## 1guyea2019001

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### Overview and outlook
- Economic growth is projected at 4.4 percent in 2019, extending the broad-based expansion across all major sectors.
- The medium-term prospects are very favorable as oil production is on schedule to begin in early 2020.
- The current account deficit is estimated to rise to 22.7 percent of GDP in 2019 on the back of higher imports related to oil production, which will be largely financed by FDI in the petroleum sector.
- The commencement of oil production in 2020 will substantially improve Guyana’s medium- and long-term outlook.
- The oil sector is projected to grow rapidly, accounting for around 40 percent of GDP by 2024 and supporting additional fiscal spending annually of 6.5 percent of non-oil GDP on average over the medium term.
- Public debt and the external current account deficit are projected to decline steadily following the onset of oil production.

### Oil production profile and macro implications
- Oil production is estimated to begin in the first quarter of 2020, averaging 102,000 barrels/day (bpd), and rising to an average of 424,000 bpd in 2025.
- Main direct effect of the oil sector on the domestic economy will be through fiscal revenue and its use; oil sector output will raise overall GDP and exports substantially, but its direct impact on the domestic economy will be mostly offset by higher imports of oil extraction equipment and payments to the operators.
- In the event of a delay in initial oil production, the NRF Act does not allow the front-loading of oil-financed spending in advance of the materialization of oil revenue.
- Commercial production timeline and output assumptions:
  - Liza Phase I: begin in the first quarter of 2020, averaging 102,000 bpd during 2020.
  - Liza Phase II: estimated to commence production in 2022, starting with an average output of 108,000 bpd.
- Revenue-sharing and fiscal sensitivity:
  - 75 percent of oil production allocated to “cost recovery”; remaining 25 percent is “profit oil” shared 50−50 with the government.
  - Royalty: 2 percent on gross earnings, bringing government share to 14.5 percent of total oil revenues initially.
  - Breakeven price for Liza Phase II: around US$35 per barrel.

### Fiscal policy, Natural Resource Fund (NRF), and public investment
- Authorities have legislated a Natural Resource Fund (NRF) Act 2019 providing a framework for a natural resource fund, a Public Accountability and Oversight Committee, and a transfer rule that determines fiscal transfers from the NRF.
- Directors welcomed the NRF legislation and emphasized the need to complement it with a fiscal responsibility framework to avoid fiscal deficits.
- Directors called for the authorities to constrain the annual non-oil deficit to not exceed the expected transfer from the NRF; this rule could be phased in over the next three years to allow a smooth widening of the non-oil deficit (in relation to non-oil GDP).
- To meet objectives of saving some resource income for future generations and containing the pickup in public spending, strengthen public financial management before significantly scaling up public investment with oil revenues.
- Recommended addressing shortcomings identified by the 2017 Public Investment Management Assessment (PIMA) and the expenditure review before public investment is significantly scaled-up.
- Fiscal stance and projections:
  - The fiscal stance is appropriately expansionary in 2019 ahead of oil production, driven by capacity building and infrastructure development needs.
  - Central government’s overall deficit projected at 5 percent of GDP in 2019.
  - Capital expenditure projected to increase by 25.7 percent in 2019.
  - Current expenditure projected to grow 11.6 percent in 2019.
  - Staff projects tax revenue to increase by 12.6 percent in 2019.
  - Fiscal framework envisages transfers to the budget amounting to a cumulative 32.7 percent of non-oil GDP over 2020−24; the balance in the NRF amounting to 30.1 percent of non-oil GDP by end-2024.
  - Staff view roughly equal shares of saving versus spending of oil income during the first five years as appropriate to contain “Dutch Disease” effects.
- Macroeconomic impact of scaling up public investment (DIGNAR model, Box 1 summary):
  - Public investment efficiency assumed at 59 percent (2017 PIMA Assessment).
  - Return on public investment net of depreciation assumed to be 15 percent.
  - Central government’s oil revenues projected to rise from 1.6 percent of GDP to a peak of 5.3 percent of GDP in 2028.
  - Two scenarios: “Baseline” (overall balanced budget achieved by 2022); “Aggressive” (zero-overall balance achieved slowly by 2025).
  - “Aggressive” approach: larger crowding out of private consumption and investment, higher real interest rates, higher inflation, more pronounced real exchange rate appreciation, reduced traded sector output.
  - “Baseline” approach: less crowding out, public investment reinforces private investment, higher non-oil output growth medium/long term.
- Annex I — NRF Budget Transfer Rule:
  - All petroleum revenues (defined in Article 21 of the Act) flow into the NRF.
  - Fiscally Sustainable Amount (FSA) transfer determined by expected financial return on NRF; Macroeconomic Committee can recommend a lower “Economically Sustainable” transfer.
  - Specific operational constraint: If in a past fiscal year, 3 percent of the NRF balance for that past fiscal year exceeded Production Constrained Benchmark Petroleum Revenues for that past fiscal year, then for all future fiscal years the Fiscally Sustainable Amount shall not exceed 3 percent of the projected balance of the NRF for that fiscal year.

### Fiscal outturn, revenues, expenditure, and public debt
- The central government’s overall deficit came in at 3.5 percent of GDP in 2018, better than the 2018 Budget and Article IV estimates of 5.4 percent of GDP.
- Total revenues grew by 11 percent in 2018, supported by:
  - the tax amnesty program;
  - a significant increase in corporate remittances (which contributed 3.7 percent to total revenues).
- Tax reform measures increased income tax collection (corporate remittances contributed 2.4 percent to total revenues).
- Total expenditure rose 6 percent in 2018 (compared to 11 percent in 2017), mostly due to weaker capital expenditure.
- Public debt, including government guarantee on a US$79 million syndicated loan raised by NICIL, stood at 55 percent of GDP at end-2018.
- Coverage of public sector debt used in the report: central government debt and central government-guaranteed debt.
  - Government-guaranteed five-year syndicated loan: G$16.5 billion (2.1 percent of GDP).
  - Central government borrowing from the Central Bank of Guyana: G$72.5 billion (9.3 percent of GDP) as of end-2018.
  - External debt accounts for two thirds of total public sector debt (end-2018).

### Monetary policy and external stability
- Monetary policy should gradually revert to a neutral stance to contain potential inflationary pressure as public spending increases, economic growth strengthens, and credit expands.
- Over the medium-term, developing infrastructure for greater exchange rate flexibility within the monetary policy framework would help sustain healthy economic growth while maintaining price stability and facilitating adjustment to oil price and other external shocks.
- Guyana’s exchange rate regime remains a de jure float, but a de facto stabilized arrangement with foreign exchange rate interventions.
- Domestic bond market and central bank overdraft:
  - Government overdraft at the central bank was 9 percent of GDP at end-2018 (up from around 5 percent at end-2017 and end-2016).
  - Staff recommends settling these balances and relying on issuance of Treasury Bills for future cash flow management.
  - Over the medium-term, consider extending the maturity of government bonds to help establish a yield curve.

### Financial sector resilience and supervision
- Credit to the private sector grew by 4.0 percent in 2018, compared with 2.1 percent in 2017.
  - Credit growth by sector: business sector 5.3 percent; household sector 4.1 percent.
- The 91-day Treasury Bill rate remained at 1.54 percent at end-2018.
- Weighted average of commercial banks’ prime lending rate remained at 10 percent at end-2018.
- Banking sector NPLs to total loans ratio fell slightly to 11.9 percent as of end-2018, from 12.2 percent a year before.
- Average capital to risk-adjusted assets rose 2 percentage points to 29.6 percent during the period.
- Directors recommended an asset quality review to assess credit quality of banks with high nonperforming loans.
- Progress on 2016 FSAP recommendations welcomed; remaining steps encouraged, including:
  - eliminating reduced provisioning requirements for “well-secured” proportions of NPLs;
  - reducing the large exposure limit;
  - raising the minimum capital adequacy requirement to 12 percent.
- Deposit insurance scheme in place as of July 1, 2019, guaranteeing up to two million Guyanese dollars.
- Bank of Guyana on track to complete Basel II/III implementation and finalize Crisis Management Framework by end-2019.
- Market concentration issue: divestment of Scotiabank (Canada) to Republic Bank will increase Republic Bank’s share to about 50 percent of total bank assets in Guyana.

### Governance, transparency, and inclusive growth
- Directors noted progress in strengthening transparency and governance and encouraged sustained efforts to implement the recommendations of the 2019 Extractive Industries Transparency Initiative Report.
- Supported strengthening anti-corruption frameworks, including by facilitating the work of the Integrity Commission, to improve governance, support investor confidence and promote growth.
- Address institutional capacity weaknesses to enable decisive implementation of policy actions.
- Use the opportunity presented by oil revenues to undertake structural reforms to support economic diversification, tackle skilled labor shortages, and achieve inclusive and equitable growth.
- Priority reforms:
  - address infrastructure bottlenecks;
  - upgrade the education system;
  - promote more flexible working arrangements to increase female labor participation;
  - improve the business environment and enhance competitiveness;
  - develop climate-resilient infrastructure networks.
- Procurement and transparency measures:
  - mandatory procurement plans, reviewing debarment procedures, amending thresholds for restrictive tendering, and developing an e-procurement system.
  - Authorities implementing EITI recommendations, Beneficial Ownership Disclosure Roadmap, and public procurement reforms (including setting aside 20 percent of government procurement for small businesses).

### Structural reforms and efficiency gains (Annex VII)
- Model: DIGNAR model calibrated for Guyana.
- Reform scenario: public investment efficiency increases gradually by 10 percentage points relative to baseline over 2020−30 (closing the gap from 59 percent to 69 percent).
- Assumed return on public investment net of depreciation: 15 percent.
- Quantified illustrative gains:
  - Reforms could deliver an additional 5 percentage points gain in non-resource output in 2030.
  - Private consumption and private investment show positive deviations under the "Reform" scenario relative to "Baseline".

### External sector, reserves, and FDI
- Current account and trade:
  - Current account balance (US$ millions): 2018 -683.3; 2019 -935.7; 2020 -1,483.6.
  - Current account balance (Percent of GDP): 2018 -17.5; 2019 -22.7; 2020 -18.4.
- Exports (f.o.b.) projections: 2019 1,490.0; 2020 3,943.3; 2021 4,211.2; 2022 6,506.2; 2023 9,415.5; 2024 10,213.6.
- FDI (net) projections: 2019 1,021.8; 2020 1,882.1; 2021 1,817.4; 2022 1,360.1; 2023 1,209.7; 2024 822.8.
- Gross official reserves (US$ millions): 2018 528.4; 2019 643.0; 2020 857.8; 2021 1,071.9; 2022 1,347.4; 2023 1,589.6; 2024 1,727.1.
- Months of imports of goods and services (reserves): 2018 2.1; 2019 1.8; 2020 2.4.
- Reserve adequacy: short-term low months-of-imports due to large oil-related import inflows; medium-term reserves expected to exceed adequate levels once oil production impacts reserve accumulation fully.

### Debt sustainability, risks, and stress tests
- Public debt (including guarantee) projected to peak at 56.6 percent of GDP in 2019 before declining sharply from 2020, reaching 15.8 percent of GDP by 2024.
- Debt-carrying capacity: composite indicator (CI) score 3.01 (Medium).
- Baseline DSA:
  - PV of external debt-to-GDP ratio projected to decline from 22 percent in 2019 to 3 percent in 2029.
  - PV of public debt-to-GDP ratio expected to decline gradually from 46 percent in 2019 to 6 percent in 2029.
- Stress tests:
  - Combined very extreme shocks can cause temporary but significant breaches in external debt thresholds (e.g., PV of debt-to-GDP could increase to 145 percent in first year after shocks in one test).
  - Some stress test assumptions (one-time 30 percent nominal exchange rate devaluation in 2021; historical standard deviations of exports) may overstate probabilities given Guyana’s recent conditions.
- Policy implications:
  - Structural reforms to diversify the economy and reduce over-reliance on oil.
  - Complement NRF Act with fiscal responsibility framework; staff recommends adopting a zero-overall balance rule constraining the annual non-oil deficit to not exceed expected NRF transfers, phased in over three years.
  - Preserve NRF’s spirit to save part of oil income as net wealth for future generations.

### Key statistics and projections (selected, preserved exactly as reported)
- Real GDP growth: 2015 3.1; 2016 3.4; 2017 2.1; 2018 4.1; 2019 4.4; 2020 85.6.
- Real GDP per capita: 2015 2.7; 2016 2.5; 2017 1.5; 2018 3.6; 2019 4.1; 2020 85.1.
- Consumer prices (average): 2015 -0.9; 2016 0.8; 2017 1.9; 2018 1.3; 2019 2.1; 2020 3.3.
- Consumer prices (end of period): 2015 -1.8; 2016 1.5; 2017 1.5; 2018 1.6; 2019 2.7; 2020 3.5.
- Central government revenue (percent of GDP): 2015 24.6; 2016 24.5; 2017 26.2; 2018 26.9; 2019 28.0; 2020 18.5.
- Central government expenditure (percent of GDP): 2015 27.0; 2016 30.0; 2017 32.2; 2018 31.6; 2019 34.3; 2020 19.7.
- Overall balance (after grants, percent of GDP): 2015 -1.4; 2016 -4.4; 2017 -4.4; 2018 -3.5; 2019 -5.0; 2020 -0.7.
- Total public sector gross debt (percent of GDP): 2015 50.1; 2016 50.7; 2017 51.4; 2018 52.9; 2019 55.4; 2020 29.3.
- Current account balance (US$ millions): 2015 -163.0; 2016 13.2; 2017 -246.2; 2018 -683.3; 2019 -935.7; 2020 -1,483.6.
- Current account balance (Percent of GDP): 2015 -5.1; 2016 0.4; 2017 -6.8; 2018 -17.5; 2019 -22.7; 2020 -18.4.
- Gross official reserves (US$ millions): 2015 598.5; 2016 596.7; 2017 584.0; 2018 528.4; 2019 643.0; 2020 857.8.
- Months of imports of goods and services (reserves): 2015 3.7; 2016 3.3; 2017 2.6; 2018 2.1; 2019 1.8; 2020 2.4.
- Nominal GDP (G$ billion): 2015 660.2; 2016 723.6; 2017 744.6; 2018 805.7; 2019 852.4; 2020 1,678.0.
- Nominal GDP, non-oil (G$ billion): 2015 660.2; 2016 723.6; 2017 744.6; 2018 805.7; 2019 852.4; 2020 967.2.
- Per capita GDP, US$: 2015 4,168; 2016 4,531; 2017 4,636; 2018 4,984; 2019 5,252; 2020 10,249.
- Population, 2018 (thousands): 782.
- Life expectancy at birth (years), 2017: 66.8.
- Population not using an improved water source (%), 2015: 4.9.
- Under-five mortality rate (per 1,000 live births), 2017: 31.3.
- Gini index, 1998: 44.6.
- Population living below the poverty line (%), 2000-06: 35.
- HDI rank, 2017: 125.

### Risks and policy responses
- Downside risks:
  - Increased dependence on oil revenue could expose the economy to oil price volatility.
  - Excessively rapid increases in government spending from oil revenues could cause significant inflationary pressures, erode competitiveness, and raise governance concerns.
  - A slowing global economy could affect non-oil exports, particularly sugar, rice, and other commodities.
  - Capacity constraints could lead to under-execution of public capital investments.
- Upside risks:
  - Further oil discoveries and production, if managed effectively, could significantly improve Guyana’s economic welfare over the long-term.
- Recommended policy responses:
  - Adhere to a fiscal rule to contain excessive spending; adopt a fiscal responsibility framework complementing the NRF Act.
  - Gradually revert monetary policy to a neutral stance as needed.
  - Monitor absorptive capacity and be ready to scale back spending if signs of overheating or inefficiencies emerge.
  - Strengthen public financial management, procurement transparency, and governance institutions.
  - Pursue structural reforms to improve public investment efficiency, diversify the economy, address skilled labor shortages, and enhance competitiveness.

*Source: IMF staff report for the 2019 Article IV consultation (Guyana).*

### 5.4 percent of GDP.

### 5.4 percent of GDP.

### Overview and outlook
- Economic growth is projected at 4.4 percent in 2019, extending the broad-based expansion across all major sectors.
- The medium-term prospects are very favorable as oil production is on schedule to begin in early 2020.
- The current account deficit is estimated to rise to 22.7 percent of GDP in 2019 on the back of higher imports related to oil production, which will be largely financed by FDI in the petroleum sector.
- The commencement of oil production in 2020 will substantially improve Guyana’s medium- and long-term outlook.
- The oil sector is projected to grow rapidly, accounting for around 40 percent of GDP by 2024 and supporting additional fiscal spending annually of 6.5 percent of non-oil GDP on average over the medium term.
- Public debt and the external current account deficit are projected to decline steadily following the onset of oil production.

### Oil production profile and macro implications
- Oil production is estimated to begin in the first quarter of 2020, averaging 102,000 barrels/day (bpd), and rising to an average of 424,000 bpd in 2025.
- Main direct effect of the oil sector on the domestic economy will be through fiscal revenue and its use; oil sector output will raise overall GDP and exports substantially, but its direct impact on the domestic economy will be mostly offset by higher imports of oil extraction equipment and payments to the operators.
- In the event of a delay in initial oil production, the NRF Act does not allow the front-loading of oil-financed spending in advance of the materialization of oil revenue.

### Fiscal policy, Natural Resource Fund (NRF), and public investment
- Authorities have legislated a Natural Resource Fund (NRF) Act 2019 providing a framework for a natural resource fund, a Public Accountability and Oversight Committee, and a transfer rule that determines fiscal transfers from the NRF.
- Directors welcomed the NRF legislation and emphasized the need to complement it with a fiscal responsibility framework to avoid fiscal deficits.
- Directors called for the authorities to constrain the annual non-oil deficit to not exceed the expected transfer from the NRF; this rule could be phased in over the next three years to allow a smooth widening of the non-oil deficit (in relation to non-oil GDP).
- To meet objectives of saving some resource income for future generations and containing the pickup in public spending, strengthen public financial management before significantly scaling up public investment with oil revenues.
- Recommended addressing shortcomings identified by the 2017 Public Investment Management Assessment (PIMA) and the expenditure review before public investment is significantly scaled-up.

### Monetary policy and external stability
- Directors agreed that monetary policy should gradually revert to a neutral stance to contain potential inflationary pressure as public spending increases, economic growth strengthens, and credit expands.
- Over the medium-term, developing the infrastructure for greater exchange rate flexibility within the monetary policy framework would help sustain healthy economic growth while maintaining price stability and facilitating adjustment to oil price and other external shocks.
- Guyana’s exchange rate regime remains a de jure float, but a de facto stabilized arrangement with foreign exchange rate interventions.

### Financial sector resilience and supervision
- Directors recommended an asset quality review to assess the credit quality of banks with high nonperforming loans.
- Addressing high non-performing loans and under-provisioning in the banking system should remain a priority.
- Directors welcomed progress in implementing the 2016 FSAP recommendations and encouraged completing the remaining ones.
- Authorities have progressed in strengthening the AML/CFT framework; further efforts were called for.

### Governance, transparency, and inclusive growth
- Directors noted progress in strengthening transparency and governance and encouraged sustained efforts to implement the recommendations of the 2019 Extractive Industries Transparency Initiative Report.
- Supported strengthening anti-corruption frameworks, including by facilitating the work of the Integrity Commission, to improve governance, support investor confidence and promote growth.
- Address institutional capacity weaknesses to enable decisive implementation of policy actions.
- Use the opportunity presented by oil revenues to undertake structural reforms to support economic diversification, tackle skilled labor shortages, and achieve inclusive and equitable growth.
- Priority reforms: address infrastructure bottlenecks; upgrade the education system; promote more flexible working arrangements to increase female labor participation; improve the business environment and enhance competitiveness; develop climate-resilient infrastructure networks.

### Key statistics and projections (selected, preserved exactly as reported)
- Real GDP growth: 2015 3.1; 2016 3.4; 2017 2.1; 2018 4.1; 2019 4.4; 2020 85.6.
- Real GDP per capita: 2015 2.7; 2016 2.5; 2017 1.5; 2018 3.6; 2019 4.1; 2020 85.1.
- Consumer prices (average): 2015 -0.9; 2016 0.8; 2017 1.9; 2018 1.3; 2019 2.1; 2020 3.3.
- Consumer prices (end of period): 2015 -1.8; 2016 1.5; 2017 1.5; 2018 1.6; 2019 2.7; 2020 3.5.
- Central government revenue (percent of GDP): 2015 24.6; 2016 24.5; 2017 26.2; 2018 26.9; 2019 28.0; 2020 18.5.
- Central government expenditure (percent of GDP): 2015 27.0; 2016 30.0; 2017 32.2; 2018 31.6; 2019 34.3; 2020 19.7.
- Overall balance (after grants, percent of GDP): 2015 -1.4; 2016 -4.4; 2017 -4.4; 2018 -3.5; 2019 -5.0; 2020 -0.7.
- Total public sector gross debt (percent of GDP): 2015 50.1; 2016 50.7; 2017 51.4; 2018 52.9; 2019 55.4; 2020 29.3.
- Current account balance (US$ millions): 2015 -163.0; 2016 13.2; 2017 -246.2; 2018 -683.3; 2019 -935.7; 2020 -1,483.6.
- Current account balance (Percent of GDP): 2015 -5.1; 2016 0.4; 2017 -6.8; 2018 -17.5; 2019 -22.7; 2020 -18.4.
- Gross official reserves (US$ millions): 2015 598.5; 2016 596.7; 2017 584.0; 2018 528.4; 2019 643.0; 2020 857.8.
- Months of imports of goods and services (reserves): 2015 3.7; 2016 3.3; 2017 2.6; 2018 2.1; 2019 1.8; 2020 2.4.
- Nominal GDP (G$ billion): 2015 660.2; 2016 723.6; 2017 744.6; 2018 805.7; 2019 852.4; 2020 1,678.0.
- Nominal GDP, non-oil (G$ billion): 2015 660.2; 2016 723.6; 2017 744.6; 2018 805.7; 2019 852.4; 2020 967.2.
- Per capita GDP, US$: 2015 4,168; 2016 4,531; 2017 4,636; 2018 4,984; 2019 5,252; 2020 10,249.
- Population, 2018 (thousands): 782.
- Life expectancy at birth (years), 2017: 66.8.
- Population not using an improved water source (%), 2015: 4.9.
- Under-five mortality rate (per 1,000 live births), 2017: 31.3.
- Gini index, 1998: 44.6.
- Population living below the poverty line (%), 2000-06: 35.
- HDI rank, 2017: 125.

*Source: IMF staff report for the 2019 Article IV consultation (Guyana).*

### 5. The fiscal outturn was better than expected, supported by stronger revenues and

### 5. The fiscal outturn was better than expected, supported by stronger revenues and lower growth in expenditure

### Fiscal outturn and public debt
- The central government’s overall deficit came in at 3.5 percent of GDP, better than the 2018 Budget and Article IV estimates of 5.4 percent of GDP.
- Total revenues grew by 11 percent, supported by:
  - the tax amnesty program (which relaxed interest and penalties on payments of outstanding taxes);
  - a significant increase in corporate remittances (which contributed 3.7 percent to total revenues).
- Tax reform measures such as the establishment of a Large Taxpayers Unit and electronic tax filing have increased income tax collection (corporate remittances contributed 2.4 percent to total revenues).
- Total expenditure rose at a slower pace, at 6 percent in 2018, compared to 11 percent in 2017, mostly due to weaker capital expenditure.
- Public debt, including government guarantee on a US$79 million syndicated loan raised by National Industrial and Commercial Investments Limited (NICIL), stood at 55 percent of GDP at end-2018.

### Credit, interest rates, and financial sector stability
- Credit to the private sector grew by 4.0 percent in 2018, compared with 2.1 percent in 2017, mostly driven by the business sector.
  - Credit growth by sector: business sector 5.3 percent; household sector 4.1 percent.
- The 91-day Treasury Bill rate remained at 1.54 percent at end-2018, unchanged from end-2017.
- The weighted average of commercial banks’ prime lending rate remained at 10 percent at end-2018, unchanged from end-2017.
- Banking sector NPLs to total loans ratio fell slightly to 11.9 percent as of end-2018, from 12.2 percent a year before.
- Average capital to risk-adjusted assets rose 2 percentage points to 29.6 percent during the period.
- Correspondent banking relationships remain stable as domestic banks maintain business with two foreign correspondent banks.

### Political context
- The Caribbean Court of Justice announced its decision in June 2019 to uphold the December 2018 Parliamentary “no-confidence” vote against the government.
- Fresh parliamentary elections are expected to be held in the coming months, though a date has not yet been set.

### Outlook and projections
- Economic growth is projected at 4.4 percent in 2019, from 4.1 percent in 2018, driven by continued strength in construction and services and a strong recovery in mining.
- Oil production is on schedule to begin in early 2020; the commencement of oil production in 2020 will substantially improve the medium- and long-term outlook.
- The oil sector is projected to account for around 40 percent of GDP by 2024.
- Incoming oil revenue is projected to support additional fiscal spending annually of 6.5 percent of non-oil GDP on average.
- This would boost non-oil GDP growth by 3.5 percentage points on average, based on a multiplier of 0.53 in the Caribbean (Narita, 2014).
- External outlook:
  - Current account deficit is projected to narrow from -22.7 in 2019 to -18.4 percent of GDP in 2020, with the commencement of oil exports.
  - The deficit will be financed largely by FDI inflows and donor-supported investment.
  - In the medium term, the current account balance will improve further as oil-related imports subside and as oil exports from Liza II commence in 2022.
- Public debt (including guarantee) is projected to peak at 56.6 percent of GDP in 2019 before declining sharply from 2020, reaching 15.8 percent of GDP by 2024, as incoming oil revenue significantly reduces borrowing needs and increases GDP.
- Debt-sustainability analysis (DSA) shows that the risk of external and overall debt distress remains moderate at present, with debt dynamics improving significantly once oil production begins.

### Risks
- Downside risks:
  - Increased dependence on oil revenue could expose the economy to oil price volatility.
  - Excessively rapid increases in government spending from oil revenues could cause significant inflationary pressures, erode competitiveness, and raise governance concerns (the “natural resource curse”).
  - A slowing global economy could affect non-oil exports, particularly sugar, rice, and other commodities.
  - Capacity constraints could lead to under-execution of public capital investments.
- Upside risks:
  - Further oil discoveries and production, if managed effectively, could significantly improve Guyana’s economic welfare over the long-term.

### Fiscal policy stance and framework
- The fiscal stance is appropriately expansionary in 2019 ahead of oil production, driven by capacity building and infrastructure development needs.
- The central government’s overall deficit is projected at 5 percent of GDP in 2019, on the back of higher capital and current expenditures.
  - Capital expenditure is projected to increase by 25.7 percent to reflect infrastructural needs.
  - Current expenditure is projected to grow 11.6 percent, driven mainly by increases in public wages and goods and services.
- Staff projects tax revenue to increase by 12.6 percent due to increased tax collection efficiency, higher compliance following GRA reforms, and broadening domestic economic growth.
- Fiscal framework envisages sizable transfers of oil income to the budget over 2020−24, with:
  - transfers to the budget amounting to a cumulative 32.7 percent of non-oil GDP over 2020−24;
  - the balance in the NRF amounting to 30.1 percent of non-oil GDP by end-2024.
- Staff view the roughly equal shares of saving versus spending of oil income during the first five years as appropriate to contain “Dutch Disease” effects.
- Staff emphasizes continuous monitoring of absorptive capacity and readiness to scale back spending if signs of overheating or spending inefficiencies emerge.
- Staff highlighted the need to consider the impact on the economy’s productive capacity when apportioning between capital and current expenditure.

### Fiscal rules and recommendations
- Complementing the NRF Act with a fiscal responsibility framework is necessary.
  - The NRF Act includes a budget transfer rule that, in the long-run, bases fiscal transfers on the expected financial return on accumulated NRF assets.
  - In the medium-term, the NRF rule envisages a transfer of around half of current oil revenue to the budget.
- Staff recommends a complementary fiscal framework that constrains the annual non-oil deficit to not exceed the expected transfer from the NRF (i.e., a zero-overall fiscal balance).
  - This complementary rule should be phased in over the next three years to allow a smooth widening of the non-oil deficit (in relation to non-oil GDP).
  - The rule would ensure public expenditure does not lead to rising debt while the NRF accumulates.
- Staff stresses preserving the NRF framework’s spirit to save part of oil income as net wealth for future generations.

### Macroeconomic impact of scaling up public investment (Box 1 summary)
- Model and calibration:
  - The DIGNAR model is calibrated for Guyana using specific data and cross-country comparison.
  - Public investment efficiency is assumed at 59 percent (2017 PIMA Assessment).
  - Return on public investment net of depreciation assumed to be 15 percent.
  - Central government’s oil revenues projected to rise from 1.6 percent of GDP to a peak of 5.3 percent of GDP in 2028.
- Two scenarios for scaling up public investment:
  - “Baseline”: overall balanced budget achieved by 2022.
  - “Aggressive”: zero-overall balance achieved slowly by 2025.
- Macroeconomic implications:
  - “Aggressive” approach leads to larger crowding out of private consumption and investment, higher real interest rates, higher inflation, and more pronounced real exchange rate appreciation — exacerbating Dutch disease and reducing traded sector output.
  - “Baseline” approach results in less crowding out, allows public investment to reinforce private investment, and yields higher non-oil output growth in the medium and longer term.

### Institutional and public enterprise reforms
- Continued reforms to improve institutional, governance, and management practices are encouraged to strengthen macroeconomic performance, including:
  - Submitting an early national budget to Parliament for a full 12 months of implementation.
  - Modernizing revenue administration.
  - Strengthening the public investment management system.
  - Addressing weaknesses identified in the 2017 PIMA.
  - Undertaking Fiscal Transparency Evaluations and instituting a Public Investment Management Framework.
- Public enterprise reforms:
  - Restructuring of GuySuCo is ongoing; offers received for privatization of 3 of the 6 sugar estates; severance payments made to 5,500 displaced workers.
  - Government subsidies to GuySuCo amounted to 1−2 percent of GDP per year from 2015−17.
  - Authorities are assessing use of domestic natural gas as a transition energy source for Guyana Power and Light (GPL) and planning to increase renewable energy.
  - Green State Development Strategy (GSDS) envisions mini hydro plants and wind as future renewable sources.
- Authorities plan rigorous project selection, prioritization and costing within the GSDS to inform multi-year budgeting and to improve public financial management.
- Authorities endorse the recommended fiscal framework constraining the annual non-oil deficit to not exceed expected NRF transfers, to be phased-in gradually.

### Authorities’ specific concerns and actions
- Authorities expressed concern that absence of ring-fencing in the Stabroek Production Sharing Agreement could affect projected government oil revenues by allowing cross-field cost allocation.
- Authorities are developing mitigation strategies including:
  - A national oil depletion policy to guide extraction and production.
  - Clearer ring-fencing rules for new investments.
- To improve fiscal transparency and public financial management, authorities have conducted a recent PEFA assessment and are considering further Fiscal Transparency Evaluations.

*Source: IMF staff report excerpt (content unit: 1guyea2019001).*

### 19. Continually reassessing the monetary policy stance to reflect changes in the

### 19. Continually reassessing the monetary policy stance to reflect changes in the macroeconomic outlook and risks remains appropriate

### Monetary policy stance and inflation
- Monetary policy should gradually revert to a neutral stance to contain inflationary pressure as economic growth strengthens and credit expands.
- The central bank considers the current accommodative monetary stance appropriate given the current low inflation rate.
- Staff recommendation: gradually revert to a neutral stance as public spending increases, economic growth strengthens, and credit expands.

### Exchange rate policy and foreign inflows
- Exchange rate flexibility could play a greater role as part of the monetary policy framework for managing large and potentially volatile foreign inflows from oil production.
- Over the medium-term, developing the necessary infrastructure, supported by IMF Technical Assistance, for a suitable monetary policy framework with increased exchange rate flexibility would:
  - facilitate economic expansion;
  - facilitate adjustment to oil price shocks;
  - maintain price stability; and
  - safeguard foreign reserves.
- The authorities concurred with the importance of exchange rate flexibility and requested IMF Technical Assistance to help design and develop the necessary infrastructure.

### Domestic bond market and central bank overdraft
- The domestic bond market should be developed further, following the 2017 MCM TA recommendations, to enhance financial intermediation.
- Government had accumulated an overdraft balance at the central bank of 9 percent of GDP at end-2018 (up from around 5 percent at end-2017 and end-2016).
- Staff recommends settling these balances at the central bank and relying on the issuance of Treasury Bills for future government cash flow management.
- Over the medium-term, authorities could consider extending the maturity of government bonds to help establish a yield curve.
- Chart referenced: Overdraft from the Bank of Guyana (In percent of GDP), 2015–2018 (source: Bank of Guyana). 1/ This amount is net off Treasury bills issued by the Bank of Guyana for monetary policy operations.

### Strengthening financial sector resilience
- Financial sector stability should be further strengthened.
- The Bank of Guyana has been undertaking periodic follow-up examinations, meeting commercial bank management, and requiring frequent reporting.
- Nonperforming loans (NPLs) for some banks remain high.
- Recommended actions to reduce NPLs and strengthen stability include an Asset Quality Review to examine banks’ credit risks.
- The divestment of regional operations of a Canadian bank (Scotiabank (Canada) sold to Republic Bank (Trinidad and Tobago)) will increase Republic Bank’s share to about 50 percent of total bank assets in Guyana, raising potential concerns on market concentration, systemic and contagion risks; the sale is not expected to affect correspondent banking relationships (CBRs).
- Several steps to promote financial inclusion:
  - Private credit bureau, CreditInfo, established in July 2013.
  - January 2016: Credit Reporting Act amended to mandate information sharing to the credit bureau by credit institutions and public utilities.
  - Coverage expanded to mobile phone companies, insurance companies, and utility companies.
  - With commencement of oil production, more foreign banks may become interested in entering the market, potentially promoting competition, financial deepening, and efficiency.

### Implementation of 2016 FSAP recommendations and regulatory reforms
- Progress made on 2016 FSAP recommendations, though some actions remain pending.
- In 2018, four bills approved by Parliament: emergency liquidity assistance to deposit-taking financial institutions; orderly resolution of a failing institution; national payment system law; and deposit insurance.
- Deposit insurance scheme in place as of July 1, 2019, guaranteeing up to two million Guyanese dollars in the event of a bank failure.
- Bank of Guyana is on track to complete Basel II/III implementation and finalize the Crisis Management Framework by end-2019.
- Remaining FSAP steps include:
  - eliminating reduced provisioning requirements for “well-secured” proportions of NPLs;
  - reducing the large exposure limit; and
  - raising the minimum capital adequacy requirement to 12 percent.
- Authorities’ planned approach: implement a hybrid approach to the Basel framework by end 2019 (capital definition and operational risk based on Basel III; market risk and standard approach to assessing credit risk based on Basel II).

### AML/CFT framework and anti-corruption measures
- Guyana is making progress in strengthening the AML/CFT framework:
  - 2017 national risk assessment (NRA) informed measures.
  - New guideline on customer due diligence and reporting by money transfer companies.
  - Amendments to the AML/CFT Act and establishment of an AML/CFT National Co-ordination Committee.
  - Financial Intelligence Unit (FIU) actively pursuing Egmont Group membership.
  - Guyana scheduled to undertake a mutual evaluation by the Caribbean Financial Action Task Force (CFATF) in 2022.
- Staff encouragements:
  - Strengthen AML measures that support anti-corruption efforts;
  - Ensure beneficial ownership information of companies and trusts is available to authorities without impediments;
  - Implement measures targeted at politically exposed persons (PEPs);
  - Prosecute corruption and laundering of its proceeds and confiscate proceeds of crime.
- Authorities plan to conduct another NRA before the mutual evaluation by the CFATF in 2022 and remain committed to continuously strengthening AML/CFT.

### Competitiveness, inclusive growth, and structural reforms
- GSDS provides development framework; structural reforms and infrastructure investment needed to support economic diversification and inclusive growth.
- Illustrative analysis: successful implementation of structural reforms to boost public investment efficiency could add around 5 percentage points to non-oil real GDP by 2030.
- Key reform and investment areas:
  - Address skilled labor shortages:
    - Gross school enrolment ratio at tertiary level for Guyana is about 12 percent, compared with the Latin America and the Caribbean average of 44 percent.
    - Current low expenditure on education of 10 percent relative to the Caribbean average of 18 percent of total government expenditure.
    - Consider increasing expenditure on education, curriculum reforms, vocational training, and more liberal or open immigration policies including free movement of workers from CARICOM countries.
    - Female labor participation declined slightly from 42.6 percent in 2017 to 41.2 percent in 2018; promoting more flexible working arrangements could help increase participation.
  - Improve infrastructure:
    - Efforts underway to improve access to roads, electricity and telecommunication services.
    - Emphasize climate resilient infrastructure networks given vulnerability to climate risks and natural disasters.
  - Energy sector:
    - High energy costs constrain growth.
    - Plans to use natural gas for power generation to improve cost-effectiveness, energy efficiency and sustainability.
    - Expansion of generation and transmission capacity of GPL to meet immediate energy needs while renewable initiatives (solar, wind, bio energy) pursued.
    - Low Carbon Development Strategy supports transition to a green economy.
  - Improve business environment:
    - Guyana ranks 134th out of 190 countries (below regional average), with challenges in construction permits, getting electricity, and resolving insolvency; ranks relatively well in protecting minority investors.
    - Key reforms: simplify and expedite construction permits and inspections; reduce time and cost of accessing electricity; strengthen legal framework for insolvency and judicial liquidation.

### Governance, transparency, and capacity constraints
- Staff assessment identifies governance weaknesses that could give rise to corruption vulnerabilities in:
  - fiscal governance (revenue and spending outcomes and procurement);
  - regulatory framework (ease of doing business, regulatory management practices, import licensing, and discretionary foreign exchange allocation);
  - rule of law; and
  - AML/CFT (entity transparency, international cooperation, and aggregate AML).
- Authorities’ actions and progress:
  - Completed first Extractive Industries Transparency Initiative (EITI) Report in 2019 and started implementing recommendations.
  - Re-establishment of the Integrity Commission resulted in over 50 percent of PEPs and other required officers making asset declarations within the first year.
  - Steps to enhance procurement transparency: mandatory procurement plans, reviewing debarment procedures, amending thresholds for restrictive tendering, and developing an e-procurement system.
- Capacity weaknesses:
  - Key governance institutions (FIU, National Procurement and Tenders Administration Board, Public Procurement Commission, Integrity Commission) face significant staff shortages, particularly legal and accounting expertise, affecting compliance, investigations (including for PEPs), and implementation of further governance strengthening measures.
- Staff encouragements:
  - Make asset declarations public and develop methodology for their verification.
  - Ensure timely compliance with procurement regulations and take further actions to fortify procurement transparency.

### Data, statistics, and capacity building
- Data provision broadly adequate but should be strengthened to enhance effective surveillance.
- Challenges: quality and timeliness of macroeconomic indicators due to low staffing and coverage issues.
- Improvements underway: coverage, input data, statistical techniques for more robust and internationally comparable GDP estimates.
- Authorities finalizing: an all-urban CPI, a household budget survey, and a living conditions survey.
- Other statistical work: compilation of balance of payments in line with BPM6, Multi-Indicator Cluster Survey, efforts to rebase National accounts to 2012.
- Need to improve statistics and build institutional capacity for statistical reporting on the petroleum sector as oil production starts; compilation and dissemination of IIP data also needed.

### Staff appraisal — macroeconomic outlook and policy priorities
- Macroeconomic outlook: very favorable; income from oil wealth presents opportunity to scale up capital and current spending to address infrastructure and human development needs.
- To minimize Dutch disease and governance-related distortions, a measured pace of public spending expansion is needed; authorities should be ready to scale back spending if absorptive capacity constraints or spending inefficiencies emerge.
- Natural Resource Fund (NRF) legislation is welcome; should be complemented with a fiscal responsibility framework to avoid fiscal deficits.
  - Recommendation: adopt a zero-overall balance rule which constrains the annual non-oil deficit to not exceed the expected transfer from the NRF.
  - This rule could be phased in over the next three years to allow a smooth widening of the non-oil deficit (in relation to non-oil GDP).
- Public financial management: improve quality, efficiency, and transparency; address shortcomings identified by the PIMA and expenditure review before scaling up public investment with oil revenues.
  - Undertake Fiscal Transparency Evaluations to ascertain compliance with Pillar IV of the Fiscal Transparency Code.
- Monetary policy: gradually revert to a neutral stance to contain inflationary pressure as public spending increases, economic growth strengthens, and credit expands.
  - Over the medium term, develop infrastructure for greater exchange rate flexibility within the monetary policy framework.
- Financial sector: conduct an asset quality review; complete remaining 2016 FSAP recommendations, especially:
  - eliminate reduced provisioning requirements for “well-secured” proportions of NPLs;
  - reduce the large exposure limit;
  - raise the minimum capital adequacy requirement to 12 percent.
- AML/CFT: continue strengthening regime ahead of CFATF assessment, addressing remaining deficiencies and mobilizing AML/CFT measures that support anti-corruption (transparency of companies and trusts, measures targeted at PEPs, notably domestic ones).
- Structural reforms: needed to support economic diversification, enhance competitiveness, and achieve inclusive and equitable growth.
  - Invest in access to roads, electricity, and telecommunication services (including hinterland).
  - Invest in education system upgrades to enhance skills and employment prospects.
  - Consider more liberal immigration policies (including free movement of workers from CARICOM) to address near-term skilled labor shortages.
  - Promote more flexible working arrangements to increase female labor participation.
  - Regulatory and administrative reforms: expedite construction permits, improve access to electricity, and strengthen legal framework for insolvency and judicial liquidation.

*IMF staff report excerpt.*

### 42. Continuing the progress that has been made in strengthening transparency and

### Continuing the progress that has been made in strengthening transparency and governance

### Transparency and governance — overarching findings
- Continuing the progress that has been made in strengthening transparency and governance would be welcome.
- Addressing capacity weaknesses would enable decisive implementation of policy actions and strengthen governance in the key areas highlighted.

### Extractive industry transparency
- Sustained efforts in implementing the recommendations of the 2019 EITI Report would help to further enhance transparency in the extractive industry and promote effective management of the oil wealth.

### Anti-corruption and asset disclosure
- Strengthening anti-corruption frameworks, including by strengthening the asset disclosure framework, will improve governance, support investor confidence and promote growth.

### Procurement transparency and market access
- Efforts to ensure timely compliance with existing regulations and further actions such as registration and publication of bidders, using CARICOM Public Procurement Notice Board for advertising bids and developing an e-procurement system would help to fortify the transparency of the procurement system.

*Source: 1guyea2019001 - 42. Continuing the progress that has been made in strengthening transparency and governance*

### 43. It is proposed that the next Article IV consultation takes place on the standard 12-

### 1guyea2019001 - 43. It is proposed that the next Article IV consultation takes place on the standard 12-

### Real sector: growth, inflation, and sectoral composition
- Growth strengthened in 2018 with broad-based expansion across all major sectors; Real GDP growth (2018) reported as 4.1 percent (Table/summary entries).
- Sectoral developments:
  - Non-mining and construction and services supported GDP growth rebound; sectoral real GDP and contribution charts show strong construction and services growth in 2018.
  - Commodity production indexes (2007=100) show recovery in Gold and Rice production; Sugar exhibited larger volatility (Figure 2 caption and charts).
- Inflation:
  - Inflation remained subdued in 2018; Consumer prices (average) entries: 2015 -0.9, 2016 0.8, 2017 1.9, 2018 1.3, 2019 2.1, 2020 3.3 (Table 1).
  - 12-month inflation (RHS) and monthly consumer price changes indicate low headline inflation through 2018.

### External sector: trade, current account, reserves, and FDI
- Current account and trade:
  - Current account balance (incl. official transfers) large deficits in 2018 onward: -683.3 (2018), -935.7 (2019), -1,483.6 (2020) (Table 2, line items).
  - Weaker exports and higher oil-related imports negatively affected the current account balance; exports slightly declined despite increase in bauxite exports; remittances increased in 2018 (Figure 3 captions).
  - Merchandise trade (net) in Table 2: -451.2 (2018), -685.2 (2019), 1,200.1 (2020), 1,551.2 (2021), 3,764.0 (2022).
- Oil and non-oil goods:
  - Oil exports appear as large entries from 2020 onward in Table 2: Oil---- -2,378.1 2,577.5 4,796.7 7,633.1 8,353.1 (format follows source table row).
  - Exports (f.o.b.) projections: 2019 1,490.0; 2020 3,943.3; 2021 4,211.2; 2022 6,506.2; 2023 9,415.5; 2024 10,213.6.
- Financial flows and reserves:
  - Financial account mirrors current account dynamics: 2018 670.4, 2019 935.7, 2020 1,483.6, 2021 1,378.3, 2022 600.2 (Table 2).
  - FDI (net) strong in projections: 2019 1,021.8; 2020 1,882.1; 2021 1,817.4; 2022 1,360.1; 2023 1,209.7; 2024 822.8 (Table 2).
  - Gross official reserves (US$ million): 2015 598.5, 2016 596.7, 2017 584.0, 2018 528.4, 2019 643.0, 2020 857.8, 2021 1,071.9, 2022 1,347.4, 2023 1,589.6, 2024 1,727.1 (Table 2 and Medium-Term Framework).

### Fiscal sector: revenue, expenditure, debt, and fiscal balance
- Fiscal outturn 2018:
  - The 2018 fiscal deficit was lower than anticipated due to higher revenues and slower capital expenditure; revenues supported by improvements in tax administration and the tax amnesty program (Figure 4 captions).
  - Much of the 2018 non-financial public sector deficit was financed by domestic debt; external debt only increased slightly (Figure 4 captions).
- Central government accounts (G$ billions, Table 3a):
  - Central government revenue: 2018 216.7; 2019 238.3; 2020 310.6; 2021 340.9; 2022 394.3; 2023 474.4; 2024 576.3.
  - Tax revenue: 2018 198.5; 2019 223.6; 2020 235.2; 2021 258.5; 2022 287.1; 2023 333.8; 2024 399.6.
  - Non-tax revenue includes oil revenue from 2020 onward: Oil revenue (G$ billions) 2020 48.1; 2021 52.7; 2022 74.2; 2023 101.8; 2024 131.7.
  - Central government expenditure: 2018 254.8; 2019 292.2; 2020 330.9; 2021 362.4; 2022 399.0; 2023 480.1; 2024 576.6.
  - Capital expenditure: 2018 55.1; 2019 69.3; 2020 87.1; 2021 107.5; 2022 126.9; 2023 164.4; 2024 198.7.
- Fiscal balances (percent of GDP, Table 3b and Medium-Term Framework):
  - Overall balance (after grants) percent of GDP: 2018 -3.5; 2019 -5.0; 2020 -0.7; 2021 -0.7; 2022 0.0; 2023 0.0; 2024 0.0.
  - Primary balance (after grants): 2018 -2.4; 2019 -4.0; 2020 -0.1; 2021 -0.2; 2022 0.4; 2023 0.3; 2024 0.3.
- Public debt:
  - Total public sector gross debt (percent of GDP): 2018 52.9; 2019 55.4; 2020 29.3; 2021 28.0; 2022 23.0; 2023 17.9; 2024 15.5 (Table 6).
  - External and domestic decomposition (percent of GDP): External 2018 33.9, 2019 33.2, 2020 18.4, 2021 18.1; Domestic 2018 19.0, 2019 22.2, 2020 10.9, 2021 9.9 (Table 6).
- Non-oil metrics (Table 3c):
  - Central government revenue (percent of non-oil GDP) projections: 2020 32.1; 2021 32.1; 2022 33.5; 2023 34.7; 2024 35.1.
  - Oil-financed projects as percent of non-oil GDP: 2020 4.5; 2021 4.5; 2022 5.7; 2023 6.7; 2024 7.2.
  - Non-oil overall balance (after grants): 2020 -6.1; 2021 -6.2; 2022 -6.3; 2023 -7.5; 2024 -8.0.

### Financial sector soundness and monetary conditions
- Banking system indicators (Figure 5 and Table 5):
  - Banks remain liquid; reported capital adequacy ratio (CAR) above regulatory minimum; risk-based capital-asset ratio (end of period) reported as 23.9 (2015), 25.4 (2016), 27.1 (2017), 28.7 (2018) (Table 5).
  - Asset quality slightly improved; NPLs to total loans around 11.9–12.9 percent in the 2015–2017 range (Table 5).
  - Banks' profitability deteriorated: Return on assets 2015 2.7, 2016 2.2, 2017 2.3, 2018 0.6 (Table 5).
- Monetary developments (Figure 6 and Table 4):
  - Base money expanded: Base money (G$ billions) 2018 179.0; 2019 200.1; 2020 243.4; 2021 284.0; 2022 335.2; 2023 392.4; 2024 447.6 (Table 4).
  - Broad money growth (12-month): 2018 6.0 percent; 2019 8.4 percent; 2020 13.5 percent; 2021 9.9 percent; 2022 10.9 percent; 2023 14.0 percent; 2024 18.7 percent (Table 4).
  - Private sector credit growth stabilized with particular strength to businesses; private sector credit (G$ billions) 2018 280.8; 2019 292.6; 2020 307.2; 2021 321.0; 2022 335.8; 2023 351.5; 2024 368.4.

### Key macro projections and indicators (Medium-Term Framework)
- GDP and prices:
  - Real GDP projections: 2019 4.4, 2020 85.6, 2021 4.8, 2022 20.6, 2023 26.2, 2024 3.2 (Table 6; note the spike due to oil).
  - Non-oil real GDP projections: 2019 4.4, 2020 4.8, 2021 4.6, 2022 4.7, 2023 4.9, 2024 5.0 (Table 6).
  - Consumer prices (average) projections: 2020 3.3, 2021 3.5, 2022 3.5, 2023 3.3, 2024 2.8 (Table 6).
- External assumptions:
  - Oil price assumption (US$/b): 2019 50.8, 2020 42.8, 2021 52.8, 2022 68.3, 2023 65.5, 2024 63.9, 2025 60.7, 2026 58.5, 2027 57.6, 2028 57.4 (Table 2 row; source formatting preserved).
- Per capita income and GDP:
  - Per capita GDP (US$): 2018 4,984; 2019 5,252; 2020 10,249; 2021 10,990; 2022 13,502; 2023 17,636; 2024 19,405 (Table 6).
  - Nominal GDP (G$ billion) projections: 2019 852.4; 2020 1,678.0; 2021 1,826.0; 2022 2,280.0; 2023 3,018.0; 2024 3,361.0 (Table 6).

### Risks Assessment Matrix: Main risks, likelihood, impact, and policy responses
- Global risks:
  - Tighter global financial conditions, including strengthening of the U.S. dollar and/or higher rates. Likelihood: L; Impact: M.
    - Policy response: Allow the exchange rate to play a more active automatic stabilizer role; tighten monetary policy to prevent interest rate differential with the U.S. from narrowing.
  - Weaker-than-expected global growth in key advanced economies and China. Likelihood: M; Impact: M.
    - Policy response: Allow the exchange rate to play a more active automatic stabilizer role; accelerate structural reforms to support growth.
  - Large swings in energy prices. Likelihood: M; Impact: M.
    - Policy response: Active fiscal and monetary responses as required; allow the exchange rate to play a more active automatic stabilizer role; accelerate structural reforms to support non-oil sector growth.
- Country-specific risks:
  - Excessive dependence on oil revenue and risk of a delay start in oil production leading to volatility in GDP growth, fiscal revenues, expenditures, inflation and exchange rates. Likelihood: H; Impact: H.
    - Policy response: Adhere to a fiscal rule to contain excessive spending; monetary policy to monitor large inflows and impacts on exchange rate and inflation; allow automatic stabilizers to work in short term.
  - Rapid ramping up of public spending could result in “Dutch disease” and a decline in public expenditure efficiency. Likelihood: H; Impact: H.
    - Policy response: Keep pace of scaling-up of public spending gradual to not exceed capacity constraints, avoid inflationary pressure and ensure medium- and long-term economic and debt sustainability.
  - Reduced financial services by correspondent banks ("de-risking"), following Scotiabank’s exit. Likelihood: L; Impact: M.
    - Policy response: Monitor CBR status; address drivers behind CBR pressure, including AML/CFT compliance and impediments to information sharing; effectively communicate efforts.
- RAM guidance:
  - The RAM uses staff subjective assessment: Low (L) <10 percent, Medium (M) 10–30 percent, High (H) 30–50 percent. The RAM reflects events that could materially alter the baseline path as of the time of discussions with the authorities.

*Source: IMF staff report material provided in the supplied content unit.*

### Annex I. The NRF Budget Transfer Rule

### Annex I. The NRF Budget Transfer Rule

### Establishment and legal framework
- The Ministry of Finance prioritized development of a framework for managing incoming petroleum revenue; the framework was articulated in the NRF Bill presented to Parliament in November 2018 and assented to law by the President in January 2019.
- The legislation establishes a Natural Resource Fund (NRF). All petroleum revenues (defined in Article 21 of the Act) flow into the NRF.
- A fiscal transfer rule determines the “fiscally sustainable amount (FSA)” transfer from the NRF to the annual budget.
- The Macroeconomic Committee can recommend a lower “Economically Sustainable” transfer (for example, if increases in public spending are assessed to generate undesirable macroeconomic effects, such as inflation or large crowding out of private investment).

### Design principles of the fiscal transfer rule
- The fiscal transfer rule is designed to ensure that in the long run, fiscal transfers are determined by the expected financial return on the NRF (a Bird-in-Hand), while in the medium term enabling some gradual, front-loading of fiscal transfers (a flexible Permanent Income Hypothesis).
- The NRF will be an offshore sovereign wealth fund.

### Specific operational constraint in the transfer rule
- Annex Table 1 footnote: "If in a past fiscal year, 3 percent of the NRF balance for that past fiscal year exceeded Production Constrained Benchmark Petroleum Revenues for that past fiscal year, then for all future fiscal years the Fiscally Sustainable Amount shall not exceed 3 percent of the projected balance of the NRF for that fiscal year."
- The FSA mechanism thus includes a conditional cap tied to a 3 percent of NRF balance test relative to Production Constrained Benchmark Petroleum Revenues.

### International comparisons and governance features
- The rule shares characteristics with other small petroleum-producing countries:
  - Timor-Leste: established a fund under the Petroleum Fund Law 2005; the law provides mechanisms to manage oil revenue, defines risk limits and asset allocation, governs collection and management of receipts from investment, and regulates transfers to the government budget. Under the law, the entire oil revenue is transferred to the fund and invested in financial assets abroad. Withdrawals require parliamentary approval. The central bank manages its operation following guidelines established by the Ministry of Finance.
  - Ghana: the Petroleum Revenue Management Act 2011 (PRMA) governs the management of oil revenues and provides a framework for withdrawals. Oil revenues are deposited in the Petroleum Holding Fund and disbursed first to the national oil company to finance operations, second to the government consolidated fund to support the national budget, third to the Ghana Petroleum Funds (Heritage and Stabilization Funds) for savings and investments, and finally for exceptional purposes such as tax refunds. The PRMA mandates management in accordance with internationally accepted standards of transparency and good governance and requires an annual report for transparency.

### Summary of governance and oversight provisions in the NRF law
- The NRF legislation includes provisions for public oversight; withdrawals, including parliamentary approval and amounts to be withdrawn; eligible investments; accounting, reporting and auditing of records; and codes of conduct for members of the Oversight and Investment Committee.

*Source: Ministry of Finance; text extracted from Annex I. The NRF Budget Transfer Rule.*

### Annex VII. Efficiency Gains from Structural Reforms

### Annex VII. Efficiency Gains from Structural Reforms

### Assumptions
- Model: DIGNAR model.
- Reform scenario calibration:
  - Public investment efficiency increases gradually by 10 percentage points relative to baseline over 2020−30.
  - Improvement supported by structural and institutional reforms to improve governance and execution in the public sector.
  - This positively affects capital stock accumulation.
- Footnote detail:
  - Based on Guyana’s 2017 PIMA, the public investment efficiency rate was 59 percent compared to LAC efficiency rate of 70 percent.
  - The 10-percentage point improvement assumed under the reform scenario would, in effect, close the efficiency gap between Guyana and the LAC.

### Implications and key results
- General outcome:
  - Structural reform measures enhance growth in non-oil (non-resource) output over time by increasing the extent to which public capital affects the productivity of private factors of production.
  - Reforms yield a more positive impact on growth and incomes through higher private consumption and investment.
- Quantified illustrative gains:
  - Reforms and further improvements to institutional arrangements would deliver an additional 5 percentage points gain in non-resource output in 2030, supported by higher private consumption and investment.
- Dynamics of public capital:
  - Improving public investment efficiency over time could quickly build up public capital and to a higher level.

### Modelled deviations under the "Reform" scenario (relative to "Baseline")
- Private consumption:
  - Deviation in Private Consumption under "Reform" Scenario (Relative to "Baseline", in percent) shown for 2018–2030 (graphical series indicated up to 3 percent deviations).
- Private investment:
  - Deviation in Private Investment under "Reform" Scenario (Relative to "Baseline", in percent) shown for 2018–2030 (graphical series indicated up to 7 percent deviations).
- Non-resource output:
  - Guyana: Deviation in Non-Resource Output under "Reform" Scenario (Relative to "Baseline", in percent) shown for 2018–2030 (graphical series indicated up to 5 percent deviations), with the specific illustrative result of an additional 5 percentage points gain in 2030.

*Source: IMF staff calculations (from Annex VII, "Efficiency Gains from Structural Reforms").*

### 2018. Level of reserves as months of imports is initially low due to large inflows of imports

### 1guyea2019001 - 2018. Level of reserves as months of imports is initially low due to large inflows of imports

### Reserve adequacy and oil-related dynamics
- Short-term: "Level of reserves as months of imports is initially low due to large inflows of imports related to oil production and development in the short term."
- Medium-term: "Over the medium term, Guyana’s international reserves will exceed the adequate level in terms of ARA metric, broad money, and short-term debt, and months of imports once the impact of oil production on reserve accumulation fully takes place."
- Risk-weighted measures: "The risk-weighted measures for Small Island Developing States (SIDS) provide an anomalous result of less-than enough adequacy level due to very rapidly rising oil exports and should not be used in the assessment."

### ARA and other reserve metrics (presentation and staff calculations)
- The Assessing Reserve Adequacy (ARA) Board paper in 2011 proposed a new metric for assessing the adequacy of reserve held by emerging market economies. The ARA 2015 updated some of the weights.
- Chart/series labels and metrics shown (as presented):
  - Gross international reserves
  - 3 Months Imports
  - 20% of Broad Money
  - Short Term Debt
  - Risk-Weighted Measure
  - SIDS Measure
  - Gross International Reserves and Adequacy Metrics (US$ millions)
  - Source: IMF staff calculations.

- Ratios of Reserves to Optimal Reserves Based on Various Measures (table excerpt as presented):
  - Years and corresponding values shown in the source (selected rows as presented):
    - 2007 1097 494 1492,592
    - 2008 1097 487 1522,848
    - 2009 1781 3217 32433,275
    - 2010 1951 3917 72604,628
    - 2011 1691 1514 52352,962
    - 2012 1581 0513 62242,911
    - 2013 1348 5132 193424
    - 2014 1218 1123 161440
    - 2015 1148 0125 140735
    - 2016 1087 3124 1321,653
    - 2017 1037 1107 1301,453
    - 2018 906 479 111,959
    - 2019 1027 3841 251,182
    - 2020 934 8801481,641
    - 2021 1095 69917 11,962
    - 2022 1084 91331962,385
    - 2023 1014 21502052,792
    - 2024 1004 11651892,944
  - "Adequate Range" row (as presented): 100-15075-100100100100
  - Source: IMF staff claculations.

### External sector, statistics, and data adequacy
- General assessment: "Data provided to the Fund is broadly adequate for surveillance purposes, although timeliness, reliability, and coverage can be improved."
- Specific gaps and technical assistance needs:
  - "Oil exploration and drilling is partially included in the balance of payment statistics, but not in the national accounts."
  - Future technical assistance should focus on: incorporating oil sector contribution in national statistics and balance of payment statistics; compiling an Industrial Production Index and a Producer Price Index.
- National accounts progress:
  - 2018 CARTAC TA improved GDP-P and GDP-E methodology; compilation files redeveloped with 2012 as the new base year.
  - 2019 TA helped to improve and rebase the GDP estimates; "The rebasing of GDP will help to incorporate oil production into the national statistics."
  - Household budget survey started in October 2018 and "expect to complete in October 2019." Labour force survey results "are expected to be published mid-2019."
- Monetary and financial statistics:
  - Monetary statistics include the BoG, other depositary corporations (commercial banks, the New Building Society, and trust companies), and other financial corporations (finance companies, life insurance companies, non-life insurance companies, pension funds, and asset management companies).
  - BoG publishes prudential indicators and has progressed on macro-prudential/systemic risk indicators with CARTAC support.
- External sector statistics:
  - 2017 follow-up mission assisted BoG to strengthen compilation and dissemination of external sector statistics; pilot enterprise survey and partial IIP prepared; quarterly BOP data in BPM6 format being prepared.
  - Main data gaps: direct investment and other financial assets and liabilities of the nonfinancial private sector and public corporations; pilot survey response rate is low.

### Institutional, legal, and operational context (selected facts)
- Exchange rate: "The exchange rate was G$209.2 per U.S. dollar as of July 16, 2019."
- IMF membership and quota (as presented):
  - Joined: September 26, 1966; Article VIII.
  - Quota: 181.80 100.00
  - IMF's Holdings of Currency (Holdings Rate): 181.80 100.00
  - Reserve Tranche Position: 0.00 0.00
  - SDR Department net cumulative allocation: 87.09 (Percent Allocation 100.00)
  - Holdings: 0.50 0.57
- Latest financial arrangements (as presented):
  - ECF Sep. 20, 2002 — Sep. 12, 2006: 54.55 54.55
  - ECF Jul. 15, 1998 — Dec. 31, 2001: 53.76 24.88
  - ECF Jul. 20, 1994 — Apr. 17, 1998: 53.76 53.76

### Debt sustainability and outlook
- Risk ratings: "Risk of external debt distress Moderate" and "Overall risk of debt distress Moderate."
- Outlook and projection:
  - "The risk of external and overall debt distress for Guyana remains moderate, but debt dynamics will improve significantly with the start of oil production in 2020."
  - "All external debt indicators remain below the relevant indicative vulnerability thresholds under the baseline scenario, which incorporates the average long-term effects of oil on economic growth, fiscal balance, and current account position."
  - "The PV of external debt-to-GDP is projected to decline to 3 percent over the long-term as the need for external borrowing is offset by the accumulation of external assets."
- Stress tests and vulnerabilities:
  - Stress tests indicate susceptibility in a "very extreme shock" combining simultaneous shocks to real GDP growth, primary balance, exports, other flows (current transfers and FDI), and nominal exchange rate depreciation, plus second order effects.
  - "The combined effects of these shocks and their second order effects cause temporary but significant breaches in the external debt thresholds, prompting a moderate risk rating."
  - "Nonetheless, Guyana has substantial space to absorb these shocks, reflecting the current low level of external debt."
- Institutional commitment: "The authorities reiterated their commitment in preserving fiscal discipline."

*Prepared by Western Hemisphere Department, IMF staff calculations, and related mission documents as presented in the source PDF.*

### 1.      The coverage of public sector debt used in this report is central government debt and

### 1guyea2019001 - 1.      The coverage of public sector debt used in this report is central government debt and

### Coverage of Public Sector Debt
- Coverage comprises central government debt and central government-guaranteed debt.
- As of end-2018, government-guaranteed five-year syndicated loan: G$16.5 billion (2.1 percent of GDP), raised by the National Industrial and Commercial Investments Limited (NICIL) for restructuring Guyana Sugar Corporation (GuySuCo).
- The syndicated loan is secured by NICIL’s assets and carries an interest rate of 4.75 percent.
- Central government borrowing from the Central Bank of Guyana: G$72.5 billion (9.3 percent of GDP) as of end-2018.
- State-owned enterprises’ (SOEs) debts are included in central government debt because SOEs are not allowed to borrow directly; the central government borrows and on-lends to SOEs.
- Sub-nationals and local governments’ debts are not included in the DSA (no explicit or implicit government guarantees).
- External debt is defined on a residency basis.

### Background: Recent Debt Trends and Relief
- Total gross public debt declined from 61.2 percent of GDP in 2008 to 55 percent of GDP in 2018 (including central government guarantee on NICIL’s G$16.5 billion syndicated loan).
- IMF, World Bank (IDA), and IDB provided debt relief amounting to US$640 million in 2006–07 under MDRI.
- Paris Club bilateral creditors and some non-Paris Club creditors granted debt relief within the 2004 Paris Club agreement.
- Rice exports to Venezuela helped repay part of debt under PetroCaribe; PetroCaribe borrowing suspended since 2015.
- Pace of public debt accumulation slowed due to government commitment to contain non-essential expenditures and restraint from contracting large amounts of debt.

### Composition of External and Domestic Debt
- External debt accounts for two thirds of total public sector debt (end-2018).
- Creditor composition of external debt (end-2018):
  - Multilateral creditors: around 60 percent of total external debt.
  - IDB: 39.7 percent of total external debt.
  - Caribbean Development Bank: 11.3 percent of total external debt.
  - China’s Export-Import Bank: 16.1 percent of total external debt.
  - Private creditors: commercial banks are the most important private creditors.
- Domestic debt composition: mainly Treasury bills (T-bills) and borrowing from the central bank.
- Guyana: External Public Debt by Creditor (End-2018, in percent) – Multilateral, 59.6; Bilateral, 37.8; Private, 2.6.
- Guyana: Domestic Public Debt by Creditor (End-2018, in percent) – T-bill, 47.1; Debentures, 5.4; Domestic Loan (NIS), 0.2; Borrowing from Central Bank, 47.4.

### Fiscal Prudence and Borrowing Terms
- Authorities committed to contracting external loans on highly concessional terms before oil production.
- Government relied on concessional financing from Multilateral Development Banks.
- The NICIL publicly guaranteed syndicated loan is an instance of private commercial financing intended to strengthen the fiscal position by eliminating further government bailouts to GuySuCo.

### Oil Discoveries and Production Prospects
- ExxonMobil offshore discovery in 2015 estimated between 800 and 1,400 million barrels; a recent 13th offshore discovery added to existing recoverable resources of approximately 5.5 billion oil-equivalent barrels (estimated by ExxonMobil).
- Potential for at least five FPSOs on the Stabroek Block producing more than 750,000 barrels/day (bpd) by 2025.
- Existing associated gas considered for domestic market to replace heavy fuel oil (HFO) for power generation.

### Commercial Production Timeline and Output Assumptions
- Commercial oil production expected to start in the first quarter of 2020.
- Liza Phase I: begin in the first quarter of 2020, averaging 102,000 bpd during 2020.
- Liza Phase II: estimated to commence production in 2022, starting with an average output of 108,000 bpd.
- Additional discoveries excluded from the baseline due to uncertain production prospects.

### Fiscal Revenue Sharing and Price Sensitivity
- Revenue-sharing agreement: 75 percent of oil production allocated to “cost recovery”; remaining 25 percent is “profit oil” shared 50−50 with the government.
- Royalty: 2 percent on gross earnings, bringing government share to 14.5 percent of total oil revenues initially.
- Government share increases substantially once cost recovery is met.
- Breakeven price for Liza Phase II: around US$35 per barrel.

### Baseline Macroeconomic Assumptions (2018–28)
- Real GDP growth: projected at 16.7 percent, on average, during 2018–28.
  - Drivers: (i) oil production from 2020 (Liza Phase I) and 2022 (Liza Phase II); (ii) increased central government developmental and capital spending supported by oil revenues; (iii) broadening growth of domestic non-oil sectors.
  - Assumes fiscal responsibility framework targeting an overall balanced budget from 2022 onwards, ensuring non-oil overall deficit does not exceed fiscal transfers from the NRF.
- Inflation (CPI): projected to average 2.8 percent during 2018–28.
- Central Government overall balance: expected to average -0.9 percent of GDP over the ten-year forward-looking period, with an overall balanced budget from 2022 onwards.
- External current account balance: projected to average -5.3 percent of GDP during the forecast period.
- Foreign direct investment (FDI): projected to average 11.1 percent of GDP.
- Discount rate for NPV of external debt: 5 percent.
- Table of baseline assumptions (selected comparisons):
  - Real GDP growth: 2017-27 Average (2018 DSA) 11.8; 2018-28 Average (2019 DSA) 16.7.
  - Real Non-oil GDP growth: 2017-27 3.9; 2018-28 5.0.
  - Consumer prices (eop) 1/ 2.7; 2.8.
  - Central Government overall balance 2/ 5.2; -0.9.
  - External current account balance 3/ 4.4; -5.3.
  - Foreign direct investment -15.7; 11.1.
  - Sources: Guyanese authorities, IMF staff calculations and projections.
  - Notes: 1/ Measured as percent (y/y) change. 2/ After grants. 3/ The deterioration in external current account balance reflects high value imports of oil goods and services for 2018 onwards.

### Fiscal and External Sector Outlook
- Path of ramping up public spending assumed gradual to address capacity constraints and minimize "Dutch" disease.
- External financing not required going forward as capital and current expenditures will be met by oil revenues and non-oil revenues.
- Current account deficit driven by high-value imports of oil-related equipment and services.
- FDI flows increase reflecting private sector financing of oil-related imports and exploration.

### Risks and Realism Checks
- Downside risks: measurement challenges amid structural change; oil price volatility; rapid government spending risks ("natural resource curse") including inflationary pressures, eroded competitiveness, and governance concerns; slowing global economy affecting non-oil exports (sugar, rice, commodities).
- Upside risks: further oil discoveries and production could significantly improve long-term welfare if managed effectively.
- Need for concrete measures to address capacity constraints to mitigate under-execution of public capital investments.
- Forecast errors historically show projections tend to be conservative—estimated PPG external debt and public debt were higher relative to actual levels compared to other LICs.
- Fiscal adjustment realism: three-year adjustment in the primary balance of 2 percentage point of GDP consistent with recommended fiscal responsibility framework; fiscal policy remains expansionary in the first three years supported by oil wealth.

### Debt Carrying Capacity and Stress Testing
- Guyana assessed as "medium" debt carrying capacity with composite indicator (CI) score 3.01 (range for “medium” is 2.69–3.05).
- Indicative thresholds for "medium" category (from 2018 Guidance Note):
  - PV of debt-to-GDP ratio: 40 percent.
  - PV of debt-to-exports ratio: 180 percent.
  - Debt service-to-exports ratio: 15 percent.
  - Debt service-to-revenue ratio: 18 percent.
- Benchmark of PV of total public debt for “medium” debt carrying capacity: 55 percent.
- CI Score components (coefficients, 10-year average values, contributions):
  - CPIA: coefficient 0.39; 10-year average 3.3; contribution 1.28 (0.42 share).
  - Real growth rate (in percent): coefficient 2.7; 10-year average 7.8; contribution 0.21 (0.07).
  - Import coverage of reserves (in percent): coefficient 4.05; 10-year average 30.9; contribution 1.25 (0.42).
  - Import coverage of reserves^2 (in percent): coefficient -3.99; 10-year average 9.55; contribution -0.38 (-0.13).
  - Remittances (in percent): coefficient 2.0; 10-year average 8.47; contribution 0.17 (0.06).
  - World economic growth (in percent): coefficient 1.3; 10-year average 3.56; contribution 0.48 (0.16).
  - CI Score: 3.01 (100%); CI rating: Medium.

### Scenario and Stress Test Settings
- Default adjustments for combined contingent liability shock:
  - Authorities indicated no PPP debt outstanding as of end-2018; financing requirements by developmental agencies are met through central government borrowing.
  - World Bank Investments in IDA Countries Report shows no outstanding PPI investments/projects in Guyana from 2013–17.
- Default shock items and values (used in analysis unless adjusted):
  - Other elements of general government not captured in main coverage: 1.0 percent of GDP (default) — used: 0.0.
  - SOE's debt (guaranteed and not guaranteed): default 2 percent of GDP — used: 2.0.
  - PPP: 35 percent of PPP stock — used: 0.0 (authorities and IDA confirmed PPP stock is zero).
  - Financial market shock: default value 5 percent of GDP — used: 5.0.
  - Total (2+3+4+5) (in percent of GDP): 7.0.

### Debt Sustainability Analysis — External PPG Debt
- Baseline: all external PPG debt indicators remain below policy-relevant thresholds for the next ten years.
- PV of debt-to-GDP ratio projected to decline from 22 percent in 2019 to 3 percent in 2029 as existing debt amortizes and new external borrowing needs fall with incoming oil revenues from 2020.
- Standardized stress test: combined shocks (temporary shocks to real GDP growth, primary balance, exports, other flows including current transfers and FDI, and nominal exchange rate depreciation) have the largest negative impact.
  - Under the combined shocks scenario (described as a very extreme scenario), the PV of debt-to-GDP ratio could increase to 145 percent in the first year after the shocks, rise to 183 percent in the second year, before declining gradually to 56 percent thereafter.

*Source: IMF staff report content as provided in the supplied PDF excerpt.*

### 2029. In addition, the combined shocks which include a large nominal exchange rate depreciation

### 1guyea2019001 - 2029. In addition, the combined shocks which include a large nominal exchange rate depreciation

### External debt risk and sensitivity analysis
- Risk of external debt distress is assessed as "moderate" while in the baseline all sustainability indicators remain below their vulnerability thresholds.
- Combined shocks including a large nominal exchange rate depreciation could result in the PV of external debt service-to-revenue ratio breaching its threshold in 2021.
- Significant shocks to exports could potentially lead to a temporary breach in the PV of debt-to-exports ratio in 2021 and 2022.
- Breaches in ratios are driven by shock assumptions that may be less relevant and probable given current and anticipated developments in Guyana:
  - External debt-to-GDP:
    - One reason for the PV of debt-to-GDP ratio threshold breach is that the sensitivity analysis neglects the high real GDP growth in 2020 (as if oil production in Liza Phase I did not start).
    - The standardized shock on real GDP growth is set to its historical average minus one standard deviation, or the baseline projection minus one standard deviation, whichever is lower for the second and third years of the projection period.
    - Historical standard deviation may be distorted by underestimation of GDP, imports, and FDI in years prior to the start of oil production because authorities’ current data do not reflect foreign companies’ investments during the preparatory phase.
  - External debt service-to-revenue ratio:
    - The sensitivity analysis assumes a one-time 30 percent nominal exchange rate devaluation in 2021, which is not reflective of Guyana’s current economic cycle and past exchange rate path (the steepest exchange rate depreciation since 1990 was 11 percent, in 1998).
    - The start of oil production in 2020 will substantially increase international reserves and may create significant appreciation pressures on the Guyanese dollar.
  - Debt-to-exports:
    - The shock on exports is distorted by the high standard deviation of export growth in the historical data due to:
      - a high share of commodity exports (85 percent of total exports),
      - high volatility of commodity prices,
      - idiosyncratic shocks (e.g., suspension of rice exports to Venezuela, and the collapse of the sugar sector).
- Guyana has substantial space to absorb shocks reflecting the current low level of external debt; only shocks in the upper quartile of the observed distribution would downgrade the country to high risk of debt distress.

### Public Sector Debt
- Baseline projection:
  - PV of public debt-to-GDP ratio does not breach the 55 percent vulnerability threshold.
  - PV of debt-to-GDP ratio is expected to decline gradually from 46 percent in 2019 to 6 percent in 2029 as existing debt is amortized and oil revenues reduce the need for external borrowing.
  - Fiscal responsibility framework targets an overall balanced budget.
- Standardized stress test results:
  - Largest shock leading to the highest PV of debt-to-GDP ratio in 2029 is the shock to real GDP growth.
  - Under the real GDP growth shock, the debt ratio could reach 122 percent of GDP in 2020.
  - Commodity price shock could result in a breach of the vulnerability threshold in 2026, pushing the PV of debt-to-GDP ratio to 68 percent in 2020.
  - Vulnerability to these shocks highlights the importance of:
    - structural reforms to diversify the domestic economy and reduce over-reliance on oil,
    - adopting a fiscal responsibility framework to safeguard long-term debt sustainability.

### Conclusion
- Debt sustainability analysis under the new LIC DSF framework suggests Guyana’s risk of external and overall debt distress remains moderate.
- Baseline scenario: debt indicators remain well below their respective vulnerability thresholds over the projection period.
- PV of external debt-to-GDP ratio is projected to decline to around 3 percent in the long run as the need for external borrowing is eliminated by the accumulation of external assets.
- Stress tests indicate vulnerability of external public debt ratio to an extreme shock that combines simultaneous shocks to:
  - real GDP growth,
  - primary balance,
  - exports,
  - other flows (current transfers and FDI),
  - nominal exchange rate depreciation,
  - and second order effects from interactions among these shocks.
- Some shocks are less probable given distortions in historical standard deviations used in the stress test.
- Policy implications:
  - Structural reforms to diversify and strengthen the domestic economy and reduce over-dependence on oil.
  - A complementary fiscal responsibility framework is needed to ensure fiscal policies remain disciplined in line with the NRF Act budget transfer rule to safeguard debt sustainability and accumulation of net wealth (asset accumulation without corresponding accumulation of public debt) in the NRF.

### Authorities’ views
- The authorities agreed with the debt sustainability assessment under the new framework and are committed to preserving fiscal discipline.
- They noted that prudent fiscal policies over the last 5 years helped reduce the debt-to-GDP ratio from 61.2 percent in 2008 to 55 percent (including central government guarantee on NICIL’s G$16.5 billion syndicated loan).

*GUYANA — INTERNATIONAL MONETARY FUND*

### 2018. Nevertheless, the authorities recognized that extreme shocks emanating from external risks

### 1guyea2019001 - 2018. Nevertheless, the authorities recognized that extreme shocks emanating from external risks

### Fiscal policy stance, buffers, and public financial management
- Authorities committed to maintaining fiscal prudence to ensure enough buffers against shocks from global commodity prices and capital flows.
- Staff recommended adopting a fiscal framework that constrains the annual non-oil deficit to not exceed the expected transfer from the NRF to ensure that public debt does not rise.
- Authorities intend to adopt rigorous project selection, prioritization and costing criteria to inform multi-year budgeting.
- Authorities indicated they would consider other mechanisms to further improve fiscal transparency and requested further information on the Fiscal Transparency Evaluations.

### External Debt Sustainability — Baseline Scenario (selected indicators, 2016−2039; in percent of GDP unless otherwise indicated)
- External debt (nominal) (PPG): 2016: 33.2; 2017: 34.4; 2018: 33.9; 2019: 33.3; 2020: 18.6; 2021: 18.3; 2022: 16.0; 2023: 13.0; 2024: 12.6; 2029: 4.4; 2039: 1.0.
- Change in external debt: 2016: -2.6; 2017: 1.2; 2018: -0.5; 2019: -0.6; 2020: -14.7; 2021: -0.3; 2022: -2.3; 2023: -3.0; 2024: -0.4; 2029: -0.8; 2039: -0.1.
- Identified net debt-creating flows: 2016: -4.4; 2017: 0.0; 2018: 2.3; 2019: -3.5; 2020: -19.5; 2021: -5.9; 2022: -10.2; 2023: -11.1; 2024: -7.4; 2029: -5.8; 2039: 4.7; (continued) -1.3; -9.1 shown in table.
- Non-interest current account deficit: 2016: -0.9; 2017: 6.3; 2018: 16.9; 2019: 22.2; 2020: 18.1; 2021: 15.6; 2022: 5.4; 2023: 0.6; 2024: -1.9; 2029: -2.4; 2039: 8.0; 8.6; 3.3 (multiple entries present).
- Exports: 2016: 45.7; 2017: 44.7; 2018: 39.1; 2019: 39.8; 2020: 51.0; 2021: 50.7; 2022: 62.8; 2023: 69.0; 2024: 68.0; 2029: 29.1; 2039: 13.1.
- Imports: 2016: 55.0; 2017: 60.4; 2018: 68.7; 2019: 74.7; 2020: 53.3; 2021: 50.1; 2022: 38.1; 2023: 30.3; 2024: 27.2; 2029: 22.1; 2039: 21.0.
- Net FDI (negative = inflow): 2016: -0.9; 2017: -5.9; 2018: -12.7; 2019: -24.8; 2020: -23.3; 2021: -20.9; 2022: -12.7; 2023: -8.6; 2024: -5.3; 2029: -3.0; 2039: -3.2; -7.5; -10.2 (multiple entries present).
- Residual (including exceptional financing): 2016: 1.8; 2017: 1.2; 2018: -2.7; 2019: 2.9; 2020: 4.8; 2021: 5.6; 2022: 7.9; 2023: 8.1; 2024: 7.0; 2029: 5.0; 2039: -4.8; 0.4; 6.4 (multiple entries present).
- PV of PPG external debt-to-GDP ratio (selected projections): 22.8; 22.4; 12.3; 12.1; 10.5; 8.6; 8.4; 3.1; 0.7.
- PV of PPG external debt-to-exports ratio (selected projections): 58.3; 56.2; 24.2; 23.9; 16.8; 12.5; 12.4; 10.6; 5.4.
- PPG debt service-to-exports ratio: 3.4; 3.8; 5.1; 4.5; 1.7; 1.7; 1.2; 0.9; 0.8; 1.2; 0.7.
- PPG debt service-to-revenue ratio: 6.3; 6.4; 7.4; 6.4; 4.8; 4.7; 4.3; 3.8; 3.2; 1.3; 0.4.
- Gross external financing need (Billion of U.S. dollars): 2016: 0.0; 2017: 0.1; 2018: 0.2; 2019: 0.0; 2020: -0.3; 2021: -0.4; 2022: -0.7; 2023: -1.0; 2024: -1.0; 2029: -1.8; 2039: 3.4.

### Key macroeconomic assumptions used in DSAs (selected)
- Real GDP growth (in percent): 2016: 3.4; 2017: 2.1; 2018: 4.1; 2019: 4.4; 2020: 85.7; 2021: 4.7; 2022: 20.6; 2023: 26.1; 2024: 3.2; 2029: 9.9; 2039: 5.1; 4.0; 17.2 (multiple entries present).
- GDP deflator in US dollar terms (change in percent): 2016: 6.0; 2017: 0.8; 2018: 3.8; 2019: 1.2; 2020: 5.4; 2021: 2.7; 2022: 2.2; 2023: 3.9; 2024: 6.9; 2029: 1.9; 2039: -0.2; 3.3; 6.2.
- Effective interest rate (percent): 2016: 1.5; 2017: 1.8; 2018: 1.8; 2019: 1.5; 2020: 1.4; 2021: 1.4; 2022: 1.4; 2023: 1.5; 2024: 1.4; 2029: 1.4; 2039: 1.4.
- Growth of exports of G&S (US dollar terms, in percent): 2016: 23.6; 2017: 0.7; 2018: -5.4; 2019: 7.6; 2020: 150.9; 2021: 6.9; 2022: 52.7; 2023: 43.8; 2024: 8.8; 2029: -4.1; 2039: 1.8; 5.1; 24.5.
- Growth of imports of G&S (US dollar terms, in percent): 2016: 0.6; 2017: 12.9; 2018: 22.9; 2019: 15.0; 2020: 39.8; 2021: 1.1; 2022: -6.5; 2023: 4.2; 2024: -1.0; 2029: 9.5; 2039: 5.2; 5.9; 10.8.
- Government revenues (excluding grants, in percent of GDP): 2016: 24.5; 2017: 26.2; 2018: 26.9; 2019: 28.0; 2020: 18.5; 2021: 18.7; 2022: 17.3; 2023: 15.7; 2024: 17.1; 2029: 26.1; 2039: 26.7; 24.0; 20.9.
- Nominal GDP (Billion of US dollars): projections show increases across the horizon with entries such as 4 ... 8 9 11 14 15 35 69 (table displays nominal dollar GDP growth and levels with discontinuities).

### Public Sector Debt Sustainability — Baseline Scenario (selected indicators, 2016−2039; in percent of GDP)
- Public sector debt 1/: 2016: 50.7; 2017: 51.4; 2018: 55.0; 2019: 56.6; 2020: 29.7; 2021: 28.3; 2022: 23.0; 2023: 17.5; 2024: 15.8; 2029: 6.9; 2039: 3.8; 58.2; 19.5 (multiple entries present).
- Change in public sector debt: 2016: 0.6; 2017: 0.6; 2018: 3.6; 2019: 1.6; 2020: -26.9; 2021: -1.4; 2022: -5.4; 2023: -5.5; 2024: -1.7; 2029: -0.8; 2039: -0.2.
- Identified debt-creating flows: 2016: -0.2; 2017: 2.7; 2018: -0.7; 2019: 1.6; 2020: -26.9; 2021: -1.4; 2022: -5.3; 2023: -5.5; 2024: -1.6; 2029: -0.8; 2039: -0.1; -0.6; -4.4.
- Primary deficit: 2016: 3.4; 2017: 3.3; 2018: 2.4; 2019: 4.0; 2020: 0.1; 2021: 0.2; 2022: -0.4; 2023: -0.3; 2024: -0.3; 2029: -0.1; 2039: 0.0; 2.5; 0.2.
- Revenue and grants: 2016: 25.6; 2017: 27.8; 2018: 28.2; 2019: 29.3; 2020: 19.1; 2021: 19.1; 2022: 17.5; 2023: 15.9; 2024: 17.1; 2029: 26.1; 2039: 26.7; 25.8; 21.2.
- Primary (noninterest) expenditure: 2016: 29.0; 2017: 31.2; 2018: 30.6; 2019: 33.3; 2020: 19.1; 2021: 19.3; 2022: 17.0; 2023: 15.6; 2024: 16.8; 2029: 26.0; 2039: 26.7; 28.4; 21.4.
- Automatic debt dynamics contribution from nominal interest rate/growth differential (examples): -2.2; -1.0; -2.5; -2.6; -26.5; -1.4; -4.9; -4.9; -0.8; -0.7; -0.2.
- PV of public debt-to-GDP ratio (selected projections): 43.8; 45.6; 23.5; 22.2; 17.6; 13.1; 11.7; 5.6; 3.5.
- PV of public debt-to-revenue and grants ratio (selected projections): 155.6; 155.8; 123.4; 116.1; 100.5; 82.6; 68.1; 21.4; 13.3.
- Debt service-to-revenue and grants ratio (selected): 58.2; 68.3; 63.3; 69.2; 65.9; 58.2; 51.1; 38.0; 27.7; 10.0; 10.6.
- Gross financing need 4/: 2016: 18.3; 2017: 22.3; 2018: 20.2; 2019: 24.2; 2020: 12.6; 2021: 11.3; 2022: 8.5; 2023: 5.7; 2024: 4.4; 2029: 2.5; 2039: 2.8.

### Sensitivity analysis and stress tests (public and PPG external debt, 2019−2029)
- Table 3 and Table 4 present alternative scenarios, bound tests (B1–B6), and tailored tests (C1–C4) across multiple indicators: Debt service-to-exports ratio, Debt service-to-revenue ratio, PV of debt-to-exports ratio, PV of debt-to-GDP ratio, and PV of Debt-to-Revenue Ratio.
- Examples of stress-test outcomes (selected from tables and figures):
  - Baseline and scenario values show wide dispersion; notable baseline jumps include GDP and debt ratios in 2020 (e.g., Real GDP growth: 85.7 in 2020).
  - Tailored scenario "Commodity price" yields elevated ratios (e.g., entries such as 56272920151615161616 17 in table context).
  - "Combination" scenarios frequently produce the most extreme shocks for debt indicators across the projection horizon.
- Figures indicate the most extreme shock for:
  - Debt service-to-revenue ratio: Most extreme shock = Combination.
  - PV of debt-to-exports ratio: Most extreme shock = Exports.
  - PV of debt-to-GDP ratio: Most extreme shock = Combination.
  - Debt service-to-exports ratio: Most extreme shock = Combination.

### Drivers of debt dynamics and realism tools
- Figures illustrate contributions to changes in gross nominal PPG external debt and gross nominal public debt from:
  - Price and exchange rate changes, Real GDP growth, Nominal interest rate, Current account + FDI, Primary deficit, and Residual.
- Distributional charts compare 5-year historical and 5-year projected changes and show median and interquartile ranges across LICs for selected debt dynamics drivers.
- Realism tools and qualification metrics are applied to categorize the moderate risk category for 2019−2029 using thresholds:
  - For PV debt/GDP and PV debt/exports thresholds, x = 20 percent and y = 40 percent.
  - For debt service/Exports and debt service/revenue thresholds, x = 12 percent and y = 35 percent.

### Key quantitative takeaways and modeling notes
- Projections reflect very large changes in 2020 driven by oil GDP, with Real GDP growth in 2020 reported as 85.7 percent and nominal dollar GDP growth 95.7 percent in 2020 in table entries.
- Notes emphasize that projected real GDP growth in 2020 is potentially overstated because of the very high growth rate of oil GDP from a zero base in 2019; rebasing of real GDP series to account for oil-related activities since 2015 is ongoing.
- Default assumption for additional financing needs under stress tests: all additional financing needs generated by shocks are assumed to be covered by PPG external MLT debt in the external DSA; default terms of marginal debt are based on baseline 10-year projections.
- Definitions and calculation notes provided:
  - External debt is residency-based.
  - Effective interest rate defined as current-year interest payments divided by previous period debt stock.
  - Grant-equivalent financing includes grants provided directly to the government and through new borrowing (difference between the face value and the PV of new debt).

*Sources: Country authorities; and staff estimates and projections. Statement by Alexandre Tombini, Executive Director for Guyana and Zahrah Mohammad, Senior Advisor to Executive Director, August 30, 2019.*

### 1.      On behalf of our Guyanese authorities, we thank the mission team for the productive

### On behalf of our Guyanese authorities, we thank the mission team for the productive engagement during this year’s Article IV consultation. The authorities welcome staff’s valuable advice and appreciate the well-balanced nature of the report.

### Economic Development and Outlook
- Guyana economy is at the cusp of a major transformation with oil production scheduled to commence in early 2020.
- Authorities committed to preserving fiscal discipline and saving part of the oil income; setting up a rules-based Natural Resource Fund (NRF) governed by transparent fiscal transfer rules.
- Authorities intend to take a conservative stance and ramp-up public spending in line with Guyana’s absorptive capacity to mitigate macroeconomic distortions.
- Over the past 10 years, Guyana’s growth rate has consistently been above the regional Caribbean average.
- Impact of oil production on government flow of revenues is not immediate due to an initial period of upfront cost recovery for the energy company.
- Economic growth momentum recovered in 2018 with broad based expansion in all major sectors (construction, services, mining, livestock, other crops).
- Authorities project economic growth of 4.5 percent in 2019, driven by construction and services, ahead of oil production in 2020.
- Inflation remained at 1.6 percent at the end of 2018; authorities project inflation to stand at 2.5 percent in 2019.
- Current account deficit widened to 17.5 percent of GDP in 2018 from 6.8 percent in 2017, driven by ramp-up of oil-related imports.
- Temporary current account deterioration expected to continue in the near term and be largely financed by higher foreign direct investment in oil-related activity.
- In the medium-term, external stability is expected to improve significantly with reduction of oil-related imports due to completion of oil fields and the start of oil exports.

### Fiscal Reforms and Policy
- Central government revenues improved in 2018; tax collection increased substantially supported by a tax amnesty program that relaxed interest and penalties on payment of outstanding taxes.
- Introduction of electronic tax filing and operations of the Large Taxpayers Unit contributed to improved revenue and efficiency of tax collection.
- Lower expenditure due to slower capital spending and improved revenues resulted in a central government deficit of 3.5 percent of GDP in 2018, below the 2018 budgeted target of 5.4 percent of GDP.
- Authorities intend to continue focusing on strengthening tax administration efficiency and tax compliance.
- Plan to strengthen revenue administration with improved monitoring and control of customs transactions, commencing a pilot of the Automated System for Customs Data.
- Central government’s overall deficit projected at 5 percent of GDP in 2019 due to higher capital and current expenditures for infrastructure and human capital development.
- Authorities consider a balanced budget by 2022 and intend to follow a fiscal framework that constrains the annual non-oil deficit to not exceed the expected transfer from the NRF to the budget, in line with the NRF Act.
- A medium-term expenditure framework to be developed in accordance with the multi-year budgeting framework of the Green State Development Strategy (GSDS).
- Plans to enhance quality and efficiency of expenditure and tax administration; strengthen public investment management with criteria-based project selection and prioritization per the GSDS.
- Improving public investment project choice, making them criteria-based within the budget, and enhancing the procurement system cited as vital to fiscal discipline and transparency.
- Authorities aim to consolidate and strengthen debt management legislation; they do not intend to contract large debt given impending oil revenues.
- Debt ratio expected to rise slightly in the near-term and improve significantly over the medium-term as oil production commences in 2020.
- Debt service expected to remain manageable due to the concessional nature of a large portion of the external debt portfolio.

### Monetary Policy and Financial Sector
- Monetary policy remained broadly accommodative in 2018; Bank of Guyana (BoG) maintained a bank rate of 5 percent and ensured adequate banking system liquidity.
- Private sector credit grew by 4 percent in 2018, reflecting a faster pace than in 2017; improved credit growth mainly driven by the business sector.
- Authorities committed to a flexible exchange rate regime; BoG allows exchange rate to adjust to market dynamics and will closely monitor monetary policy stance with oil-driven growth and potential price pressures.
- Financial sector remains sound; banking system is well capitalized, liquid and profitable.
- Non-performing loans (NPLs) trending downwards but remain high for some banks; BoG increased frequency of reporting by commercial banks, enhanced on-site inspections, and intensified follow-up actions.
- BoG plans to implement a hybrid approach to the Basel framework by end 2019: capital definition and operational risk based on Basel III; market risk and credit risk based on Basel II.
- Significant progress implementing 2016 Financial Sector Assessment Program (FSAP) recommendations, including amendments for emergency liquidity assistance and orderly resolution of failing institutions.
- Deposit Insurance Act and National Payment System Act were assented in 2018 and made operational in 2019.
- Authorities finalizing and operationalizing a Crisis Management Plan and intend to further strengthen financial supervision oversight and regulatory framework.
- AML/CFT framework improved following the 2017 National Risk Assessment (NRA); amendments to AML/CFT Act and establishment of a National Co-ordinating Committee.
- Financial Intelligence Unit pursuing greater regional and international collaboration and monitoring suspicious activities, including laundering of money and terrorist financing and criminal proceeds involving companies and politically exposed persons.
- In February 2019, Guyana was removed from the European Union terrorism financing and money laundering blacklist.
- Authorities intend to undertake another NRA prior to the Caribbean Financial Action Task Force (CFATF) in 2022.
- Correspondent banking relationships (CBRs) have stabilized; authorities remain vigilant to mitigate drivers behind CBR pressure.

### SOE Reforms and Inclusive Growth Strategies
- Authorities committed to enhancing efficiency of state-owned enterprises, notably upgrading Guyana Power and Light Incorporated (GPL) and Guyana Sugar Corporation (GuySuCo).
- Priority to reduce cost of electricity and improve reliability to boost business environment and external competitiveness.
- Plans to strengthen management and governance of GPL, reduce technical and commercial electricity losses, and improve system safety and reliability.
- Intend to assess use of domestic natural gas resources as an energy source and strengthen and expand GPL generation and transmission capacity to potentially reduce electricity cost.
- Restructuring of GuySuCo and recapitalization of estates are ongoing; sugar production anticipated to increase progressively over the next few years.
- GSDS aims for diversified, inclusive and sustainable development aligned with United Nation’s Sustainable Development Goals; focuses on modernizing traditional sectors, expanding high-growth sectors, and developing new high value-adding sectors (tourism, business process outsourcing, agro-processing).
- GSDS highlights investment opportunities in renewable power supply and efficient roads and infrastructure to bridge coast-hinterland divide.
- Despite capacity constraints, authorities intend to prioritize investment in education, health care, and vulnerable populations while improving conditions for private sector growth and job creation.
- Authorities committed to enhancing education to equip Guyanese with skills to benefit from future employment prospects.
- To support scaling up of public investments, authorities intend to strengthen governance, transparency, and procurement systems.
- Implementing Extractive Industries Transparency Initiative (EITI) report recommendations and launched Beneficial Ownership Disclosure Roadmap; reviewing legislation governing the extractive sector.
- Public procurement legal framework being amended to align with international best practices.
- National Procurement and Tender Administration Board implementing reforms including setting aside 20 percent of government procurement for small businesses and debarment procedures for contractors performing inferior work.
- Authorities intend to promote transparency and inclusiveness via CARICOM Public Procurement Notice Board and develop an electronic procurement system by 2021.

### Risks and Resilience
- Guyana exposed to risks of climate change, volatile commodity prices, and possible negative regional and international spillovers.
- Coastline below sea level makes Guyana highly vulnerable to climate change and sea level rise.
- Influx of migrants from neighboring Venezuela into rural areas has increased socio pressures on local communities.
- Country subject to commodity price shocks, heightened protectionist trends, and slowdown in international trade.
- Authorities intend to build a more robust and diversified economy, achieve financial resilience, foster inclusive growth, expand opportunities and competitiveness for businesses, and support green economy initiatives.

### Conclusion
- Authorities have made considerable progress on macroeconomic and financial reforms despite financial and human capacity constraints.
- Substantial infrastructure gaps, social needs and pockets of poverty continue to exist.
- With upcoming oil wealth, authorities pledge commitment to building human capital through investment in health and quality education, meeting Sustainable Development Goals, and investing for the benefit of present and future generations.
- Authorities appreciate IMF staff analysis and advice and hope to continue close collaboration with the Fund and CARTAC.

*Source: Guyanese authorities’ statement as part of the Article IV consultation.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2019/1guyea2019001.pdf_