## Guyana: Poverty Reduction Strategy Paper Second Annual Progress Report — Joint Staff Advisory Note

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### Overview
- The Joint Staff Advisory Note (JSAN) provides focused feedback on Guyana’s Poverty Reduction Strategy (PRS) Annual Progress Report (APR) issued in August 2005.
- This is the second progress report since the 2001 PRSP was endorsed in September 2002; the first progress report was issued in May 2004.
- The APR describes achievements and shortcomings since the HIPC Completion Point, future challenges, and an action plan for 2005 and beyond.
- Limitations noted: lack of recent data on poverty levels and trends; weak social data and data collection systems; insufficient discussion of linkages between planned actions and revised PRS targets for 2005-2009.

### Consultation Process
- Government conducted extensive consultations in preparing the APR (Chapter 6); draft was broadly disseminated and presented in public meetings and to Parliament.
- Stakeholders included donors, non-governmental organizations, civil society, political parties, members of Parliament, and neighborhood democratic councils.
- Main issues raised: shortfalls in governance and transparency, crime and security, access to or improvement of basic services (roads, drainage and irrigation), and absence of a well functioning PRS monitoring and evaluation system.
- Recommendation: revive donor coordination strategy based on sector-specific thematic groups; next APR should assess performance of thematic groups.

### Macroeconomic Developments
- 2004 outcomes:
  - Real GDP increased by 1.6 percent in 2004 after a decline of 0.7 percent in 2003.
  - 12 month inflation for end-2004 reached 5 ½ percent.
  - Current account deficit narrowed from 12 percent of GDP in 2003 to about 9 percent of GDP in 2004 due to rapid increase in exports.
  - Gross international reserves declined to 3.2 months of imports, reflecting deposit of US$44 million in an escrow account for the Skeldon sugar sector modernization project.
  - Guyana dollar remained broadly stable in real terms relative to the U.S. dollar in 2004.
- Staffs’ view: need to address poor investment climate, weak governance, infrastructure bottlenecks, and persistent security concerns and political tensions to enhance prospects for durable growth.
- Fiscal and debt developments:
  - 2004 non-financial public sector deficit declined to 4.5 percent of GDP from 8.7 percent in 2003, reflecting arrears collection, strong import duties and ad valorem fuel taxes, containment of current expenditures, and delays in the sugar modernization project.
  - Debt stock declined by 1.2 percent to US$1,080 million following enhanced HIPC and creditor cancellations; debt service reduced by 12.2 percent to US$43.7 million (about 10 percent of exports of goods and nonfactor services).
  - Staffs urge strengthening debt management and targeting debt service savings and Multilateral Debt Relief Initiative proceeds to poverty alleviation and MDGs.
- APR limitations: did not include fully articulated medium-term macroeconomic framework or contingency plans; next APR should present a full-fledged medium-term framework and contingency discussion.
- Macroeconomic framework (Projections) — Percent of GDP, unless otherwise stated (as presented in source):
  - Prel. 2003 2004 2005 2006 2007 2008 2009 2010
  - Real GDP (growth, in percent)
    -0.7 1.6 -2.8 4.2 3.8 3.5 3.2 2.7
  - Consumer prices (eop, in percent)
    5.0 5.5 9.0 5.4 3.5 3.0 3.0 3.0
  - Total revenue
    35.0 37.5 38.3 38.3 36.8 37.8 38..2 37.2
  - Capital expenditure
    14.4 16.3 24.5 27.2 21.6 17.8 15.7 14.4
  - Overall public sector balance (after grants) 1/ 2/
    -8.7 -4.5 -13.4 -13.6 -10.1 -6.1 -3.9 -2.7
  - Primary public sector balance 3/
    -2.6 0.9 -4.1 -1.0 -1.7 -0.8 0.0 0.9
  - Total public sector debt (end of period) 2/
    173.1 165.6 179.8 176.7 166.8 159.9 166.8 159.9
  - External current account balance (in percent of GDP) 1/ 2/ 4/
    -11.8 -9.5 -22.6 -26.5 -19.5 -15.4 -13.8 -14.0
  - Gross official reserves
    271.2 224.7 240.0 250.0 269.4 286.4 303.2 309.9
  - in months of imports
    4.4 3.2 3.0 3.2 3.3 3.4 3.5 3.5
  - Public external debt 2/
    146.4 138.3 149.1 149.2 144.0 139.2 144.0 139.2
  - NPV of external debt-to-revenue ratio
    208.0 193.7 216.0 233.1 236.9 232.1 233.3 232.6
  - Sources: Data provided by the Guyanese authorities; and Fund staff estimates and projections.
  - Footnotes from source:
    - 1/ Beginning in 2004 reflects interest payments after original HIPC and enhanced HIPC debt relief.
    - 2/ The enhanced HIPC Completion Point was reached in December 2003.
    - 3/ Excluding Skeldon project.
    - 4/ Excluding official transfers.

### Policies and Programs
- Notable structural reform progress since PRS adoption:
  - Tax reform: elimination of Minister of Finance’s power to grant discretionary tax exemptions; limiting most income tax holidays to 5-years; enactment of VAT and Excise Tax legislation; substantial progress in strengthening tax administration.
  - Public expenditure management: new procurement law and organic budget law; introduction of a new integrated financial management system.
  - Public Sector Investment Program (PSIP): adoption of a five-year rolling PSIP in 2005.
  - Public enterprise: progress in privatization of the bauxite sector; strengthening financial viability of sugar company including investment in modern sugar processing plant; reforms in electricity and water sectors.
  - Financial sector: privatization of Guyana National Cooperative Bank; amendment of the Financial Institutions Act and the Bank of Guyana Act; completion of on-site inspections of four banks by end-2005.
  - Private sector development: approval of an Investment Act and a Small Business Act.
  - Social sector development: development of a National Health Plan; major effort to combat HIV/AIDS; implementation of an education strategy focusing on reducing repetition rates, increasing secondary school enrollment and improving teacher training; Guyana among 17 countries receiving EFA-FTI assistance.
- Constraints and delays:
  - Delays due to capacity constraints, political instability, outbreak of crime and violence in early 2002, weak ownership of reform agenda.
  - Aid inflows lower than expected due to delayed HIPC Completion Point until December 2003, reducing resources for PRS implementation.
- Staffs’ observation: APR discussion of forward-looking policies based largely on inputs; would benefit from more rigorous analysis of outputs and outcomes.

### Poverty Reduction
- Data limitations:
  - Lack of recent poverty level updates since PRS adoption in 2001; new Household Income and Expenditure Survey launched in September 2005 with preliminary results expected July 2006.
  - August 2005: Government published summary tables from 2002 Census.
  - Social data and data collection systems at national and local levels remain inadequate.
- Performance on targets:
  - Of 25 indicators identified in 2001, Guyana met or exceeded 14 targets.
  - Shortfalls: access to treated water and adequate sanitation; distribution of house lots and land titles; percentage of trained teachers in secondary schools; HIV/AIDS.
  - Pro-poor spending in the budget at 17.1 percent exceeded the HIPC target by 2.4 percent points in 2004.
- MDGs:
  - APR indicates significant risk that Guyana may not attain all the MDGs by 2015 at the current pace; APR did not identify which specific goals may not be attained or discuss additional measures needed.
- Geographic disparities:
  - Persistent poverty in rural and under-privileged areas, including bauxite-producing town of Linden and hinterland rural Amerindian areas.
  - Need for integrated strategy for more equitable geographic development, especially infrastructure and access to basic health and education.

### Monitoring and Evaluation
- Urgent need for an effective system to monitor and evaluate impact of policies and reforms on development outcomes.
- Authorities’ planned actions to develop monitoring and evaluation system (as reported in APR):
  1. Completing and publishing full analysis of Census data.
  2. Timely completion, analysis, and publication of results of Household Income and Expenditure Survey in 2006.
  3. Tracking public expenditures and assessing their efficiency, including analysis of expenditures reaching beneficiaries on a disaggregated geographical basis.
  4. Improving capacity of the Bureau of Statistics and of sectoral ministries and agencies to generate and analyze social statistics.
- Donor support noted from IDB, UNDP, DfID and IDA.
- Recommendation: strengthen role of the Steering and Regional Committees; ensure they are adequately equipped and institutionalized to monitor PRS implementation.

### Conclusions and Recommendations
- Staffs’ overall assessment:
  - Government signals continuing commitment to poverty reduction, but progress remains slow and further strengthening is needed.
  - Main challenges:
    - Establish environment for sustained growth by improving rule of law, transparency, governance, and business environment.
    - Maintain reform momentum and ensure basic security in run-up to 2006 national elections to avoid surge in crime and violence.
    - Fully implement effective monitoring and evaluation framework to support poverty reduction efforts.
    - Pursue prudent fiscal policies and prioritized public sector investment program to improve debt sustainability and free resources for poverty reduction and growth enhancement.
  - Government remains committed to addressing these challenges.
- Additional staff recommendation: next report should cover issues pertaining to regional integration and trade in context of ongoing negotiations between the EU and CARICOM.

*Prepared by the staffs of the International Development Association and the International Monetary Fund. Approved by Pamela Cox (IDA) and Christopher Towe and Anthony Boote (IMF). April 5, 2006.*

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