion in the

### cr17175 - 3.5 percent in 2017, supported by an increase in public investment, continued expansion in the

### Growth outlook and key macro projections
- Real GDP growth: 3.5 percent in 2017; 3.6 percent in 2018.
- Real GDP per capita growth: 3.2 percent in 2017; 3.3 percent in 2018.
- Twelve-month inflation: expected to remain low at around 2.6 percent by year-end 2017.
- Consumer prices (average): 2.3 percent in 2017; 2.7 percent in 2018.
- Consumer prices (end of period): 2.6 percent in 2017; 2.7 percent in 2018.
- Terms of trade: -7.8 in 2017; -0.2 in 2018.
- Drivers of 2017 growth: increase in public investment, continued expansion in the extractive sector, and a recovery in rice production.

### Fiscal outlook and public finances
- Fiscal deficit (nonfinancial public sector overall balance after grants): projected to widen to -7.2 percent of GDP in 2017; -6.3 percent in 2018.
- Revenue and grants: 26.1 percent of GDP in 2017; 26.8 percent of GDP in 2018.
- Expenditure: 33.3 percent of GDP in 2017; 33.1 percent of GDP in 2018.
  - Current spending: 24.6 percent of GDP in 2017; 24.3 percent in 2018.
  - Capital spending: 8.7 percent of GDP in 2017; 8.8 percent in 2018.
- Tax revenue: projected to remain stable at about 21.5 percent of GDP (text).
- Public sector gross debt (end of period): 55.1 percent of GDP in 2017; 58.5 percent in 2018.
  - External debt: 34.2 percent of GDP in 2017; 34.6 percent in 2018.
  - Domestic debt: 20.9 percent of GDP in 2017; 23.9 percent in 2018.
- Staff recommendation: moderate fiscal consolidation of a cumulative 2½ percent of GDP spread over 2017–19 to slow debt accumulation and safeguard against adverse shocks.

### External sector and reserves
- Current account balance: projected at -3 percent of GDP in the narrative (table: -2.0 percent of GDP in 2017; -4.1 percent of GDP in 2018).
- Current account deficit/projected financing: financed by investment inflows and donor-supported investment.
- Net international reserve cover: projected to remain stable at 3.6 months of imports at end-2017.
- Gross official reserves (end period, US$ millions): 664.6 in 2017; 755.1 in 2018.
- Months of imports of goods and services: 3.6 in 2017; 3.8 in 2018.
- Recent improvement: current account balance improved to 0.4 percent of GDP in 2016 from a -5.7 percent deficit in 2015 (text).

### Executive Board assessment and strategic priorities
- Board views:
  - Broad agreement with staff appraisal; welcomed continued economic growth, improved external position, and positive medium-term outlook supported by expected start of oil production in 2020.
  - Emphasized vulnerability to external shocks and domestic challenges; importance of preserving macroeconomic and financial stability while making growth more broad-based and inclusive.
- Oil management:
  - Welcomed authorities’ plans to establish a comprehensive framework for managing oil wealth.
  - Stressed importance of a transparent and rules-based framework before oil production starts (expected mid-2020).
- Fiscal strategy:
  - Most Directors supported staff’s recommendation for moderate fiscal consolidation before oil production.
  - A few Directors preferred a more gradual consolidation to reflect development needs.
  - Recommended moderating growth of current expenditures and advancing public enterprise reform, notably sugar and electricity, while providing a safety net for affected workers.
- Debt and domestic financing:
  - Issuance of longer-term domestic debt instruments welcomed to provide stable financing, settle government’s negative balance at the central bank, and help develop domestic capital markets.
  - Caution that significant increase in domestic debt could raise borrowing costs.
  - Commended authorities for refraining from non-concessional external borrowing.
  - On negotiations with bilateral non-Paris Club creditors, some Directors reiterated importance of preserving comparability of treatment.
- Exchange rate and monetary policy:
  - Welcomed increased exchange rate flexibility; encouraged using the exchange rate as a stronger automatic stabilizer.
  - Recommended clear communication strategy and auctioning foreign exchange for official transactions to improve price discovery and transparency.
  - Agreed that the currently accommodative monetary policy stance is appropriate, but stressed readiness to tighten if inflationary pressures emerge.
- Financial sector:
  - Noted banking sector appears resilient to severe shocks.
  - Encouraged bringing supervisory and regulatory frameworks in line with 2016 FSAP recommendations.
  - Called for steps to reduce nonperforming loans and higher provisioning for slow collateral recovery, unrecorded related-party exposures, and loan misclassifications.
  - Recommended amending the Financial Institutions Act to operationalize the crisis management framework and establish an emergency liquidity assistance framework.
- AML/CFT:
  - Commended exit from the Financial Action Task Force follow-up process.
  - Encouraged further strengthening of the anti-money laundering and combating the financing of terrorism framework, drawing on the National Risk Assessment.
  - Noted progress on replacing correspondent banking relationships and urged continued vigilance.

### Policy recommendations (staff and Board)
- Preserve macroeconomic stability:
  - Implement moderate fiscal consolidation of a cumulative 2½ percent of GDP over 2017–19.
  - Moderate growth of current expenditures.
  - Reform public enterprises, notably GuySuCo and electricity companies, while protecting affected populations via safety nets.
  - Establish a fiscal framework for managing oil revenue before 2020.
  - Allow greater exchange rate flexibility; move monetary policy from accommodative toward neutral in 2017.
- Strengthen financial stability:
  - Align supervisory and regulatory frameworks with 2016 FSAP recommendations.
  - Enforce timely and effective remedial actions from banks; address high NPLs and under-provisioning.
  - Amend the Financial Institutions Act to operationalize crisis management and emergency liquidity assistance.
- Support broad-based and inclusive growth:
  - Improve the business climate, diversify the economy, and pursue structural reforms of key sectors to remove long-standing impediments to growth.

### Recent developments and background (select points)
- 2016 growth: GDP increased by 3.3 percent, buoyed by very large increases in gold output; non-mining GDP contracted by 1.9 percent.
- Inflation: 1.5 percent (y/y) as of end-2016.
- NFPS deficit widened to -2.9 percent of GDP in 2016 (central government deficit was -4.5 percent of GDP).
- Public investment in 2016 was 23 percent lower than budgeted, containing total expenditure growth.
- Oil discovery: Exxon Mobil discovery in 2015 conservatively estimated to hold between 800 and 1,400 million barrels; commercial production planned to commence by mid-2020 with an output of 100,000 barrels/day (text). Staff’s projections include a conservative ad hoc inclusion of oil production from 2020 onwards.
- Historical debt reduction: debt-to-GDP ratio reduced to 49.6 percent of GDP as of 2016 following HIPC, enhanced HIPC and MDRI initiatives and over a decade of growth.

### Key statistics (selected table entries preserved verbatim)
- Production and prices (2017 / 2018): Real GDP 3.5 / 3.6; Real GDP per capita 3.2 / 3.3; Consumer prices (average) 2.3 / 2.7; Consumer prices (end of period) 2.6 / 2.7; Terms of trade -7.8 / -0.2.
- National accounts (percent of GDP, 2017 / 2018): Investment 16.9 / 17.1; Private sector 8.2 / 8.3; Public sector 8.7 / 8.8.
- National saving (2017 / 2018): 14.9 / 12.9.
- External savings (2017 / 2018): 2.0 / 4.1.
- Nonfinancial public sector (2017 / 2018): Revenue and grants 26.1 / 26.8; Expenditure 33.3 / 33.1; Current 24.6 / 24.3; Capital 8.7 / 8.8; Overall balance (after grants) -7.2 / -6.3.
- Total public sector gross debt (end of period, 2017 / 2018): 55.1 / 58.5.
- Broad money (end-period annual percentage change, 2017 / 2018): 14.9 / 10.2.
- Domestic credit of the banking system (2017 / 2018): 11.5 / 8.2.
- External sector (US$ millions, end period, 2017 / 2018): Current account balance -71.4 / -153.8; (Percent of GDP) -2.0 / -4.1; Gross official reserves 664.6 / 755.1; Months of imports of goods and services 3.6 / 3.8.
- Nominal GDP (G$ billion, 2016 / 2017 / 2018): 709.7 / 755.1 / 800.4.
- Per capita GDP, US$: 4,475 (2016); 4,662 (2017); 4,817 (2018).

*International Monetary Fund staff report for the 2017 Article IV consultation with Guyana (selected extracts).*

### 8. Growth in monetary aggregates and credit has been subdued due to the

### cr17175 - 8. Growth in monetary aggregates and credit has been subdued due to the

### Monetary and credit developments
- Private credit growth declined to 2.1 percent in 2016 from 6.2 percent in 2015, mainly owing to a significant fall in credit to businesses (-2.9 percent) and reduced lending to households and the real estate sector.  
- The 91-day Treasury rate declined to 1.68 percent at end-2016 from 1.9 percent at end-2015, implying an ex ante real rate close to zero.  
- Monetary indicators reported as 12-month percent change include Base Money, Broad Money, and Credit to the private sector (chart referenced in source).

### Banking sector risks and performance
- The nonperforming loan (NPL) ratio rose to 12.9 percent of total loans at end-December 2016 up from 11.5 percent at end-2015; provisioning remains very low.  
- Banks are tightening credit in response to rising NPLs.  
- One domestic bank accounts for about a half of NPLs while having extended only a fifth of loans.  
- The banking system reports high profitability and capital buffers, but for some banks these are overstated due to under-provisioning, loan misclassifications and unrecorded related-party exposures.  
- FSAP stress tests indicate that under an extreme stress scenario some institutions would require recapitalizations of up to 4 ½ percent of 2016 GDP.  
- Banks’ large holdings of CARICOM securities (about 30 percent of the banking system capital) could generate significant valuation losses in the event of fiscal stress in the region.

### Correspondent Banking Relationships (CBRs)
- The number of CBRs fell from 42 in 2011 to 34 in June 2016, with a retreat mainly by US banks.  
- Replacement CBRs have been obtained, but the value and the number of CBR transactions dropped by 15 and 32 percent, respectively over the same period.  
- Foreign banks are charging higher fees and have increased processing times for existing CBRs.  
- The largest banks continue to have CBRs, and the impact on the economy has been limited.

### AML/CFT
- Guyana exited the FATF/CFATF follow-up process in October 2016 and was removed from the list of countries with strategic deficiencies.  
- Continued strengthening of the AML/CFT framework in line with international standards is needed.

### Outlook and risks: growth, external, inflation
- Economic growth is projected to hover around 3½-3¾ percent during 2017–19, driven by an increase in public investment, continued expansion in the extractive sector, and a recovery in rice production.  
- This projection assumes that oil production starts in mid-2020 at 100,000 barrels per day for up to 8 years, before gradually declining.  
- Inflation is expected to be around 2½-3 percent over the medium term.  
- A current account deficit of 3 percent of GDP is projected for 2017; the deficit is projected to widen to 5 percent of GDP by 2019 as import growth outpaces export growth.  
- The start of oil production in 2020 is expected to swing the current account into a persistent surplus and increase official reserves significantly; import cover will decline due to increased imports (including oil-related ones), but will remain above 3 months throughout the medium-term.  
- Risks are tilted to the downside in the short-term but to the upside over the medium-to long-term. Specific downside risks identified include losses of CBRs, weak global growth affecting commodity prices, a strong US dollar eroding competitiveness, lower energy prices delaying oil field development, contingent liabilities from PPPs, the ailing sugar industry, undercapitalized banks and the National Insurance Scheme. Upside risk stems from potential further oil discoveries.

### Fiscal outlook and public debt
- The NFPS deficit is projected to increase to 7.2 percent of GDP in 2017 (due in part to delayed capital spending from 2016) and to gradually narrow to 4.3 percent by 2022.  
- The baseline outlook includes continued spending in the State-Owned Enterprise (SOE) sector, including 1½-2 percent of GDP per year on subsidies to GuySuCo.  
- Financing needs will remain relatively high, which may raise borrowing costs.  
- Public debt-to-GDP is projected to increase from 49.6 percent in 2016 to about 61 percent in 2019 and gradually decline with oil-related revenues.  
- As Guyana grows richer, access to grants and concessional financing is projected to taper off with the start of oil production.

### Policy recommendations and discussions — Fiscal policy
- Staff recommended a moderate fiscal adjustment to safeguard against unanticipated shocks before the start of oil production: narrow the deficit by 0.5 percent of GDP in 2017 and 1 percent in 2018–19 to prevent the debt from rising above 60 percent of GDP.  
- Given relatively high tax effort and recent VAT reform, adjustment should occur by reducing expenditures while preserving capital expenditure; specifically, curtail growth of current expenditures while preserving social expenditures.  
- From 2020 onwards, fiscal policy should be guided by a rules-based framework put in place before the onset of oil production.  
- Staff noted that stabilizing the share of current expenditures in GDP would achieve the proposed 2017 consolidation; growth in current expenditures should continue to be moderated in 2018–19.

### Public investment management and debt instruments
- Enhancing efficiency of public investment management (project selection, public procurement, investment management) to international best practices would improve timeliness and quality of public investment, help unlock additional external concessional financing, reduce domestic financing needs, and bring foreign exchange into the economy. The IMF's Public Investment Management Assessment (PIMA) could help streamline processes; authorities expressed interest.  
- Developing longer-term domestic debt instruments is recommended to provide a more stable source of government financing, lengthen the maturity profile of domestic debt (currently short-term T-bills with maturities of up to 1 year), meet demand from banks, insurance and pension funds, and contribute to capital market development. Authorities have requested Fund TA.  
- The government maintained outstanding balances at its central bank account of about 3 percent of GDP at end-2016; staff stressed settling such balances through issuance of debt and included these balances in public debt figures.

### Tax reform, SOE reform, and oil revenue management
- The VAT reform (based on CARTAC’s recommendations) broadened the tax base to include electricity and water consumption, reclassified zero-rated items as tax exempt, and reduced the rate from 16 to 14 percent. Other measures include lowering the personal income tax rate by about 2 percentage points (varying by income brackets), and the corporate tax rate (non-commercial firms) from 30 to 27.5 percent. On balance, tax revenue as a share of GDP is projected to increase by 0.1 percentage points.  
- Improvements in payment systems to facilitate electronic payments can enhance transaction recording and tax enforcement; tax administration can be further strengthened following the recent IMF TADAT mission.  
- Medium-term fiscal consolidation should be underpinned by reform of public enterprises. GuySuCo’s current business model is unsustainable; staff supports authorities’ efforts to overhaul the sugar industry while providing a safety net for those affected. Short-term fiscal gains will be limited; long-term benefits of restructuring are expected to outweigh short-term costs. Further reductions in GPL losses would strengthen resilience to oil price shocks.  
- Managing future oil revenue should be anchored by a transparent rules-based fiscal framework to delink the budget from oil revenue volatility, limit procyclical spending, and save a share of oil revenue for future generations. Staff commended draft Natural Resource Fund legislation and the authorities’ plans to join the Extractive Industries Transparency Initiative and adhere to the Santiago Principles for SWFs.

### Authorities’ views (summary)
- Authorities noted one-off factors on 2016 fiscal performance, including consolidation of constitutional agencies’ expenses, local government elections, catching-up with maintenance, 50th Independence Celebrations, and increased costs from expanding services in the hinterland.  
- Authorities agreed on the need to reduce deficits over the medium-term but argue for a more gradual approach that considers development and social objectives; they expect the NFPS deficit to remain above 6 percent of GDP during 2017-19 and aim to reduce the deficit to about 4.5 percent of GDP by 2022.  
- Authorities remain committed to avoid non-concessional external borrowing and to develop domestic capital markets, relying more on medium-to long-term bond issuances; they plan to use grants and concessional loans for large infrastructure projects.  
- Authorities reiterated plans to anchor future oil wealth management in a comprehensive legal framework, seeking Fund advice on the Natural Resource Fund legislation and working on Petroleum Law and establishing a Petroleum Commission.

*International Monetary Fund — cr17175 (extracted content unit)*

### 27. Staff assessed Guyana’s external position as stronger than levels consistent with

### 27. Staff assessed Guyana’s external position as stronger than levels consistent with fundamentals

### External position and exchange rate assessment
- Staff assessment: Guyana’s external position is stronger than levels consistent with fundamentals.
- EBA-based estimate: the current account balance in 2016 is about 2.5 percent of GDP higher than the current account norm, implying a moderate real exchange rate undervaluation (Annex III).
- REER model: points to a moderate undervaluation.
- Exchange rate movements: between June 2015 and December 2016, the REER and the nominal effective exchange rate (NEER) appreciated by 5 and 6 percent, respectively, mostly driven by the appreciation of the US dollar vis-à-vis other major currencies.
- Short-term outlook: the current account gap is expected to narrow given projections of a negative terms-of-trade shock in 2017, an acceleration of the public investment program, and a recovery of domestic demand; this narrowing would imply an exchange rate broadly in line with fundamentals.
- Reserves: International reserves remain above traditional metrics and meet the Fund’s composite adequacy metric (Annex IV).

### Exchange rate flexibility and market functioning
- Regime: de jure float.
- Recent flexibility: nominal exchange rate vis-à-vis the U.S. dollar remained virtually constant for over two years before an increase in flexibility starting in late 2016.
- Bank-level movement: the exchange rate at commercial banks has depreciated by about 3 percent during December 2016–March 2017.
- Staff view: commended the Bank of Guyana (BoG) for allowing market forces to move the exchange rate.
- FX market liquidity: the inter-bank foreign exchange market appears illiquid and could be further developed, including by enhancing the transparency of market activity.
- Mission recommendation: official foreign exchange purchases and sales should use a market mechanism similar to the one used for auctioning T-bills to improve price discovery and transparency in the FX market.
- Authorities’ actions: capped the bid-ask spread banks can charge to curb perceived excessive profits and speculation.

### Authorities’ views on FX
- Authorities’ stance: the exchange rate remains market determined and they have refrained from intervening.
- Market limitations: liquidity and full price discovery may be limited by the relatively small number of banks and major suppliers of FX.
- Causes of depreciation: attributed to hoarding and speculation, and a few banks compensating for declining interest income via FX transactions—motivation for limiting the bid-ask spread.
- Regional pressures: FX shortages in other countries have driven firms and banks to use Guyana’s market to access hard currency; BoG has stopped buying certain regional currencies.
- Expectations: authorities expect recent volatility to decline, the current account to move to a deficit in 2017, and view the exchange rate as broadly in line with fundamentals.

### Monetary policy
- Current stance: accommodative monetary policy is appropriate but should gradually move towards a neutral stance in 2017.
- Inflation outlook: inflation rises to 2.6 percent by year-end.
- Transmission constraints: monetary policy transmission to private sector credit is constrained by credit losses at some banks.
- Monitoring needs: pass-through from the exchange rate to inflation should be closely monitored; pass-through from the VAT reform should also be monitored in case downward price rigidities lead to an asymmetric impact on inflation.
- Authorities’ view: will remain vigilant on inflation, monitor international prices and pass-through from the exchange rate, and agree that addressing the high level of NPLs would improve monetary policy effectiveness; actions have already been taken.

### Strengthening financial sector resilience
- Supervisory priorities (staff recommendations, aligned with May 2016 FSAP):
  - Improve oversight consistency from routine supervision to intervention and resolution.
  - Undertake more timely and effective remedial actions to address banks’ severe under-provisioning and related-party lending.
  - Seek prompt corrective actions from banks based on onsite supervisory deficiencies.
  - Raise the minimum capital adequacy requirement to 12 percent.
  - Eliminate reduced provisioning requirements for “well-secured” portions of NPLs.
  - Discourage the use of overdraft lending to facilitate better credit risk monitoring.
  - Align the definition of “related parties” with international standards.
  - Monitor upstream and downstream ownership of institutions for better consolidated supervision.
- Crisis preparedness and resolution:
  - BoG progress noted on crisis preparedness and management framework, but further improvement needed.
  - Crisis management framework should legally empower the BoG to resolve failing institutions in an orderly resolution without requiring court approvals.
  - Draft deposit insurance scheme (DIS) exists; staff cautioned that DIS should be established only after introducing an effective resolution regime and formalizing the framework for Emergency Liquidity Assistance (ELA), requiring amendments to the Financial Institutions Act (FIA).
- Additional steps recommended:
  - Enhance collection of bank and non-bank data and pursue systemic risk monitoring (including banks’ ownership linkages and related-party lending).
  - Implement new pension and insurance laws swiftly to align regulation and supervision with international standards.
  - Design a strategy for integrated development of the National Payment System to support payment needs and financial deepening.
  - Strengthen supervisory and regulatory regime and establish regional CBR accounts to help international banks exploit economies of scale and dampen impact of CBR losses.

### Authorities’ views on financial sector actions
- NPLs: past deterioration triggered enhanced monitoring and intensive follow-up; NPLs concentrated among a few large borrowers with solvent businesses facing liquidity problems.
- Provisioning: provisioning has increased significantly.
- Supervision: continued risk-based approach to onsite inspections, more frequent examinations focused on credit risk management and asset quality reviews, meetings with Boards of Directors, and more frequent reporting requirements.
- Stress testing: BoG conducts stress testing of loan portfolios.
- Implementation: authorities plan to accelerate implementation of FSAP recommendations with technical assistance; reviewing BoG guidance on provisioning for "well-secured" loans pending regional working group recommendations.
- Legislative actions and TA: discussions with the World Bank on TA to amend the FIA; draft Pension Act should be passed by the end of the year; new Insurance Act passed in June 2016 with implementing regulations being drafted.
- AML/CFT: will continue strengthening framework, drawing on the National Risk Assessment completed in March 2017.
- Monitoring global trends: will monitor global banks' de-risking decisions and are open to potential CARICOM solutions.

### Supporting strong and inclusive growth
- Business environment: improvements would help private sector-led growth; Guyana advanced 16 places to 124th (of 190 countries) in the World Bank’s 2017 Doing Business Report but remains below the regional average in dealing with construction permits, getting electricity and resolving insolvency.
- Sectoral reforms:
  - Sugar: encouraged to scale down and privatize inefficient units, provide safety nets, and diversify revenue streams; authorities developing a strategic plan and a Cabinet Sub-Committee has been established to make recommendations, with options being considered for the Skeldon Sugar Factory and scaling down of inefficient GuySuCo operations.
  - Agriculture: successful reforms would support growth, employment, diversification into higher value-added activities (e.g., agri-business, agro-processing, and light manufacturing), and raise living standards.
- Energy and telecoms:
  - Authorities pursuing a green economy and modernizing telecommunications.
  - Plans to increase contribution of low cost renewables to the energy matrix and improve transportation links.
  - Electricity objective: rely 100 percent on renewables by 2025.
  - Telecommunication liberalization welcomed as it creates opportunities in business outsourcing.
- Inclusive growth and resilience:
  - Limited up-to-date poverty data; 2015 UN Human Development Report noted progress in life expectancy, education access, and standard of living.
  - Extreme poverty concentrated in the hinterland.
  - Mission supported focus on improving access to electricity, education, maternal and reproductive health, and banking.
  - Progress acknowledged on sea defenses; building resilience to climate change and natural disasters recommended.

### Data gaps
- Staff encouraged revisions to national accounts and BOP statistics to include the oil sector, submission of Financial Soundness Indicators data, compilation of house price statistics, and seeking technical assistance to address statistical weaknesses.

### Staff appraisal and policy recommendations
- Outlook: following a decade of robust growth, Guyana’s medium-term economic outlook remains positive; growth expected to become more broad based over the medium term, boosted by increased public investment, expansion of the extractive industry, and a recovery of the rice sector.
- External vulnerabilities: external position strengthened but remains vulnerable due to dependence on imported oil and concentration of exports on a few commodities; productivity-enhancing reforms in key export sectors can improve resilience.
- Exchange rate policy:
  - Maintain the shift towards greater exchange rate flexibility so the exchange rate can act as an automatic stabilizer.
  - Implement a clear communication strategy to prevent disproportionate market reactions as participants adjust to increased flexibility.
  - Official foreign exchange purchases and sales should be auctioned to improve price discovery and transparency in the FX market.
- Domestic financing and capital markets:
  - Developing domestic capital markets can help finance large projected deficits.
  - Issue a domestic bond to provide stable government financing and an investment instrument for financial institutions and long-term investors, while recognizing that a significant increase in domestic debt can drive-up borrowing costs.
  - Settle the government’s negative balances at the central bank through issuance of debt.
  - Public investment project selection and implementation should aim to increase access to concessional external funding; avoid non-concessional external borrowing.
- Fiscal policy:
  - Recommend moderate fiscal consolidation during 2017-19 to slow debt accumulation and safeguard against adverse shocks before the onset of oil production.
  - Specific targets: reduction in the fiscal deficit of ½ percent of GDP in 2017, and 1 percent in 2018 and 2019. This can be achieved by reducing the growth of current expenditures, supported by eventual gains from SOE reform.
  - After oil production begins: fiscal policy should be guided by a transparent rules-based framework and a comprehensive framework for managing oil wealth should be in place prior to the 2020 budget.
  - Other fiscal structural reforms needed in public financial management, procurement, and investment to ensure oil wealth is used efficiently.
- Monetary policy: accommodative stance appropriate but should gradually move towards neutral in 2017; monitor pass-through from exchange rate and VAT reform to inflation.
- Financial sector reforms: bring supervisory and regulatory frameworks further in line with the 2016 FSAP recommendations, including increasing minimum capital requirement from 8 to 12 percent of risk-weighted assets, eliminating reduced provisioning for “well-secured” NPLs, revising overdraft lending practices, aligning related-party definitions with international standards, and closely monitoring banks’ interlinkages and ownership structures.
- Crisis management sequencing: operationalizing the crisis management framework will require amendments to the FIA; an effective resolution regime and a formal ELA framework are prerequisites for a DIS; the FIA should give BoG powers to carry out orderly resolutions and prevent courts from reversing BoG actions.
- AML/CFT: continue strengthening the framework using lessons from the National Risk Assessment.
- Statistical rebasing: authorities should include oil exploration and production when rebasing national accounts to 2018 and include it in BOP statistics.

*IMF Staff Report: Guyana (excerpts provided).*

### 56. Staff recommends that the next Article IV consultation with Guyana be held on

### 56. Staff recommends that the next Article IV consultation with Guyana be held on the standard 12-month cycle.

### Key findings
- Staff recommendation: the next Article IV consultation with Guyana be held on the standard 12-month cycle.
- Growth momentum: "Growth momentum slowed in 2016, driven by a slowdown in investment and lower commodity prices."
- Inflation: "inflation remained subdued."
- Fiscal: "The fiscal deficit increased in 2016..."
- External: "external borrowing continued to decline."
- Domestic debt: "Domestic debt slightly increased from a low base."
- Current account: "higher gold exports helped improving current account balance."
- Comparative performance: "Guyana continues to perform in line or better than its regional peers."

### Real sector and prices
- Real GDP (2016): 3.3 (Table 7, Real GDP).
- Non-oil real GDP (2016): 3.3 (Table 7).
- Real GDP per capita (2016): 3.2 (Table 1).
- Sectoral notes:
  - Adverse weather affected rice and sugar sectors; higher food prices reversed the deflation trend.
  - High gold production and prices boosted nominal GDP; slowdown in agriculture and manufacturing reduced real GDP growth.
- Prices:
  - Consumer prices (average, 2016): 0.8 (Table 7).
  - Consumer prices (end of period, 2016): 1.5 (Table 7).

### External sector
- Current account (2016, incl. official transfers): 13.7 (Table 2, US$ millions).
- Current account (2016, excl. official transfers): 12.9 (Table 2, US$ millions).
- Exports (f.o.b., 2016): 1,440.6 (Table 2, US$ millions).
  - Gold exports (2016): 830.7 (Table 2, US$ millions).
- Imports (c.i.f., 2016): 1,447.9 (Table 2, US$ millions).
  - Capital goods imports (2016): 302.8 (Table 2, US$ millions).
  - Fuel and lubricants (2016): 344.3 (Table 2, US$ millions).
- Gross official reserves (end-2016): 615.3 (Table 2, US$ millions).
- Months of imports of goods and services (2016): 3.6 (Table 2).
- Note: "Favorable gold prices and low import prices helped swing the current account deficit to surplus" in 2016.

### Fiscal sector
- Nonfinancial public sector overall balance after grants (percent of GDP, 2016): -6.3 (Table 3b).
- NFPS total public sector gross debt (end of period, 2016): 49.6 percent of GDP (Table 7).
- Composition (2016):
  - Revenue (percent of GDP, 2016): 26.1 (Table 7).
  - Expenditure (percent of GDP, 2016): 33.3 (Table 7).
  - Capital expenditure (percent of GDP, 2016): 8.7 (Table 3b).
- Financing (2016, G$ billions): Net foreign financing 8.2; Net domestic financing 46.2 (Table 3a, in billions of Guyanese dollars).
- Fiscal outcome drivers: "The 2016 NFPS deficit was smaller than the budget target due to lower capital spending and ... stable revenue, despite slowing economic activity. Current expenditures increased, ... reducing fiscal savings."
- Policy note: "Fiscal measures are needed to slow debt accumulation."

### Financial sector and banking system
- Banking system liquidity and capitalization:
  - Reported risk-based capital-asset ratio (2016): 25.4 (Table 6).
  - "Banks remain liquid... and the system's reported CAR is above the regulatory requirement."
- Asset quality and profitability:
  - Share of nonperforming loans in total loans: 11.5 (2015) and 12.9 (2016) (Table 6).
  - "Credit concentration increased in 2016... and asset quality is deteriorating."
  - "Banks' profitability continued to weaken in 2016 on the back of rising NPLs... while operating expenses remained broadly stable."
- Conclusion: "The banking system is well capitalized and liquid but asset quality and profitability continued to deteriorate in 2016."

### Monetary developments
- Broad money growth and credit:
  - Broad money (annual percentage change): notable increase in 2016 (Figure 6 narrative: "Growth in base money increased...").
  - Private sector credit slowed sharply in 2016, particularly to businesses; mortgage lending remained relatively stable.
- Interest rates: "interest rates marginally declined" (Figure 6).
- Policy stance: "Monetary conditions are broadly supportive of growth."

### Medium-term projections (selected)
- Real GDP projections:
  - 2017: 3.5 (Table 7).
  - 2018: 3.6 (Table 7).
- Consumer prices (average) projections:
  - 2017: 2.3; 2018: 2.7 (Table 7).
- Gross official reserves projections:
  - 2017: 664.6 (US$ millions); 2018: 755.1 (Table 2).
- Public sector gross debt (end of period) projections:
  - 2017: 55.1 percent of GDP; 2018: 58.5 percent of GDP (Table 7).
- Exports and imports (selected projections, US$ millions):
  - Exports (2017): 1,453.7; Exports (2018): 1,512.8 (Table 2).
  - Imports (2017): 1,635.7; Imports (2018): 1,726.5 (Table 2).

### Risks and policy recommendations
- Risk Assessment Matrix (selected entries):
  - Reduced correspondent banking relationships: Risk = High likelihood; Impact = High. Policy response: "Address the withdrawal of CBRs by tackling drivers related to risk and risk perceptions, including greater compliance with international standards and removal of impediments to information sharing, as well as drivers related to profitability, including technological innovations."
  - Global policy uncertainty, US dollar strengthening: Risk = High likelihood; Impact = Medium. Policy response: "Greater exchange rate flexibility."
  - Significant deterioration in domestic banks' credit portfolio: Risk = Medium likelihood; Impact = High. Policy response: "Strengthen capital and provisioning requirements and risk-based supervision; introduce emergency liquidity assistance and crisis resolution frameworks."
  - Larger-than-expected slowdown in key sectors and losses/contingencies at public enterprises, PPPs and the National Insurance Scheme: Risk = Medium likelihood; Impact = Medium. Policy response: "Allow automatic stabilizers to work in the short-term; fiscal consolidation/restructuring of problem enterprises; medium-term expenditure framework."

- Additional policy guidance in text:
  - "Greater exchange rate flexibility to stem real appreciation and attenuate impact on current account deficit."
  - For lower energy prices: "This would reduce the oil import bill in the short-run. But could delay investments in the oil sector, which would call for earlier fiscal consolidation."

*Source: International Monetary Fund staff report.*

### Annex I. Authorities’ Response to Past IMF Recommendations

### Annex I. Authorities’ Response to Past IMF Recommendations

### IMF 2016 Article IV Recommendations — Authorities’ Responses
- Fiscal policy
  - IMF recommendation: Fiscal consolidation to preserve buffers. Moderate the growth in current expenditure, particularly subsidies to SOEs, broaden the revenue base and strengthen tax administration. Refrain from nonconcessional borrowing.
  - Authorities’ response: Broadly consistent
  - Key points:
    - The authorities narrowed the NFPS deficit to 2.9 percent of GDP in 2016 from a budgeted 5.5 percent, although mainly as a result of delays in capital expenditure.
    - The authorities implemented a VAT reform in 2017 that broadened the tax base while reducing the rate.
    - External borrowing remained on concessional terms.
    - Various restructuring measures for the sugar industry are currently being considered to reduce its reliance on government support.

- Monetary and exchange rate policies
  - IMF recommendation: Maintain an accommodative monetary policy stance. Allow exchange rate flexibility to play a larger role in facilitating external adjustment.
  - Authorities’ response: Broadly consistent
  - Key points:
    - The monetary stance remained accommodative and nominal and real interest rates declined.
    - There was a small but significant increase in nominal exchange rate flexibility vis-à-vis the US dollar.

- Financial sector policy
  - IMF recommendation: Heightened vigilance given rise in NPLs. Tighten provisioning requirements and closely monitor related-party lending. Strengthen the AML/CFT framework and promptly implement the action plan agreed with the FATF.
  - Authorities’ response: Broadly consistent
  - Key points:
    - The authorities passed the Insurance Act and strengthened stress testing practices.
    - They have made some progress in implementing recommendations from the 2016 FSAP (Annex V).
    - Guyana addressed AML/CFT deficiencies and exited the FATF follow-up process.

- Structural reforms
  - IMF recommendation: Move towards greater economic diversification by advancing reforms to promote competition and improve the business climate. Well targeted public investment and liberalizing reforms to lower the high costs of electricity, transportation and telecommunications and raise productivity.
  - Authorities’ response: Broadly consistent
  - Key points:
    - The authorities liberalized the telecommunications sector and improved their rankings in the World Bank Doing Business Report.
    - They are also taking steps to increase the share of renewables in the energy matrix and integrate remote regions in the hinterland.

### Annex II — Best Practices in Managing Oil Wealth
- Context and timing
  - The magnitude of oil resources is still subject to further exploration and proceeds are not expected to start flowing before 2020.
  - Authorities prioritized establishing a credible framework for the management of future hydrocarbon revenues, including a draft SWF law and a resource management framework.

- Link to fiscal framework and coordination
  - The SWF law should be linked to a fiscal responsibility law (FRL).
  - All hydrocarbon revenues and any public spending related to these revenues should be channeled through the state budget.
  - SWF investment activities should be coordinated with relevant authorities such as the owner (Ministry of Finance) and the Bank of Guyana through regular meetings (e.g., quarterly) to ensure consistency with overall macroeconomic policies.

- Sovereign Asset and Liability Management (SALM)
  - The building up of assets in a SWF and its investment strategy should be seen in the broader context of a SALM framework.
  - For indebted resource-rich countries, strike the right balance between debt repayments and building up SWF assets for stabilization purposes.
  - Hydrocarbon revenues can be used to reduce the stock of government foreign debt to sustainable levels; the exact target for debt reduction would be guided by the FRL.
  - The appropriate level of the stabilization fund should be evaluated in a SALM framework taking account of interest rate levels and the size of the public debt.

- Communication and public legitimacy
  - Communication with the general public is critical for domestic legitimacy and international credibility.
  - Informing the public about the investment strategy and risks helps make implementation more robust during high market volatility.
  - Common practices: organize educational seminars, engage with the media, and maintain an active website with up-to-date information on the SWF’s activities.

### Annex III — External Balance Assessment
- Overall assessment
  - Guyana’s external position in 2016 is assessed to be stronger than levels consistent with fundamentals and the real exchange rate continued to appreciate.
  - The temporary improvement in the current account is largely due to the sharp increase in gold exports and favorable terms of trade.
  - The current account gap is expected to narrow over the short-term.
  - More flexibility in the nominal exchange rate would help Guyana cope with potential external shocks, and fiscal consolidation would help preserve buffers.

- Exchange rate developments
  - The real effective exchange rate (REER) has appreciated by 5 percent during June 2015–December 2016.
  - The Nominal Effective Exchange Rate (NEER) appreciated by 6 percent during the same period.
  - This appreciation largely reflects developments in the value of the US dollar—which the Guyanese dollar follows very closely—against the Euro and other major currencies.

- EBA-Lite based estimates (2016)
  - External position: stronger than warranted by medium-term fundamentals and desirable policy settings.
  - Current account norm: -2.1
  - Current account balance: 0.4
  - Current account gap, of which: 2.5
    - Policy gap: 1.4
    - (Implied) unexplained residual: 1.1
  - CA elasticity to REER 1/-0.3
  - Exchange rate gap (percent): -8.1

- REER approach (values preserved)
  - REER actual: 4.7
  - REER norm: 4.8
  - REER gap: -5.9

- Outlook and risks
  - The current account gap is expected to narrow given projections of a negative terms of trade shock in 2017, an acceleration of the public investment program, and a recovery of domestic demand.
  - Developments in the external sector will continue to be shaped by idiosyncratic shocks to oil prices, and to the gold, rice and sugar sectors given the large concentration of exports on those commodities.

### Annex IV — External Reserve Adequacy
- Current assessment (through 2022)
  - Staff’s assessment indicates that international reserves are above traditional and risk-weighted measures through 2022.
  - The current account balance is projected to deteriorate slightly in 2017 on the back of less favorable terms of trade.
  - The external outlook remains broadly favorable and will improve with the expected commencement of oil production in 2020.

- Traditional (non-risk based) indicators
  - Reserves have been above 3 months of imports since 2008.
  - As of end-2016, reserves were well-above 20 percent of broad money (M2) and around 1400 percent of short-term debt, providing sufficient buffers against capital flight and limited market access in the event of adverse shocks.

- Risk-weighted metrics
  - Guyana’s level of international reserves stood at 123 percent of the Assessing Reserve Adequacy (ARA) metric at end-2016, placing it in the middle of the 100-150 percent adequacy range.
  - Guyana’s international reserves stood around 75 percent of the risk-weighted measure for Small Island Developing States (SIDS), placing it on the lower end of the 75-100 percent adequacy range.
  - The large decline in cover relative to the SIDS metric starting in 2020 is driven by the surge in oil-related exports.
    - Since initially most oil revenue is used for cost recovery, the increase in foreign reserves, while substantial, is smaller than the increase in exports.

- Projections
  - Given a favorable external outlook, international reserves are projected to rise and surpass traditional and risk-weighted metrics, except SIDS.
  - Terms of trade should remain relatively favorable.
  - The current account will swing into a surplus in 2021 following the start of oil production, which will maintain the reserve coverage well-above standard “rules of thumb” and risk-based adequacy metrics despite the significant increase in oil-related imports and repatriation of direct investment income.

*Source: IMF staff compilation from Annex I–IV of the referenced IMF document.*

### Annex V. 2016 FSAP Recommendations

### Annex V. 2016 FSAP Recommendations

### To improve systemic risk monitoring and stress testing
- Analyze system-wide risks by clearly mapping upstream and downstream ownership of banks, collecting data on housing market developments; and corporate and household balance sheets. ¶20, ¶50  
  - Time: I  
  - Authorities’ responses: Initial discussions have been held with the Bureau of Statistics, as this agency may be best suited to source the data.
- Assess credit risk without considering collateral values, given difficulties in collateral recovery. ¶20, ¶29  
  - Time: I  
  - Authorities’ responses: Done in June 2016. Further, a new model is being reviewed which applies haircuts instead to total removal of collateral.
- Develop real estate price indices (possibly the Bureau of Statistics). ¶20, ¶50  
  - Time: NT  
  - Authorities’ responses: Initial discussions have been held with the Bureau of Statistics.
- Expand BoG’s stress testing toolkit to incorporate macrofinancial scenarios; collect more detailed data; and carry out validity checks to ensure data accuracy and reliability. ¶27  
  - Time: NT  
  - Authorities’ responses: (no entry)

### To enhance banking supervision, regulations, and financial safety nets
- Ensure consistency across the continuum of supervisory functions, from routine supervision to intervention and resolution. ¶42  
  - Time: I  
  - Authorities’ responses: Risk-Based Supervision Manual revised.
- Continue to enforce timely and effective remedial actions from banks, as recently initiated by the BoG, to ensure bank compliance with requirements of bank examinations. ¶44  
  - Time: I  
  - Authorities’ responses: BoG has been more assertive in follow-up of actions to be implemented.
- Eliminate reduced provisioning requirements for “well-secured” portions of NPLs and ensure that loan classification and provisioning reflect borrowers’ true financial conditions. ¶45  
  - Time: I  
  - Authorities’ responses: SG No. 5 is currently being reviewed.
- Fill information gaps on banks’ condition and group structures to facilitate consolidated supervision and to design ex-ante contingency plans for takeover when necessary. ¶46, ¶50, ¶56  
  - Time: I  
  - Authorities’ responses: Questionnaire to be sent to relevant institutions.
- Require banks to develop contingency funding plans to manage liquidity risks due to deposit concentration. ¶35, ¶37, ¶56  
  - Time: I  
  - Authorities’ responses: First draft of guideline received as part of TA from FIRST Initiative.
- Clarify the instruments, policies, required collateral and procedures for providing ELA. ¶58  
  - Time: I  
  - Authorities’ responses: Will be determined following results of TA from CARTAC with regards to BOG’s CMP.
- Reinforce the role of the Financial Stability Committee as a forum for rigorous systemic assessments, including activation of crisis protocols. ¶52, ¶55  
  - Time: I  
  - Authorities’ responses: Will be determined following results of TA from CARTAC with regards to BOG’s CMP.
- Amend the FIA to make the definition of banks’ related parties more stringent and reduce the large exposure limit from 40 percent to 25 percent of capital. Start mapping the amounts and types of related-party transactions to quantify hidden concentrations and wind-up excess risks as soon as possible. ¶45-46  
  - Time: NT  
  - Authorities’ responses: Discussions with the WB on required technical assistance have commenced.
- Increase the minimum capital adequacy requirement, including charges for market and operational risk, to at least 12 percent. ¶50  
  - Time: NT  
  - Authorities’ responses: Dates to be finalized.
- Phase out the zero-risk weighting of CARICOM government securities, and align the weights with individual countries’ risks. ¶45  
  - Time: NT  
  - Authorities’ responses: (no entry)
- Encourage banks to cease the practice of overdraft lending. ¶47  
  - Time: NT  
  - Authorities’ responses: Intent to implement and already communicated to the commercial banks.
- Streamline and operationalize the draft Crisis Management Plan. ¶52  
  - Time: NT  
  - Authorities’ responses: (no entry)
- Provide resolution powers to the BoG and, to the extent possible, limit courts’ ability to reverse the BoG’s decisions. ¶54  
  - Time: NT  
  - Authorities’ responses: FIA to be amended. Technical assistance being sought from World Bank.
- Organize a small group at the BoG to develop resolution plans for vulnerable financial institutions. ¶57  
  - Time: NT  
  - Authorities’ responses: (no entry)
- Amend FIA (Part VIII) to enable effective resolution of failing or about-to-fail banks. ¶53-54  
  - Time: NT  
  - Authorities’ responses: (no entry)
- Set up a resolution group for regionally active entities and request group recovery and resolution plans. ¶57  
  - Time: NT  
  - Authorities’ responses: (no entry)
- Review the draft DIS, eliminate its participation in open bank assistance, and ensure that all preconditions for its introduction are satisfied. ¶59  
  - Time: NT  
  - Authorities’ responses: (no entry)

### To further develop the financial system and promote responsible access to finance
- Expedite preparation of required regulations to support the recently adopted insurance law. ¶48  
  - Time: I  
  - Authorities’ responses: (no entry)
- Adopt a robust law to govern the NPS and enable the safe and efficient use of electronic payments, and strengthen the regulatory framework. Grant the BoG enforcement powers. ¶64  
  - Time: I  
  - Authorities’ responses: (no entry)
- Strengthen the AML/CFT framework in line with international standards. ¶65  
  - Time: I  
  - Authorities’ responses: Done, legislation amended.
- Extend maturities of government securities to facilitate capital market development and use in sterilizing structural liquidity. ¶39  
  - Time: NT  
  - Authorities’ responses: Technical Assistance to be provided by the IMF.

- 1/ I: immediate; NT: near term; MT: medium term. Paragraph numbers refer to the FSSA.

*Annex V. 2016 FSAP Recommendations (from cr17175 - Annex V. 2016 FSAP Recommendations)*

### 2016. The Strategy supports the priority areas of: sustainable energy, natural resources

### cr17175 - 2016. The Strategy supports the priority areas of: sustainable energy, natural resources

### Strategic priorities and 2017 pipeline
- The Strategy supports the priority areas of: sustainable energy, natural resources management, private sector development and public sector management, and strategic dialogue areas of transport, citizen security and water and sanitation, with the cross-cutting theme of concerns affecting Amerindian communities.  
- For 2017, no investment project is included in the pipeline. Listed for approval in 2017 is one Investment Grant, Institutional Strengthening in Support of Guyana’s Low Carbon Development Strategy (LCDS) II estimated at $24 million to be financed with resources from the Guyana REDD+ Investment Fund (GRIF) on a non-reimbursable basis.
- Three new TCs scheduled for approval in 2017:
  - GY-T1135: Water and Sanitation Governance Strengthening in the Guyanese Regions
  - GY-T1125: After BEAMS—Status of IRI Mathematics & Literacy in Guyana
  - GY-T1120: Institutional Strengthening to Guyana Social Safety Net
- 2017 allocation under the Small and Vulnerable Countries Funding for Guyana: US$1.76 million.

### Approved investment loans in 2016 (listed)
- GY-L1044: Support to the Criminal Justice System — 8.0 (US$M)
- GY-L1058: Support to Improve Maternal and Child Health — 8.0 (US$M)
- GY-L1059: Enhancing the National Quality Infrastructure for Diversification and Trade Promotion — 9.0 (US$M)
- GY-L1060: Sustainable Agricultural Development Program — 15.0 (US$M)
- Total 2016 — 40.0 (US$M)

### Portfolio in execution (summary)
- Active investment portfolio:
  - Fourteen (14) investment loans for an approved amount of US$240 Million
  - Two investment operations co-financed with EU/CIF grant resources for US$41.7million
  - One loan guarantee for US$2.5 million
  - Three investment grants for US$15.92 million
  - Total approved amount: US$297.62 million
  - Total undisbursed balance: US$214.3 million
- Undisbursed balances represent 73 percent of approvals and are concentrated in Transport, Energy and Water & Sanitation sectors.
- Technical Cooperation projects (grants): total US$18.72 million, comprising approximately 6 percent of the existing portfolio for Guyana.
- Disbursements:
  - Investment loan disbursements in 2016: US$8.6 million (a decline of 45 percent since 2015 and 77 percent since 2014).
  - Projected investment loan disbursements in 2017: US$22 million.
  - Investment grant disbursements: US$7.3 million in 2016; projected US$12.3 million in 2017.
- Net loan flows:
  - Projected positive net loan flows of $7.2 million in 2017 (projections do not include expected disbursement of investment grants).

### Main indicators of the loan portfolio (February 2017)
- Investment loans in execution:
  - Number of operations: 14
  - Approved amount (US$ millions): 240
  - Investment (US$ millions): 240
  - PBL (US$ millions): 0.0
  - Disbursements (percent): 27
- Portfolio performance:
  - Operations in problem or alert:
    - Number of operations: 3
    - Approved amount (US$ millions): 120.7
    - Percent of the total portfolio: 50
    - Disbursements (percent): 11.1
    - Average age in years: 2.7
- Historical loan disbursements and flows (as presented):
  - Loan Disbursements by year: 2012: 51.4; 2013: 58.5; 2014: 26.2; 2015: 14.7; 2016: 8.6; 2017 (e): 29 (values presented in source as a compact table; "201220132014201520162017 (e ) Loan Di sburse me nts51.458.526.214.78.629")
  - Repayments (principal) by year: 2012: 2.5; 2013: 4.5; 2014: 5.3; 2015: 8.1; 2016: 10; 2017 (e): 12.1
  - Net Loan Flow by year: 2012: 48.9; 2013: 54.2; 2014: 20.9; 2015: 6.6; 2016: -1.4; 2017 (e): 16.9
  - Net Cash Flow by year: 2012: 43.1; 2013: 47.6; 2014: 13.5; 2015: -1.8; 2016: -10.3; 2017 (e): 7.2
  - Note: (e) Estimated.

### Relations with the Caribbean Development Bank (CDB) (as of December 2016)
- CDB accounted for over 20 percent of Guyana’s multilateral debt stock.
- Total loans approved for Guyana from CDB inception (January 26, 1970) to December 31, 2016: $286.5 million, representing 6.8 percent of CDB’s total approved lending; Guyana is CDB’s sixth largest borrower out of 19 borrowing member countries.
- Cumulative grant approvals from CDB for Guyana as of December 31, 2016: US$46.0 million (Guyana is the largest recipient of grant funding from CDB after Haiti).
- Of total loans approved, outstanding balances as of December 31, 2016: $146.7 million.
- Undisbursed balances as of December 31, 2016: $48.78 million.
- Summary Statement of Loan Approvals and Undisbursed Balances (selected approvals):
  - Enhancement of TVET (10-Dec-2008) — Approved 7.50; Undisbursed 0.08 (US$ million)
  - Community Roads Improvement Program (22-Jul-2010) — Approved 16.29; Undisbursed 0.16
  - Fourth Road Project (12-Dec-2012) — Approved 34.20; Undisbursed 12.74
  - Sea and River Defense Resilience Project (12-Dec-2013) — Approved 25.00; Undisbursed 24.10
  - Skills Development and Employability Project (08-Dec-2016) — Approved 11.70; Undisbursed 11.70
  - Total (table): Approved 94.69; Undisbursed 48.78 (US$ million)
- CDB 2013-17 CSP interventions largely approved as of December 31, 2016; $7.5 million loan for the Sugar Industry Mechanization Project (approved 2014) was cancelled in late 2016.
- In December 2016 CDB’s Board approved a Skills Development and Employability Project ($11.7 million).
- CDB’s new CSP for 2017-2021 has a notional resource envelope of $194 million, including Guyana’s grant allocation of about $65 million from the United Kingdom Caribbean Infrastructure Partnership Fund (UK – CIF). Guyana’s allocation was GBP 53.2million, which equated to $64.6 million as at November 2, 2016 (note from source).

### Statistical issues (as of March 2017)
- General: Data provided to the Fund is broadly adequate for surveillance, though timeliness, reliability, and coverage can be improved; selected data only available during missions and upon request. Authorities not yet incorporating effects of increased exploration and investment activities in the emerging oil sector in national statistics; future TA should focus on incorporating the oil sector.
- National accounts:
  - CARTAC mission produced a Data Quality Assessment Framework and helped develop a five-year work plan for national accounts.
  - Authorities intend to rebase GDP with a new benchmarking exercise for annual GDP estimates for 2018; plan to start publishing quarterly GDP by the end of 2017.
  - Future work: compile expenditure-side GDP, an Industrial Production Index and Producer Price Index; increase surveys coverage (services); improve timeliness of labor markets, gender and poverty statistics.
- Government finance statistics:
  - Fiscal statistics disseminated through MOF publications: Mid-Year Report, Budget Speech, and other budget documents.
  - 2016 CARTAC TA focused on custom tariff classification and valuation, debt management, review of VAT policy and administration framework, and developing a medium-term macro-fiscal framework.
  - Authorities plan to upgrade fiscal statistics to reflect impact of future oil revenue.
- Monetary and financial stability statistics:
  - BOG improved monetary statistics and institutional coverage (BOG, other depositary corporations, and other financial corporations).
  - BOG publishes prudential indicators and has developed macro-prudential/systemic risk indicators and financial stability indicators for the insurance sector with CARTAC support.
- Balance of payments:
  - 2016 CARTAC mission assisted BOG in strengthening external sector statistics: implemented a pilot enterprise survey, compiled a partial international investment position (IIP), and prepared quarterly balance of payments data in BPM6 format.
  - Main data gaps: direct investment and other financial assets and liabilities of the nonfinancial private sector and public corporations.
  - A pilot FDI survey was conducted; administrative data on FDI requested from data-producing agencies.
  - BOG publishes quarterly BOP data in aggregated format similar to BPM4 and compiles quarterly BPM6 estimates for internal purposes.
  - Recommendation followed up: revise imports of goods data to remove double counting for freight and insurance.

### Data dissemination and reporting
- Participant in the General Data Dissemination System (GDDS) since 2011.
- No data are being reported for publication in the Government Finance Statistics Yearbook (as of March 2017).
- Table of Common Indicators Required for Surveillance (As of March 2017) — date of latest observations and reporting frequencies include:
  - Exchange Rates: 01/17 (Date of Latest Observation), 03/17 (Date Received), Frequency D (Daily) for data, reporting and publication.
  - International Reserve Assets and Reserve Liabilities of the Monetary Authorities: 01/17 (Latest), 03/17 (Received), Frequency M (Monthly).
  - Reserve/Base Money: 01/17 (Latest), 03/17 (Received), Frequency M.
  - Broad Money: 01/17 (Latest), 03/17 (Received), Frequency M.
  - Consumer Price Index: 12/16 (Latest), 03/17 (Received), Frequency M (Monthly).
  - Revenue, Expenditure, Balance and Composition of Financing – General Government: 2016 (Latest), 12/16 (Received), Frequency Q (Quarterly) for data; reporting and publication Frequency Half yearly.
  - GDP: 2016 (Latest), 12/16 (Received), Frequency A (Annual) for data, reporting and publication.
  - Gross External Debt: 2016 (Latest), 12/16 (Received), Frequency A.
  - International Investment Position: N/A for observations and reporting frequencies (as presented).

### Debt Sustainability Analysis (DSA) — key findings (Staff Report for the 2017 Article IV Consultation)
- Guyana’s risk of external debt distress remains moderate and debt service manageable (DSA uses the template for low income countries; based on Guyana’s Policy Performance Rating for 2016-17).
- Baseline DSA results:
  - PV of external debt declines to 20 percent of GDP.
  - Debt service is 5 percent of revenue.
- Stress tests:
  - Indicators remain under relevant thresholds in the baseline, but stress tests indicate vulnerability of public debt to adverse shocks.
  - Small breaches of the external debt threshold (within the borderline band) occur under a stress test shock to debt concessionality, suggesting a borderline moderate/low rating.
  - An alternative approach modeling the probability of debt distress shows a larger breach of the threshold, supporting a moderate risk rating.
- Medium-term outlook favorable given expected start of oil production by 2020.
- Ongoing negotiations with bilateral non-Paris Club and commercial creditors (debts amounting to about 5 percent of GDP) could, if positive, further reduce external indebtedness.
- Background on debt reduction:
  - Total public sector debt declined from 96 percent of GDP in 2006 to about 49.6 percent in 2016.
  - Under MDRI, the Fund, the World Bank, and the IDB provided debt relief amounting to US$611 million in 2006–07.
  - Negotiations with other non-Paris Club creditors are protracted; debt in question about 9 percent of total debt or about 5 percent of GDP.
  - PetroCaribe-related borrowing halted since mid-2015 following a border dispute; part of debt owed to Venezuela repaid through rice exports.

*Source: cr17175 - 2016. The Strategy supports the priority areas of: sustainable energy, natural resources (PDF chapter/section).*

### 2.      Over the last seven years, total gross public debt has declined significantly. The

### 2.      Over the last seven years, total gross public debt has declined significantly. The

### Debt stock and composition
- Debt to GDP ratio declined from 67 percent in 2009 to 49.6 percent in 2016.
- External debt declined from 46 percent of GDP to 34 percent of GDP over the same period.
- Domestic debt declined from 21 percent of GDP to about 16 percent of GDP.
- Multilateral institutions—particularly the Inter-American Development Bank, the Caribbean Development Bank and the International Development Association—account for about 40 percent of total debt.
- The loan portfolio has a long maturity profile and low average interest rates.

### PetroCaribe, loan servicing, and contingent items
- Venezuela became an important donor; the PetroCaribe agreement with Guyana was suspended in 2015.
- PetroCaribe’s concessional loans financed Guyana’s oil imports; part of oil proceeds were deposited in an account at the Central Bank of Guyana as a ‘sinking fund’ to service external debt.
- Guyana repaid part of its PetroCaribe debt with rice exports and accumulated savings under the financing arrangement.
- The balance on the PetroCaribe account was about US$ 0.5 million as of end-2016.

### Remittances
- Average remittances represented 12.3 percent of GDP and 21.2 percent of exports of goods and services during 2014-16.
- Remittances were relatively steady, except for a decline in 2016 driven to some extent by one-off factors.
- Remittances are included in the base case because they are greater than 10 percent of GDP and greater than 20 percent of exports of goods and services (three-year average).

### External debt thresholds and CPIA
- Guyana’s three-year average CPIA has remained stable at 3.3, corresponding to a medium policy performance rating.
- Relevant external debt thresholds with remittances for a medium policy performance rating:
  - PV of debt to GDP plus remittances ratio: 36 percent.
  - PV of debt to exports plus remittances ratio: 120 percent.
  - PV of debt to revenue ratio: 250 percent.
  - Debt service to exports plus remittances ratio: 16 percent.
  - Debt service to revenue ratio: 20 percent.

### Baseline scenario assumptions for oil and macroeconomic effects
- Oil production assumed to start in mid-2020.
- Oil price path: US$43 dollars per barrel in 2016 rising to about US$57 dollars by 2022 and converging to a long-run value of US$60 dollars per barrel afterwards (January 2017 WEO projections).
- Total oil production assumed:
  - 100,000 barrels per day from mid-2020 to 2028,
  - 80,000 barrels during 2029-32,
  - 60,000 barrels during 2033-37.
- Value-added of the oil sector assumed to be about 60 percent of gross production.
- Government oil revenue rules (public information based assumptions):
  - Government’s oil revenue equals 50 percent of “profit oil”, after paying 75 percent of total revenue as “cost of oil”.
  - Government’s share is therefore 12.5 percent of gross revenues in the beginning and increases to 33 percent under conservative assumptions after initial investment recovery.
- Fiscal treatment of oil revenue in baseline:
  - Government spends all oil revenue during 2021-24,
  - Saves one third of it during 2025-29,
  - Saves 50 percent afterwards.
- Assumed that 50 percent of Exxon’s (and its partners) proceeds are repatriated through the current account and the remainder through the financial account.
- Grants and concessional loans are assumed to taper off with the start of oil production.

### Macroeconomic projections and impacts
- Oil revenue impact on fiscal accounts:
  - Oil revenue amounts to 2.6 percent of GDP in 2020 and rises to about 4.6 percent in 2021 (the first full year of oil production).
  - Government’s oil revenue averages 4 percent of GDP during 2020-22 and 3.5 percent of GDP in the long run.
- Growth projections:
  - Oil sector’s share of GDP projected to peak at about 40 percent during 2021-22.
  - Overall growth is expected to increase to about 13 percent on average during 2017–22.
  - Non-oil growth projected to remain at about 3.7 percent.
- Inflation projected to remain around 3 percent in the medium term.
- External current account expected to turn into a surplus of 1.3 percent with the start of oil production in 2021.
- Gross international reserves increase but reserve cover remains at about 3 months of imports during 2020-22 due to the increase in oil-related imports.
- Text Table 1 (selected indicators, Current DSA entries):
  - Real GDP growth (%): 2015 3.1; 2016 3.3; 2017 3.5; 2018 3.6; 2019 3.7; 2017-22 13.4; 2023-37 1.4; 2017-37 4.9.
  - Consumer prices (eop): 2015 -1.8; 2016 1.5; 2017 2.6; 2018 2.7; 2019 3.0; 2017-22 2.9; 2023-37 2.4; 2017-37 2.6.
  - Overall balance (1/ after grants, includes public enterprises): 2015 -0.2; 2016 -2.9; 2017 -7.2; 2018 -6.3; 2019 -6.0; 2017-22 -5.5; 2023-37 -0.5; 2017-37 -2.0.
  - Current account balance: 2015 -5.7; 2016 0.4; 2017 -2.0; 2018 -4.1; 2019 -4.7; 2017-22 -1.8; 2023-37 1.5; 2017-37 0.5.
  - Foreign direct investment (Current DSA): 2015 3.8; 2016 0.9; 2017 3.9; 2018 3.8; 2019 3.7; 2017-22 1.6; 2023-37 -2.5; 2017-37 -1.3.

### Assessment of baseline scenario: Gross external public debt
- Baseline finding: Guyana’s external public debt remains sustainable under the baseline but faces a moderate risk of debt distress as external debt ratios are vulnerable to shocks.
- In the baseline, all sustainability indicators remain below their thresholds, with a moderate trend increase.
- PV of external public debt to GDP plus remittances ratio increases gradually to 20 percent in the long term (compared to 28 percent in the previous DSA).
- Debt service to exports plus remittances and debt service to revenue ratios remain well below their respective thresholds.
- Caveat: Only a fraction of oil export revenue represents income that Guyana’s government could tap into to meet debt service obligations.

### External debt stress tests and probability approach
- Stress-test result: The PV of debt to GDP plus remittances ratio breaches the sustainability threshold by 2037 under a stress test that assumes new borrowing is on non-concessional terms; the breach is small (about 2 percent of threshold) and falls within the borderline ±5 percent band.
- Despite the breach, stress tests suggest no breach of repayment capacity thresholds under the same scenario, though public debt service to exports plus remittances and to revenue ratios are higher than in baseline.
- Risk rating: The results suggest a borderline moderate/low risk of debt distress—PV indicators below thresholds in baseline but small breach under a standardized stress test at the far end of the forecast horizon.
- Probability approach (complementary analysis for borderline cases):
  - The probability approach uses the country’s individual CPIA score (3.3) and average GDP growth rate.
  - Under the probability approach, the PV of external public debt to GDP plus remittances ratio breaches the threshold under the non-concessional borrowing scenario, occurring in 2027 and with a magnitude outside the ±5 percent borderline band—lending support to a moderate risk of debt distress rating.

### Assessment of baseline scenario: Gross public debt (total public sector)
- Total public sector debt to GDP ratio:
  - Peaks at about 61 percent in 2019,
  - Declines to about 52 percent by 2022,
  - Falls to 31.6 percent by 2037.
- PV of public sector debt to GDP ratio decreases monotonically from 48 percent in 2019 to 22 percent in 2037.
- Stress tests show vulnerability, indicating the importance of fiscal consolidation:
  - The PV of the debt to GDP ratio is most vulnerable to a shock to the primary balance.
  - If the primary balance is unchanged from 2017, the PV of the debt to GDP ratio would increase to 49 percent by 2022 and 95 percent by 2037.
  - This scenario freezes the primary deficit at an unusually high level of 6 percent.
  - Debt service increases to 29 percent of revenues by 2037 under the primary balance shock, from 11 percent in 2022.
- Domestic debt profile risks:
  - Domestic debt estimated at about 15 percent of GDP at end-2016.
  - Domestic debt consists of short-term Treasury bills with maturity up to 1 year, implying large annual refinancing needs and some refinancing risk.

### Oil-related downside scenario
- Alternative scenario where oil revenues fail to materialize:
  - Total public debt increases to about 67 percent by 2022 and 80 percent of GDP by 2037 in the absence of fiscal consolidation.
  - Stabilizing public debt at the same level as the baseline with oil would require a significantly deeper fiscal adjustment.
  - Staff estimate: an average deficit of about 1.5 percent of GDP will be needed to bring the debt to GDP ratio down to 35 percent by 2037 in this no-oil scenario.
  - Offsetting factor: Guyana is likely to receive more grants and concessional financing in a no-oil scenario, which could allow debt to be stabilized with a higher deficit.

### Overall assessment and policy implications
- Risk of debt distress: assessed as moderate for both external public debt and total gross public debt, with vulnerabilities to shocks—especially non-concessional borrowing and adverse primary balance outcomes.
- Policy emphasis:
  - Fiscal consolidation is important to reduce vulnerability to shocks and to manage the transition to oil revenues.
  - Build and manage oil savings (stabilization fund) per baseline saving assumptions to reduce deficits and accumulate buffers.
  - Monitor and manage domestic debt refinancing risk given short-term Treasury bill maturities.
  - Be cautious about non-concessional borrowing, which can lead to breaches of external debt thresholds under stress.

*International Monetary Fund — Selected chapter content from cr17175*

### 19.      Despite improved debt dynamics under the baseline with oil production, Guyana is

### cr17175 - 19.      Despite improved debt dynamics under the baseline with oil production, Guyana is

### Summary assessment
- Risk of debt distress is "moderate, albeit declining."
- In the baseline scenario, debt indicators "remain well below their respective thresholds over the projection period."
- Nevertheless, Guyana is vulnerable to various stress-test shocks and macroeconomic risks that could materially weaken debt dynamics.

### Baseline projections and key statistics
- "The PV of external debt to GDP ratio declines to about 20 percent in the long run."
- "The gross public debt to GDP ratio is projected to reach 61 percent by 2019, a relatively high level, which can bring heightened financing risks on the non-concessional component."
- Debt service is described as "manageable" under the baseline despite some stress scenarios producing breaches of thresholds.
- Financing needs: "Financing the large deficits projected over the medium-term may require an increasing reliance on non-concessional debt, including domestic borrowing."
- Commodity risk: "The volatility of oil prices, which could negatively impact future oil revenue, is another important source of risk."

### Stress tests and vulnerabilities
- External-debt vulnerability:
  - "Stress tests indicate that Guyana’s external debt to GDP ratio is vulnerable to shocks to the interest rate on new loans."
- Public-debt vulnerability:
  - "The gross public debt to GDP ratio also breaches the standard threshold in the scenario with a shock to the primary balance but debt service remains manageable."
- Specific stress scenarios referenced in the analysis (as evaluated in the DSA):
  - Shocks to interest rates on new borrowing (assumed in sensitivity analysis as "the interest rate on new borrowing is by 2 percentage points higher than in the baseline").
  - Shock to the primary balance.
  - One-time 30 percent nominal depreciation relative to the baseline in 2018 (appears as a bound test).
  - Combined and alternative scenarios (e.g., key variables at historical averages, net non-debt creating flows at historical average minus one standard deviation).
- The DSA notes that "These risks are not fully captured in this LIC DSA, and warrant close monitoring."

### Policy implications and recommendations (implied by findings)
- Strengthen fiscal consolidation and primary balance improvement to reduce vulnerability to primary-balance shocks.
- Limit reliance on non-concessional external borrowing where possible; monitor and manage the increasing reliance on non-concessional debt, including domestic borrowing.
- Build buffers to manage oil-price volatility and potential negative shocks to future oil revenue.
- Closely monitor debt-service dynamics and the terms of new borrowing, given sensitivity to interest-rate shocks on new loans.
- Enhance monitoring of contingent and non-captured risks that are not fully reflected in the LIC DSA.

*Sources: Country authorities; and staff estimates and projections (IMF staff report excerpt).*

### 1.      The Guyanese authorities wish to express their gratitude to the Article IV and FSAP

### The Guyanese authorities wish to express their gratitude to the Article IV and FSAP

### Authorities’ assessment and intentions
- Express gratitude to the Article IV and FSAP mission teams for fruitful discussions and expert analysis.
- View the Fund as a trusted advisor and generally regard both reports as well balanced.
- Plan to incorporate FSAP recommendations within the strategic plan of the Bank of Guyana (BoG).
- Remain committed to sustainable and prudent macroeconomic policies aimed at delivering inclusive growth and national development.

### Economic developments and outlook
- Real GDP growth was estimated at 3.3 percent in 2016, up from 3.1 percent in 2015.
- Mining and quarrying activity grew by roughly 45 percent in 2016 and was the main driver of overall growth.
- Headline inflation was 1.5 percent in 2016 following deflation of 1.8 percent in 2015.
- External position: current account surplus in 2016—the first in consistent records (1980); BoG reserves stood at roughly 3.6 months of import cover.
- Authorities and staff expect growth to be in the region of 3.5 percent in 2017.
- Oil prospects:
  - “First oil” expected around mid-2020 per discussions with ExxonMobil.
  - Estimated production capacity of around 100,000 barrels of oil per day over an eight-year horizon.
  - Oil find expected to positively impact growth and the external balance and assist long-run national development goals.

### Fiscal reforms and policy
- 2017 national budget introduced tax reforms to increase collections and improve compliance.
  - Broadened VAT base by eliminating zero rated items.
  - Introduced VAT on electricity and water in excess of stipulated usage thresholds.
  - VAT rate lowered from 16 to 14 percent.
  - Minimum threshold for VAT registration was increased.
- Government requested and received TA from CARTAC on VAT application and revenue administration; several recommendations implemented.
- Strengthening revenue and tax administration: upgrading government IT systems; GRA focusing on arrears collection, audit and review, and compliance; stronger penalties for improper bookkeeping and late payment of taxes.
- Public sector procurement reforms: mandating procurement officers in all ministries and prioritizing procurement planning.
- Fiscal balances and debt:
  - Overall general government deficit around 2.9 percent of GDP in 2016 compared with 0.2 percent of GDP in 2015.
  - Deficit expected to deepen in 2017 as capital spending not executed in 2016 is brought forward.
  - Authorities acknowledge a near-term uptick in debt levels but note concessional borrowing will keep debt service manageable.
  - Expect debt sustainability to improve significantly over the medium-term as oil production commences in 2020.
- Medium-term fiscal strategy and financing:
  - Envisage a medium-term fiscal deficit of around 4.5 – 5.5 percent of GDP financed largely by concessional external borrowing and domestic bond issuances.
  - Issue of intermediate to long-term domestic bonds intended to deepen local capital markets; IMF TA engaged on this matter.
- Capacity-building and TA requests:
  - Welcomed possible PIMA TA to improve public investment efficiency.
  - Welcomed TA on developing an appropriate fiscal regime for the energy sector and Fund advice on establishing a sovereign wealth fund.

### Monetary policy and foreign exchange market
- Monetary policy remained broadly accommodative in 2016; BoG maintained the bank rate at 5 percent.
- Domestic interest rates fell during 2016 and in the first quarter of 2017 per BoG data.
- BoG notes staff recommendation to gradually tighten monetary policy in 2017 but will monitor conditions before adjusting policy stance given benign price pressures and moderate growth.
- Private sector borrowing recorded modest growth in 2016; expanded Credit Bureau coverage to improve lender assessment and reduce moral hazard.
- Foreign exchange market:
  - Some recent pressure emerged in the domestic FX market, viewed as largely temporary.
  - Authorities see the exchange rate as broadly in line with macroeconomic fundamentals and remain committed to a flexible exchange rate regime.
  - Guyanese dollar depreciated marginally against the US dollar in the first quarter of 2017 after relative stability in prior years.

### SOE reform and inclusive growth strategies
- Plan to reform several state-owned enterprises (SOE), notably Guyana Sugar Company (GuySuCo):
  - Intent to close inefficient estates and privatize others in consultation with stakeholders including labor unions.
  - Exploring crop diversification to move away from sugar; EU assistance to transition former GuySuCo workers to independent farmers using lands of closed estates.
- Reviewing operations of the Guyana Gold Board (GGB) and national electricity matrix:
  - Reviewing GGB pricing mechanism, including embedded freight and insurance costs, to minimize exposure to market risks.
  - Draft national energy policy (NEP) completed providing roadmap to transition towards 100 percent renewable energy target by 2025.
  - Initial NEP plans: two medium-sized hydro-electric dams (100 megawatt capacity each) and initiatives to encourage solar farms for isolated hinterland communities.
  - Guyana Power and Light (GPL) has programs to enhance institutional capacity, improve operational efficiency, and upgrade infrastructure.
- Infrastructure plans:
  - Active efforts to expand the road network into southern regions with long-term goal of connecting to the North of Brazil to open opportunities for gold and timber production and connect isolated hinterland populations.
  - Caribbean Development Bank (CDB) completed terms of reference for project consultation and design.
  - Discussions ongoing with the UK Caribbean Infrastructure Partnership Fund for project financing and with the European Investment Bank for funding to increase cargo capacity at the Georgetown Port to roughly 35,000 tons and dredge the Demerara River.

### Financial sector assessment and policy
- Strengthened financial supervision and regulatory framework despite capacity constraints:
  - Introduced risk-based supervision, enhanced on-site inspection capabilities, and drafted a Crisis Management Plan.
  - Plan to follow-up on FSAP recommendations including implementation of Basel II minimum capital requirements, enhancing quality of data for risk analysis, and reviewing treatment of collateral in bank provisioning.
- Legislative and payments modernization:
  - Insurance Act passed in June 2016.
  - Pensions Act expected to be passed by end 2017.
  - Amendments to the Financial Institutions Act (FIA) being made with World Bank assistance.
  - BoG undertaking modernization of the national payment system with World Bank assistance to support electronic payments and financial inclusion.
- Banking system soundness and resilience:
  - Capital to risk-weighted assets stood at 25 percent at the end of December 2016; consistently above 20 percent over the last four years.
  - Comparisons: much higher than the minimum 8 percent capital requirement and the 12 percent as recommended by the FSAP mission.
  - Bank profitability supported by high net interest margins.
  - BoG monitoring NPLs and engaging with commercial banks; provisioning reviewed though authorities confident current levels are sufficient.
  - BoG and FSAP stress tests indicate banking system resilient to negative shocks given strong capital and liquidity positions.
- AML/CFT and correspondent banking:
  - CBR withdrawals stabilized since mid-2016 FSAP mission.
  - Strengthened AML/CFT framework; enacted supervisory and regulatory requirements.
  - Guyana removed from CFATF process in November 2016 and is no longer subject to CFATF monitoring.
  - Local banks have been able to replace some correspondent banking services; National Risk Assessment completed with World Bank help.

### Conclusion
- Guyana has enjoyed a decade of uninterrupted growth and the medium-term outlook is favorable, driven by near-term prospects from oil.
- Despite upper-middle income status, there are substantial infrastructure gaps, social needs, and pockets of poverty—evidenced by UN HDI ranking of 127 out of 188 countries.
- Authorities have made progress on economic and financial reforms but face resource and human capacity constraints.
- Authorities remain committed to implementing sound macroeconomic and financial sector policies and look forward to continued collaboration with the Fund and CARTAC.

*IMF staff report material as summarized from the Guyanese authorities’ statement*

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_Source: https://www.imf.org/-/media/files/publications/cr/2017/cr17175.pdf_