## _cr10292

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### Executive summary — background and context
- Guyana sustained a solid economic performance in recent years, supported by a strengthened policy framework.
- New GDP series (rebased to 2006 prices) show nominal GDP at market value some 65 percent higher than before; economic growth exceeded 4 percent a year on average during 2007–09 in the new series (compared with 3½ percent in the previous series).
- With public debt still at high levels and continued real, fiscal, and financial vulnerabilities, the report emphasizes maintaining prudent policies given downside risks to the outlook.
- Mission visited Georgetown during January 6–16, 2010; team comprised María González (Head), Magda Kandil, Carla Macario (WHD), Felix Eschenbach (SPR); Leslie-Ann DesVignes (OED) and Maurizio Bussolo (World Bank) also participated.

### Key policy recommendations and authorities’ views
- Broad agreement to preserve a prudent policy framework to entrench fiscal and debt sustainability.
- Given stronger-than-envisaged fiscal consolidation in 2009, a somewhat more gradual pace of fiscal tightening in 2010–11 is appropriate to:
  - accommodate priority infrastructure spending, and
  - support growth.
- Short-term inflation risks expected to remain contained by a negative (albeit narrowing) output gap and a cautious monetary policy stance.
- Financial sector: strengthen banking supervision, carefully monitor asset quality, and enhance prudential measures.
- Structural reforms: modernize the sugar sector and diversify Guyana’s productive base to sustain long-term growth and alleviate poverty.
- Data: enhance data quality and dissemination, including considering subscription to GDDS.

### Recent developments (2009) — activity, prices, external sector, fiscal
- Real growth:
  - Real growth about 3¼ percent in 2009, up from 2 percent in 2008 (old series estimates: 3.1 percent in 2008 and 2.3 percent in 2009).
- Activity drivers:
  - First half 2009 affected by start-up difficulties at Skeldon sugar plant and global/weather shocks; second half benefited from robust non-tradable sector activity and recovery in agriculture and gold.
- Inflation:
  - End-year inflation fell to 3½ percent from 6½ percent in 2008.
- External sector:
  - Current account deficit fell by some 5 percent of GDP to 8½ percent.
  - Gross international reserves increased to US$623 million at year-end.
  - Authorities sold SDR 70 million out of SDR 87.1 million allocation in September; proceeds invested in US Treasuries.
- Monetary and money:
  - Growth of broad money fell to 9.7 percent in December (y/y), compared to 12.7 percent a year earlier.
  - T-Bill rates rose in real terms in 2009, leading banks to increase holdings of government securities amid slow credit demand.
  - Nominal exchange rate remained broadly stable against the U.S. dollar.
- Fiscal:
  - NFPS deficit (after grants) estimated to have declined to 3.3 percent of GDP in 2009 from 4.7 percent in 2008.
  - Outturn equivalent to a deficit of 5.3 percent of (old) GDP—below the budget target of 6½ percent of (old) GDP.
  - Public debt (net of PetroCaribe-related disbursement savings) declined by about 1 percent of GDP to 56¾ percent of (new) GDP.
- Financial sector:
  - Private sector credit growth slowed to about 6 percent by December (y/y), down from nearly 22 percent in 2008.
  - Banks liquid and well capitalized; NPLs for banking sector at 8¼ percent; provisions at 54 percent.
  - Loan concentration at about 35½ percent of loan portfolio; related-party lending around 4.5 percent as of end-December.
  - CLICO resolution process underway with potential fiscal cost to government of 2-3 percent of GDP; banking sector asset losses to date modest and limited to one bank.

### Rebased GDP and sectoral composition (Box 1 key points)
- GDP rebased from 1988 to 2006; 2009 GDP at market prices higher than previously estimated by 64 percent.
- Preliminary estimates: new GDP per capita US$2,630 as of end-2008, up from US$1,504 in the old series.
- Rebasing incorporated new economic sectors and previously large informal activity moved into formal sector.
- Sectoral changes include expanded coverage of government services, distribution, mining and quarrying (larger share of gold and diamond), manufacturing (expanded index of 47 products; sugar manufacturing reclassified into manufacturing), and transportation and communications (cell phone, internet, TV broadcasting, mini buses, taxis, lorries, domestic air services, coastal speedboats, port services).
- Importance of sugar in total output declined.

### Structural reforms and programmatic progress (2009)
- Fiscal reforms:
  - Modern chart of accounts for capital expenditure introduced into IFMAS; pilot to integrate donor projects into IFMAS.
  - Guyana Revenue Authority: consolidation of new functional organization; roll out of integrated tax information system (TRIPS); improvements in filing, refund, arrears collection and audit.
  - No expansion of zero-rated VAT list; authorities adhere to rules-based exemptions.
- Financial sector reforms:
  - Legal consolidation of insurance and bank supervision at the central bank; introduction of risk-based supervision and risk management guidelines; regular publication of financial soundness indicators.
  - Enactment of AML/CFT Act and Money Transfer Agencies Act in 2009; Credit Bureau bill tabled in Parliament.
- Structural: ongoing sugar sector modernization; Low Carbon Development Strategy (LCDS) model agreement with Norway to provide US$250 million in 2010–15 to support forest preservation and development of non-traditional sectors; PPP projects planned including hydropower at Amalia Falls and a 450 km road connecting interior to Brazil (cost implications cited as some 23 percent of GDP and 11–16 percent of GDP respectively).

### Medium-term macroeconomic outlook and key projections
- Growth and convergence:
  - Average growth expected 4-5 percent in the medium term; gradual convergence to potential rate of 3¼ percent over long term.
- Risks:
  - Downside: weaker/delayed global recovery; higher-than-envisaged oil prices; delays in sugar sector modernization; elimination of preferential EU sugar prices.
  - Upside: successful completion of large PPP projects; exploitation of oil reserves (expected to begin in 2014); LCDS carbon credit benefits.
- Selected medium-term macro framework (figures preserved):
  - Real GDP (in percent): 2006: 5.1; 2007: 7.0; 2008: 2.0; 2009: 3.3; 2010: 4.4; 2011: 4.9; 2012: 4.2; 2013: 3.9; 2014: 3.6
    - o/w sugar sector: 2006: 5.5; 2007: 2.7; 2008: -15.1; 2009: 3.3; 2010: 19.8; 2011: 10.0; 2012: 9.1; 2013: 9.7; 2014: 6.0
    - o/w non-sugar sector: 2006: 3.3; 2007: 7.2; 2008: 3.4; 2009: 3.0; 2010: 3.4; 2011: 1.8; 2012: 3.8; 2013: 3.5; 2014: 3.4
  - Inflation (end of period): 2006: 4.2; 2007: 14.0; 2008: 6.4; 2009: 3.6; 2010–2014: 4.0 (each year)
  - Overall fiscal balance: 2006: -7.2; 2007: -4.9; 2008: -4.7; 2009: -3.3; 2010: -3.2; 2011: -3.2; 2012: -2.9; 2013: -2.5; 2014: -2.2
  - External current account balance: 2006: -13.1; 2007: -11.1; 2008: -13.2; 2009: -8.5; 2010: -10.0; 2011: -9.4; 2012: -8.7; 2013: -8.0; 2014: -6.5
  - NPV of public debt-to-GDP ratio (percent): 2006: 65; 2007: 42; 2008: 41; 2009: 49; 2010: 49; 2011: 50; 2012: 50; 2013: 51; 2014: 53
  - Gross official reserves (US$ millions): 2006: 277.3; 2007: 312.6; 2008: 355.9; 2009: 623.0; 2010: 658.6; 2011: 738.5; 2012: 810.2; 2013: 857.2; 2014: 892.9
  - In months of imports: 2006: 3.1; 2007: 2.9; 2008: 2.7; 2009: 5.1; 2010: 4.9; 2011: 5.2; 2012: 5.4; 2013: 5.4; 2014: 5.4

### Fiscal policy, public investment and PPPs — recommendations
- Authorities plan prudent fiscal policies; NFPS deficit targeted around 3.2 percent of GDP in 2010–11, converging to 2.2 percent by 2014.
- Staff cautioned moderate risk of debt distress; recommended heightened caution and contingency planning.
- Structural measures recommended:
  - strengthen revenue administration;
  - secure long-term viability of the National Insurance System (including parametric reform);
  - phased reduction of non-priority spending;
  - continue large share savings of PetroCaribe disbursements.
- Public investment/PPP guidance:
  - Emphasize high-quality public investment, rigorous cost-benefit analysis, and fiscal transparency.
  - Minimize fiscal risks from PPPs: fair risk sharing, limit fiscal contingencies, prevent renegotiation risks, reflect firm/contingent liabilities in public debt statistics, consider comprehensive PPP legal framework.
  - Hydropower at Amalia Falls seen as reducing oil-price exposure; IDB assessing viability; Brazil–Guyana road project under evaluation with IDB technical support.
  - Fiscal costs related to CLICO resolution should be minimized.

### Financial sector vulnerabilities and supervisory agenda
- Findings:
  - Banking system as a whole would withstand a series of shocks before becoming vulnerable, though resilience varies across banks.
  - Concerns: level of NPLs, provisioning, borrower concentration and related-party credit.
  - Tax and reserve requirement exemptions on small mortgages require monitoring to avoid excessive household balance-sheet exposures.
- Staff recommendations:
  - Continue close monitoring of commercial banks; require banks to increase provisions.
  - Tighten legislation on exposure to large borrowers and related-party lending.
  - Ensure banks prepare quality crisis management plans.
  - Ensure liquidity support and troubled-institution frameworks remain consistent with evolving financial system structure.
  - Bring credit unions and cooperatives within regulatory perimeter; table legislation to bring mortgage institution NBS under central bank supervision.
  - Minimize fiscal risks from PPPs; reflect any contingent liabilities in public debt statistics.
- Financial indicators (selected):
  - Regulatory minimum CAR: 8 percent; banks’ risk-weighted CAR rose from 14.9 percent in December 2008 to 18.3 percent in December 2009.
  - Banking NPLs about 8.3 percent of total loans in 2009; provisions cover 54 percent of NPLs.
  - Loan concentration: top 20 borrowers about 35½ percent of loan portfolio as of end-December 2009.
  - Loans to related parties: 4½ percent as of end-December 2009.
  - Nonbank NPLs slightly below 25 percent in September 2009; New Building Society holds some 80 percent of nonbank deposits.

### Debt sustainability assessment (DSA) — main conclusions and stress tests
- Overall assessment: moderate risk of debt distress.
- Rebasing improved debt-to-GDP ratios significantly; key risks remain:
  - departure from agreed fiscal consolidation;
  - delays in sugar modernization;
  - weaker global recovery;
  - higher-than-projected oil prices.
- Baseline projections and assumptions:
  - Real GDP: output growth of 3¼ percent in 2009; real GDP expected to rise at annual average rate of 4¼ percent through 2014; potential stabilizing at around 3¼ percent long term.
  - External current account projected to widen to 10 percent of GDP in 2010 then decline to 6½ percent by 2014.
  - NFPS deficit maintained around 3¼ percent of GDP in 2010–11, converging to 2¼ percent by 2014.
  - FDI projected to reach some 7 percent of GDP per year on average in 2010–14; concessional loans and grants gross disbursements together average some 10 percent of GDP annually in 2010–14.
  - PetroCaribe financing projected at 2–4 percent of GDP and assumed discontinued by end-2014; most PetroCaribe disbursements saved in escrow.
- Stress test highlights:
  - Baseline: sustainability indicators remain below thresholds except a temporary minor breach of PV of gross external debt-to-GDP ratio.
  - Sensitivity tests: combined shocks (e.g., B4 and 30 percent nominal depreciation B6) produce highest long-term risk; PV of external debt-to-revenue and PV of external debt-to-exports experience occasional breaches under extreme scenarios.
  - Public debt stress: under B1 (GDP growth historical average minus one standard deviation in 2011–12) PV of public debt-to-GDP almost reaches 100 percent by 2030; PV public debt-to-revenue reaches 390 percent by 2030 under B1.
- Policy implications:
  - Maintain fiscal consolidation, preserve access to concessional financing, prioritize high-quality public investment, and manage PetroCaribe savings prudently.

### PRSP publication, social indicators and poverty reduction
- Authorities plan prompt publication of PRSP based on "2006 data"; ongoing work to include updated macroeconomic framework and MDG costing in subsequent PRSPs.
- Selected social and health indicators:
  - Infant Mortality Rate (per 1,000 persons): 2005: 22.0; 2006: 19.2; 2007: 20.3; 2008: 17.5; 2009: 14.9
  - Under 5 mortality rate (per 1,000 live births): 2005: 26.5; 2006: 20.3; 2007: 23.9; 2008: 20.2; 2009: 19.8
  - Education: public expenditure as share of budget: 2005: 13.7; 2006: 13.0; 2007: 17.1; 2008: 15.5; 2009: 15.7
  - Health: public expenditure share: 2005: 7.5; 2006: 9.0; 2007: 10.6; 2008: 9.3; 2009: 9.9
  - Physicians (per 10,000 population): 2005: 4.9; 2006: 4.9; 2007: 5.1; 2008: 6.6; 2009: 6.6
  - 1 year olds immunized against polio (percent): 2005: 93.0; 2006: 92.0; 2007: 94.0; 2008: 94.0; 2009: 96.0
- PRSP strategic pillars (2008–12): seven pillars including broad-based job creation, environmental protection, stronger institutions, investment in human capital, infrastructure, improved safety nets, and special interventions for persistent pockets of poverty.

### Surveillance decision and recommendation
- Staff recommends the next Article IV consultation be held on the standard 12-month cycle.

*Source: IMF staff report — EXECUTIVE SUMMARY*

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Background
- Guyana has sustained a solid economic performance in recent years, supported by a strengthened policy framework.
- New GDP series recently released reveal that the debt overhang is lower than previously estimated, while the fiscal and current account deficits are also smaller.
- In 2009, output growth was robust despite the global crisis, and the outlook for 2010 remains positive.
- With public debt still at high levels, and continued real, fiscal, and financial vulnerabilities, there is a case for staying the course of prudent policies, given the downside risks to the outlook.

### Key policy recommendations and authorities’ views
- Broad agreement on the need to preserve a prudent policy framework to further entrench fiscal and debt sustainability.
- Stronger-than-envisaged fiscal consolidation achieved in 2009 allows for a somewhat more gradual pace for fiscal tightening in 2010–11 to:
  - accommodate priority infrastructure spending, and
  - support growth.
- Short-term inflation risks expected to remain contained by:
  - a negative (albeit narrowing) output gap, and
  - a cautious monetary policy stance.
- Financial sector recommendations:
  - Recent efforts to strengthen banking supervision should be accompanied by careful monitoring of asset quality, and enhanced prudential measures.
- Structural reforms:
  - Ongoing reforms to modernize the sugar sector and diversify Guyana’s productive base are critical to sustaining long-term growth and alleviating poverty.
- Data:
  - Data quality and dissemination efforts could be enhanced further, including through subscribing to GDDS.

### Exchange rate system
- De jure exchange rate regime: managed float.
- Fund classification of de facto regime: stabilized arrangement.
- No changes in the exchange system and related legal framework since the last Article IV Consultation.

### Mission
- Mission visited Georgetown during January 6–16, 2010.
- Team comprised María González (Head), Magda Kandil, Carla Macario (all WHD), and Felix Eschenbach (SPR).
- Leslie-Ann DesVignes (OED, Senior Advisor) and Maurizio Bussolo (World Bank) also participated in discussions.
- Meetings held with Minister of Finance Ashni Singh, Central Bank Governor Lawrence Williams, representatives of the private sector, labor, and the donor community, and members of the political opposition.

### Context (key findings)
- Newly released GDP series (based on 2006 prices) suggest economic growth exceeded 4 percent a year on average during 2007-09—compared with 3½ percent in the previous GDP series (based on 1988 prices).
- Nominal GDP at market value is some 65 percent higher than before.
- The rebasing reflects incorporation of new economic sectors and previously large informal activity that moved into the formal sector since the late 1980s (see Box 1).
- Inflation declined steadily since the imported price shock of 2008, to around 3½ percent at end-2009.
- Prudent policies have helped reign in public debt while supporting growth and external stability.
- Relative performance:
  - Guyana weathered the global crisis significantly better than its Caribbean peers.
  - Guyana’s real GDP growth picked up since 2006 and showed much higher resilience to the 2009 global crisis than the rest of the region.
  - Inflation has been contained at lower levels than in other Caribbean commodity exporters.
  - Fiscal deficit narrowed steadily in recent years.
  - Debt ratios improved—supported by debt relief—bringing external debt within the regional range, while domestic debt is low relative to the Caribbean average.

### Recent developments (2009)
- Real growth:
  - Real growth was about 3¼ percent in 2009, up from 2 percent in 2008.
  - Estimates using the old GDP series suggest real growth was 3.1 percent in 2008, and 2.3 percent in 2009.
- Activity drivers:
  - First half of 2009 affected by start-up difficulties at the Skeldon sugar plant, and global and weather shocks on sugar and bauxite.
  - Second half benefited from robust activity in non-tradable sectors and a recovery in agriculture and gold production.
- Inflation:
  - End-year inflation fell to 3½ percent from 6½ percent in 2008, reflecting the decline in world commodity prices.
- External sector:
  - Current account deficit fell by some 5 percent of GDP, to 8½ percent, driven by a reduction in imports—particularly fuel imports—and despite adverse effects on exports and remittances and the phasing out of sugar price preferences by the EU in October.
  - Capital account: steady short-term inflows, including repatriation of assets by commercial banks, helped offset a decline in FDI.
  - Gross international reserves increased to US$623 million at year-end.
  - Authorities sold SDR 70 million out of the total allocation of SDR 87.1 million in September; proceeds invested in US Treasuries as part of reserves management.
- Monetary policy and money:
  - Growth of broad money fell to 9.7 percent in December (y/y), compared to 12.7 percent a year earlier.
  - T-Bill rates rose in real terms—turning from negative in 2008 to positive in 2009—leading commercial banks to increase holdings of government securities amid slow credit demand.
  - Nominal currency remained broadly stable against the U.S. dollar.
- Fiscal developments:
  - NFPS deficit (after grants) estimated to have declined to 3.3 percent of GDP in 2009 from 4.7 percent in 2008.
  - Outturn equivalent to a deficit of 5.3 percent of (old) GDP—below the budget target of 6½ percent of (old) GDP.
  - Public debt (net of savings of PetroCaribe-related disbursements) declined by about 1 percent of GDP to 56¾ percent of (new) GDP.
- Financial sector:
  - Banks tightened lending standards early in 2009; private sector credit growth slowed to about 6 percent by December (y/y), down from nearly 22 percent in 2008.
  - Banks remain liquid and well capitalized.
  - NPLs for the banking sector at 8¼ percent; provisions at 54 percent.
  - Loan concentration at about 35½ percent of loan portfolio.
  - Related-party lending around 4.5 percent as of end-December.
  - Resolution process for CLICO underway with a potential fiscal cost to the government of 2-3 percent of GDP, largely arising from investments by the National Insurance System.
  - To date, banking sector asset losses from CLICO’s collapse have been very modest and limited to one bank.

### Rebased GDP and sectoral composition (Box 1 key points)
- GDP rebased from 1988 to 2006.
- 2009 GDP at market prices higher than previously estimated by 64 percent.
- Preliminary estimates: new GDP per capita reached US$2,630 as of end-2008, up from US$1,504 in the old series.
- Rebasing project benefited from technical assistance from the U.S. Census Bureau (under an IDB project) and CARTAC.
- Changes aimed at capturing changes in relative industrial costs and price structures, formalization of large informal sector, and emergence of new activities.
- Sectoral changes:
  - Government services now capture statutory bodies; health and education services separated and expanded to include private activities.
  - Distribution sector has expanded coverage of commodity flows and improved trade margins estimation.
  - Mining and quarrying reflect a larger share of gold and diamond production, lower share of bauxite.
  - Manufacturing benchmark uses an expanded index of 47 products; sugar manufacturing reclassified into manufacturing.
  - Transportation and communications coverage broadened (cell phone activities, internet service providers, TV broadcasting, mini buses, taxis, lorries, domestic air services, coastal speedboats, port services).
  - Importance of sugar in total output declined.
  - Financial services coverage largely unchanged; enhanced estimation techniques introduced.
  - Scope for improving measurements of the insurance sector.

### Reforms undertaken in 2009
- Fiscal sector reforms:
  - Modern chart of accounts for capital expenditure introduced into the integrated financial management system (IFMAS).
  - Pilot exercise with IDB support to integrate donor projects into IFMAS.
  - Guyana Revenue Authority (GRA) improvements: consolidating new functional organization, rolling out integrated tax information system (TRIPS), improvements in filing, refund, arrears collection and audit functions.
  - Zero-rated VAT list not expanded; authorities adhere to existing rules-based tax exemptions.
- Financial sector reforms:
  - Legal consolidation of insurance and bank supervision at the central bank.
  - Incorporation of risk-based supervision and issuance of new risk management guidelines.
  - Regular publication of key financial soundness indicators for licensed deposit-taking institutions.
  - Enactment of the AML/CFT Act and the Money Transfer Agencies Act in 2009.
  - Bill for authorizing operation of Credit Bureaus tabled in Parliament.

*Source: IMF staff report — EXECUTIVE SUMMARY*

### 9.      The agenda has also focused on achieving sustainable long-term growth and

### _cr10292 - 9.      The agenda has also focused on achieving sustainable long-term growth and

### Sustainable long-term growth and poverty alleviation: sectoral and programmatic progress
- Sugar sector
  - Reforms focus on modernizing the sugar sector by ensuring that the new plant at Skeldon becomes fully operational, and by raising overall efficiency.
- Low Carbon Development Strategy (LCDS)
  - A model agreement signed with Norway would provide US$250 million in 2010–15 in exchange for preservation of Guyana’s rainforests.
  - Resources would support development of non-traditional economic sectors and reconversion of Guyana’s fuel-dependent energy sectors.
- Infrastructure (Public-Private Partnerships)
  - Planned projects include construction of a hydropower plant at Amalia Falls (with private sector financing for some 23 percent of GDP from China and the IDB).
  - A 450 km. road connecting Guyana’s interior to Brazil (11–16 percent of GDP).
  - Public investment plans include an access road to Amalia Falls, and improving electricity generation and distribution.
- Business climate and small enterprise support
  - Computerized business registration integrated into the Deeds Registry in 2009.
  - Creation of facilitation programs providing advisory services (including with IDB support) and improvement of community market infrastructure.
- Poverty reduction (2008–12 PRSP)
  - Seven strategic pillars: (i) economic growth led by broad-based job creation; (ii) environmental protection; (iii) stronger institutions and better governance; (iv) investment in human capital and emphasis on basic education and primary health; (v) investment in physical infrastructure; (vi) improved safety nets; (vii) special intervention programs to address persistent pockets of poverty.
  - Development of a monitoring and evaluation system with UNDP and IDB support to enhance public spending effectiveness.

### Selected social and health indicators (as presented)
- Vital Statistics (per year)
  - Infant Mortality Rate (per 1,000 persons): 2005: 22.0; 2006: 19.2; 2007: 20.3; 2008: 17.5; 2009: 14.9
  - Under 5 mortality rate (per 1,000 live births): 2005: 26.5; 2006: 20.3; 2007: 23.9; 2008: 20.2; 2009: 19.8
- Health and Education (Public Expenditure as a share of Budget)
  - Education: 2005: 13.7; 2006: 13.0; 2007: 17.1; 2008: 15.5; 2009: 15.7
  - Health: 2005: 7.5; 2006: 9.0; 2007: 10.6; 2008: 9.3; 2009: 9.9
- Other indicators
  - Number of physicians (per 10,000 population): 2005: 4.9; 2006: 4.9; 2007: 5.1; 2008: 6.6; 2009: 6.6
  - 1 year olds immunized against polio (percent): 2005: 93.0; 2006: 92.0; 2007: 94.0; 2008: 94.0; 2009: 96.0

### Medium-term macroeconomic outlook and key projections
- Growth and convergence
  - Average growth expected to be 4-5 percent in the medium term.
  - Growth projected to gradually converge to potential rate of 3¼ percent over the long term.
- External current account
  - External current account deficit would widen somewhat in 2010—led by rising world oil prices, elimination of sugar price preferences by the EU, and a pick up in domestic demand—before narrowing in subsequent years.
- Risks
  - Downside: weaker/delayed global recovery, higher-than-envisaged oil prices, delays in sugar sector modernization, elimination of preferential EU sugar prices exposing Guyana to world price volatility.
  - Upside: successful completion of large PPP investment projects, exploitation of Guyana’s oil reserves (expected to begin in 2014), benefits from global carbon credit markets via LCDS.

### Medium-Term Macroeconomic Framework (selected figures; in percent of GDP or specified)
- Real GDP (in percent): 2006: 5.1; 2007: 7.0; 2008: 2.0; 2009: 3.3; 2010: 4.4; 2011: 4.9; 2012: 4.2; 2013: 3.9; 2014: 3.6
  - o/w sugar sector: 2006: 5.5; 2007: 2.7; 2008: -15.1; 2009: 3.3; 2010: 19.8; 2011: 10.0; 2012: 9.1; 2013: 9.7; 2014: 6.0
  - o/w non-sugar sector: 2006: 3.3; 2007: 7.2; 2008: 3.4; 2009: 3.0; 2010: 3.4; 2011: 1.8; 2012: 3.8; 2013: 3.5; 2014: 3.4
- Inflation (end of period): 2006: 4.2; 2007: 14.0; 2008: 6.4; 2009: 3.6; 2010–2014: 4.0 (each year)
- Overall fiscal balance: 2006: -7.2; 2007: -4.9; 2008: -4.7; 2009: -3.3; 2010: -3.2; 2011: -3.2; 2012: -2.9; 2013: -2.5; 2014: -2.2
- External current account balance: 2006: -13.1; 2007: -11.1; 2008: -13.2; 2009: -8.5; 2010: -10.0; 2011: -9.4; 2012: -8.7; 2013: -8.0; 2014: -6.5
- NPV of public debt-to-GDP ratio (in percent): 2006: 65; 2007: 42; 2008: 41; 2009: 49; 2010: 49; 2011: 50; 2012: 50; 2013: 51; 2014: 53
  - Excluding unspent portion of PetroCaribe loans: 2006: 65; 2007: 42; 2008: 39; 2009: 49; 2010: 47; 2011: 45; 2012: 44; 2013: 44; 2014: 44
- NPV of public debt-to-revenue ratio (in percent): 2006: 222; 2007: 152; 2008: 159; 2009: 169; 2010: 168; 2011: 170; 2012: 169; 2013: 174; 2014: 184
  - Excluding unspent portion of PetroCaribe loans: 2006: 222; 2007: 152; 2008: 151; 2009: 159; 2010: 155; 2011: 149; 2012: 149; 2013: 154; 2014: 156
- Gross official reserves (in US$ millions): 2006: 277.3; 2007: 312.6; 2008: 355.9; 2009: 623.0; 2010: 658.6; 2011: 738.5; 2012: 810.2; 2013: 857.2; 2014: 892.9
- In months of imports: 2006: 3.1; 2007: 2.9; 2008: 2.7; 2009: 5.1; 2010: 4.9; 2011: 5.2; 2012: 5.4; 2013: 5.4; 2014: 5.4

### Policy discussions — macroeconomic policy framework to support growth and protect sustainability
- Fiscal policy
  - Authorities plan prudent fiscal policies in near and medium term.
  - NFPS deficit targeted at around 3.2 percent of GDP in 2010–11, gradually converging to 2.2 percent of GDP by 2014.
  - The strategy aims to reduce net debt-to-GDP while providing space for public investment.
  - Staff cautioned that Guyana still faces a risk of moderate debt distress and recommended heightened caution and contingency planning.
  - Recommended structural measures: strengthen revenue administration, secure long-term viability of the National Insurance System (including parametric reform), phased reduction of non-priority spending, and continued savings of a large share of PetroCaribe disbursements.
- Monetary and exchange rate policy
  - Monetary stance appropriate; avoid premature easing to prevent rekindling inflation.
  - Authorities will conduct monetary policy through open market operations and are ready to tighten policy if inflationary pressures develop to meet an inflation objective of 4 percent.
  - Staff recommended gradual move toward greater exchange rate flexibility to buffer external shocks, while authorities favor exchange rate stability given market thinness and exposure to commodity price shocks.
- Public investment and PPPs
  - Emphasized high-quality public investment, rigorous cost-benefit analysis, and fiscal transparency (with IDB support).
  - Urgent priorities in sugar sector: ensure full operation of Skeldon plant, increase mechanization, plan against weather shocks, establish stable labor relations framework.
  - Minimize fiscal risks from PPPs: ensure fair risk sharing, limit fiscal contingencies, prevent renegotiation risks, reflect firm/contingent liabilities in public debt statistics, and consider comprehensive legal framework for PPPs.
  - Hydropower at Amalia Falls expected to reduce exposure to world oil prices and improve reliability; IDB still assessing economic and environmental viability.
  - Brazilian authorities continue evaluation of Brazil-Guyana road project with IDB technical support.
  - Fiscal costs related to resolution of CLICO should be minimized.

### Key policy recommendations from the 2008 Article IV Consultation (Box 2)
- Continue implementing a sound policy framework
  - More gradual deficit reduction appropriate given global slowdown; faster convergence recommended over medium term.
  - Some additional exchange rate flexibility desirable.
- Enhance financial system surveillance
  - Intensify monitoring, develop crisis response plan, enhance reporting of prudential indicators.
- Implement structural reform
  - Address business and labor relations related to sugar modernization; prepare contingency measures.
  - Address high cost and unreliability of energy generation.
  - Avoid further expansion of zero-rated VAT list; adhere to rules-based exemptions; continue improving revenue administration.
- Press ahead with poverty reduction agenda
  - Ensure consistency between medium-term framework and PRSP; establish effective monitoring and evaluation system.
- Authorities’ views: broadly shared staff’s assessment; readiness to implement measures to contain deficit and achieve inflation target; favor exchange rate stability.

### Surveillance decision and external sustainability assessment (Box 3)
- Real effective exchange rate (REER)
  - REER depreciated by 10 percent between end-January 2009 and November 2009, reversing an 11 percent real appreciation in second half of 2008.
  - CGER-type analysis suggests Guyanese dollar broadly in equilibrium; estimated misalignment under both ES and MB approaches is less than 5 percent in each case.
  - Sensitivity tests indicate REER deviation from equilibrium moderate (less than 10 percent) in stress tests.
- External financing and sustainability
  - Staff projects gradual decline in external financing needs after a temporary widening of current account deficit in 2010.
  - Private and official capital inflows expected to be sufficient; FDI and remittances not drastically affected by global crisis.
  - Large IFI and bilateral disbursements being secured to finance key infrastructure.
  - Sustainability strengthened by the SDR allocation; higher oil prices would raise current account pressures but be mirrored by financial inflows from PetroCaribe; Guyana could become net oil exporter in 2014.
- Selected sensitivity analysis excerpts (REER gap / changes)
  - Baseline REER gap: 3.6; ∆ to ES baseline: -0.3
  - MT current account balance -1 p.p.: REER gap under ES: 9.5; under MB: 5.9
  - MT current account balance +1 p.p.: REER gap under ES: -2.3; under MB: -5.9
  - Change in REER through 2014: +3%: 6.6 (ES); 3.0 (MB). -3%: 0.6 (ES); -3.0 (MB).

*Source: Guyana, 2010 Budget.*

### 18.      The authorities plan on a prompt publication of the PRSP. With the soon-to-be-

### _cr10292 - 18.      The authorities plan on a prompt publication of the PRSP. With the soon-to-be-

### PRSP publication and poverty reduction
- Authorities plan a prompt publication of the PRSP based on "2006 data".
- Ongoing work aims to include:
  - an updated macroeconomic framework in subsequent PRSPs.
  - an MDG costing exercise in subsequent PRSPs.
- Staff welcomes donor-supported work to cost the achievement of the MDGs.

### Financial sector vulnerabilities and supervisory agenda
- Findings:
  - Recent data suggest the banking system "as a whole would withstand a series of shocks before becoming vulnerable", though resilience "varies across individual banks".
  - Concerns remain on "the level of NPLs, provisioning, borrower concentration and related-party credit".
  - The program that extends tax and reserve requirement exemptions on small mortgages requires monitoring to avoid excessive household balance-sheet exposures.
- Staff recommendations and measures urged:
  - Continue close monitoring of commercial banks.
  - Require banks to increase provisions.
  - Tighten legislation on exposure to large borrowers and related-party lending.
  - Ensure all banks prepare crisis management plans of sufficient quality.
  - Ensure liquidity support and troubled-institution frameworks (including eligibility requirements for liquidity support) remain consistent with the evolving structure of the financial system.
  - Monitor the tax and reserve requirement exemptions on small mortgages to avoid developing household exposures.
- Non-bank financial institutions:
  - Staff notes strict regulatory standards are critical.
  - As most licensed non-bank financial institutions are now under central bank supervision, staff encourages bringing credit unions and cooperatives within the same regulatory perimeter.
  - Staff recommended that draft legislation to bring the mortgage institution NBS under direct central bank supervision be tabled in Parliament.
  - Staff welcomes the recent amendment to bring insurance supervision under the purview of the central bank.
  - Staff supports initiatives to reduce interest rate spreads, including development of new financial instruments (with IDB technical support).
  - The forthcoming law on Credit Bureaus is commended.
  - Minimize fiscal risks from PPPs by following international best practices, limit risks linked to sovereign guarantees, and reflect any firm or contingent liabilities from PPPs in public debt statistics.

### Data provision and statistical improvements
- Developments:
  - Authorities have made important efforts to improve data quality in the past year.
  - Finalization of the rebased GDP series represents "very significant progress".
  - New CPI series are being compiled "in line with a new basket", prepared with CARTAC assistance.
- Staff recommendations:
  - Expand and accelerate data provision.
  - Subscribe to the General Data Dissemination System (GDDS); authorities agreed to review GDDS requirements and are considering eventual subscription.
- Staff commends decisions to review GDDS requirements with a view to considering future subscription.

### Staff appraisal — macroeconomic stance, risks, and policy priorities
- Macroeconomic context:
  - New GDP series suggest economic performance in recent years has been stronger than previously considered.
  - Inflation has declined to low levels since the "2008 food price shock".
  - Guyana has weathered the global crisis well, in part owing to the implementation of prudent policies.
- Fiscal policy and debt sustainability:
  - Staff welcomes the "consolidation effort exerted in 2009", which provides a buffer to debt sustainability while allowing medium-term fiscal policies to remain supportive of growth.
  - Authorities should balance using fiscal space to entrench recovery with protecting sustainability given persistent vulnerabilities and risks to the outlook.
  - Staff commends authorities' readiness to take expenditure measures, if needed, to meet fiscal targets, support price stability, and protect debt sustainability.
  - Ongoing/planned structural reforms in revenue administration and the National Insurance System should help.
- Public investment and PPPs:
  - Minimize fiscal risks from public investment and PPPs to ensure debt sustainability.
  - Public projects should deliver high value-for-money and enhance growth and debt-repayment capacity.
  - Staff welcomes efforts to enhance economic assessment, fiscal accounting, and transparency of investment projects from donors and recommends gradual expansion to all public investment.
  - Authorities' decision to minimize the fiscal cost from the resolution of CLICO is welcome.
- Monetary policy and exchange rate management:
  - Authorities' decision to maintain a tight monetary policy stance is judged adequate to prevent emerging inflationary pressures as the recovery ensues.
  - High liquidity in the system provides a buffer to meet increased private sector credit demand.
  - Moving toward greater exchange rate flexibility would provide a buffer against shocks, but a gradual approach is advised to avoid disruptive exchange rate fluctuations given temporary terms of trade shocks and Guyana’s "still thin foreign exchange market"—particularly as international reserves remain comfortable.
- Financial system monitoring:
  - Balance of risks calls for careful monitoring of the domestic financial system.
  - Staff welcomes forthcoming reporting and monitoring guidelines for financial institutions.
  - Staff reiterates recommendations to require banks to step up provisioning levels, tighten legislation on exposure to large borrowers and related-party lending, and closely monitor mortgage-related tax and reserve exemptions.
  - Staff recommends gradually bringing credit unions and cooperatives under the same regulatory perimeter as other nonbank financial institutions, and bringing the mortgage institution NBS under direct central bank supervision.

*Source: IMF staff report excerpts contained in the provided content unit.*

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

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

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

### Comparative regional developments (Figure 1)
- Guyana's growth performance has improved significant relative to regional standards.
- While inflation remains under control.
- Fiscal consolidation has continued its course since the mid-decade.
- External debt has been brought to regional levels, supported by debt reduction operations.
- While domestic debt is low for regional standards.
- The current account deficit is narrowing.
- Indicators shown (2000–2010) include: Real GDP Growth (y/y percent change), Inflation end-of-period (y/y percent change), Public Sector Balance (percent of GDP), External Debt (percent of GDP), Domestic Debt (percent of GDP), Current Account Balance (percent of GDP).

### Real sector (Figure 2)
- Growth recovered in 2009, supported by the sugar sector.
- Inflation subsided, reflecting sharp decline in food prices.
- The global financial crisis decreased FDI flows, including for sugar sector modernization.
- Growth is expected to recover on the back of more diverse economic activity.
- Sectoral indicators include:
  - Sectoral Real GDP (annual percent change) and Sectoral Contribution to Real GDP Growth (percent).
  - FDI and Investment in Sugar Modernization (percent of GDP).
  - Consumer Prices: 12-month inflation and monthly percent change (2004Q4–2009Q2).
- Notable policy change: 2007: VAT.

### External sector developments (Figure 3)
- Due to higher oil prices the current account deficit is projected to widen in 2010 and to narrow thereafter.
- Exports are projected to recover over the medium term even though increased sugar production cannot compensate the loss of EU preferences.
- Remittances declined only moderately in 2009 and are projected to increase in line with the global recovery.
- The current account deficit is fully financed by FDI, official capital transfers and private flows, and loans.
- Disbursements from Venezuela under the PetroCaribe agreement were largely saved abroad.
- Oil prices and imports of capital goods stabilize at lower levels following the completion of large projects.
- Indicators and projections (2006–2014) include: WEO oil price % change; Current account incl. off. transfers % of GDP; Terms of Trade % change; Fuel imports and Capital goods imports (percent of GDP); Grants and FDI net (US$ millions); Composition of Loans (US$ millions); Exports of goods (percent of GDP); Remittances (US$ millions).

### Fiscal sector developments (Figure 4)
- Fiscal performance was better than envisaged in 2009, but a slower fiscal consolidation is projected over the medium term.
- Consolidation slowed to accommodate key infrastructure spending, financed with higher revenues and partly offset by some reduction of current spending.
- Significant improvements in sugar output and investments in the electricity company are expected to offset the impact of lower EU sugar prices.
- Fiscal savings net of grants would improve.
- Risks include shortfalls in sugar production that would increase public sector debt.
- Fiscal projections and scenarios (2006–2014) include:
  - Revenue and Expenditure (percent of GDP): Current expenditure, Revenue, Capital expenditure.
  - Overall Fiscal Deficit (percent of GDP): Revised target and Previous path.
  - Public Enterprises Operational Balance (percent of GDP): Current balance and Without central government transfers.
  - Fiscal Savings (percent of GDP) excluding and including grants.
  - Baseline vs. Alternative scenario where sugar output is 30% below projections.
  - Public Sector Debt-to-Revenue Ratio (percent) under baseline and alternative scenarios.

### Monetary developments (Figure 5)
- Despite an increase in international reserves, monetary growth declined and interest rates were reduced, following a post-Lehman hike.
- Deposits and credit growth decelerated significantly across various sectors of the economy.
- Private sector credit and credit-to-GDP indicators show deceleration.
- Key series and levels (2004–2009):
  - Money: Broad money, Base money, Currency issued (annual percentage change).
  - Private Sector Credit: Credit to GDP, Credit to deposit ratio, Credit growth and Deposit growth (percent).
  - Interest and Treasury Bill Rates: Lending interest rate and Treasury bill interest rate.
  - Private Sector Credit by Sectors (annual percent change): Business, Other sectors, Mortgage, Households.

### Selected social and economic indicators (Table 1)
- I. Social Indicators:
  - Population, 2008 (thousands): 767.4
  - Life expectancy at birth (years), 2007: 66.5
  - Population not using an improved water source (%), 2006: 7.0
  - Life expectancy at birth (years), 2007 (duplicated entry formatting in source): 66.5
  - Gini index, 1992–2007: 44.6
  - Population living below the poverty line (%), 2000–06: 35
  - HDI rank, 2009: 114.0
- II. Economic Indicators (selected series and projections):
  - Real GDP (annual percent change): 2006: 5.1; 2007: 7.0; 2008: 2.0; 2009: 3.3; 2010: 4.4; 2011: 4.9
  - Real GDP per capita: 2006: 4.8; 2007: 6.7; 2008: 1.5; 2009: 3.0; 2010: 4.0; 2011: 4.6
  - Consumer prices (average): 2006: 6.7; 2007: 12.2; 2008: 8.1; 2009: 2.9; 2010: 3.8; 2011: 4.0
  - Investment (percent of GDP): 2006: 21.0; 2007: 20.7; 2008: 19.0; 2009: 16.5; 2010: 18.2; 2011: 19.0
  - National saving (percent of GDP): 2006: 7.9; 2007: 9.6; 2008: 5.8; 2009: 8.0; 2010: 8.2; 2011: 9.6
  - Nonfinancial public sector Revenue and grants (percent of GDP): 2006: 29.3; 2007: 27.5; 2008: 25.9; 2009: 28.8; 2010: 29.2; 2011: 29.2
  - Expenditure (percent of GDP): 2006: 36.5; 2007: 32.4; 2008: 30.6; 2009: 32.0; 2010: 32.5; 2011: 32.4
  - Overall balance (after grants) 1/: 2006: -7.2; 2007: -4.9; 2008: -4.7; 2009: -3.3; 2010: -3.2; 2011: -3.2
  - Total public sector debt (end of period) 2/: 2006: 93.1; 2007: 58.9; 2008: 57.7; 2009: 56.8; 2010: 55.2; 2011: 55.0
  - Gross official reserves 3/ (US$ millions): 2006: 277.3; 2007: 312.6; 2008: 355.9; 2009: 623.0; 2010: 658.6; 2011: 738.5
  - Months of imports of goods and services: 2006: 3.1; 2007: 2.9; 2008: 2.7; 2009: 5.1; 2010: 4.9; 2011: 5.2
  - Nominal GDP (G$ billion): 2006: 292.0; 2007: 352.2; 2008: 391.5; 2009: 413.1; 2010: 448.1; 2011: 490.4
  - Per capita GDP, US$: 2006: 1,907; 2007: 2,277; 2008: 2,497; 2009: 2,629; 2010: 2,831; 2011: 3,059
  - Guyana dollar/U.S. dollar (period average): 2006: 201.0; 2007: 202.5; 2008: 204.3; 2009: 204.1

### Balance of Payments (Table 2)
- Current account (including official transfers) (US$ millions): 2006: -190.8; 2007: -193.0; 2008: -253.6; 2009: -172.5; 2010: -218.6; 2011: -222.2
- Current account (excluding official transfers) (US$ millions): 2006: -226.1; 2007: -204.6; 2008: -305.2; 2009: -213.8; 2010: -256.5; 2011: -255.6
- Merchandise trade (net) (US$ millions): 2006: -300.0; 2007: -380.9; 2008: -507.8; 2009: -387.7; 2010: -427.9; 2011: -443.6
- Exports (f.o.b.) (US$ millions): 2006: 585.1; 2007: 681.6; 2008: 798.4; 2009: 779.6; 2010: 877.5; 2011: 945.3
  - Bauxite: 2006: 65.5; 2007: 101.5; 2008: 131.1; 2009: 77.6; 2010: 96.8; 2011: 110.4
  - Sugar: 2006: 137.0; 2007: 150.1; 2008: 133.4; 2009: 112.5; 2010: 139.0; 2011: 139.3
  - Gold: 2006: 114.4; 2007: 153.1; 2008: 203.7; 2009: 282.0; 2010: 308.0; 2011: 318.1
  - Timber: 2006: 55.0; 2007: 55.4; 2008: 53.8; 2009: 41.9; 2010: 63.4; 2011: 63.2
  - Other: 2006: 213.1; 2007: 221.5; 2008: 276.4; 2009: 265.6; 2010: 270.3; 2011: 314.2
- Imports (c.i.f.) (US$ millions): 2006: 885.0; 2007: 1,062.5; 2008: 1,306.2; 2009: 1,167.3; 2010: 1,305.4; 2011: 1,388.9
  - Capital goods: 2006: 201.2; 2007: 233.6; 2008: 254.8; 2009: 219.0; 2010: 251.5; 2011: 260.6
  - Fuel and lubricants: 2006: 238.5; 2007: 284.6; 2008: 406.8; 2009: 281.5; 2010: 347.4; 2011: 386.9
- Net private transfers (US$ millions): 2006: 216.3; 2007: 287.1; 2008: 328.8; 2009: 299.6; 2010: 310.0; 2011: 332.4
- Capital and financial accounts (US$ millions): 2006: 279.5; 2007: 236.3; 2008: 333.1; 2009: 477.4; 2010: 293.6; 2011: 342.9
- Overall balance (US$ millions): 2006: 43.4; 2007: 30.5; 2008: 44.8; 2009: 267.1; 2010: 37.1; 2011: 87.3
- Gross international reserves (US$ millions): 2006: 277.3; 2007: 312.6; 2008: 355.9; 2009: 623.0; 2010: 658.6; 2011: 738.5
- Oil price assumption (US$/b): 2006: 64.3; 2007: 72.5; 2008: 97.0; 2009: 62.0; 2010: 76.0; 2011: 82.0
- GDP (US$ million): 2006: 1,455.3; 2007: 1,739.0; 2008: 1,916.3; 2009: 2,024.1; 2010: 2,186.6; 2011: 2,369.6

### Nonfinancial public sector operations (Table 3)
- Revenue (percent of GDP): 2006: 23.3; 2007: 24.4; 2008: 21.7; 2009: 24.6; 2010: 25.6; 2011: 25.0
  - Central government revenue: 2006: 21.2; 2007: 22.8; 2008: 21.2; 2009: 23.0; 2010: 23.3; 2011: 23.2
  - Tax revenue: 2006: 19.8; 2007: 22.0; 2008: 20.2; 2009: 21.6; 2010: 21.0; 2011: 21.0
- Expenditure excluding Skeldon (percent of GDP): 2006: 32.8; 2007: 30.2; 2008: 29.7; 2009: 31.4; 2010: 31.6; 2011: 32.4
  - Current expenditure: 2006: 21.3; 2007: 18.4; 2008: 19.9; 2009: 19.5; 2010: 19.4; 2011: 19.0
  - Capital expenditure (excluding Skeldon): 2006: 11.5; 2007: 11.8; 2008: 9.7; 2009: 11.9; 2010: 12.6; 2011: 13.5
- Overall balance after grants (excluding Skeldon) (percent of GDP): 2006: -3.5; 2007: -2.7; 2008: -3.8; 2009: -2.6; 2010: -2.3; 2011: -3.2
- Overall balance after grants (including Skeldon) (percent of GDP): 2006: -7.2; 2007: -4.9; 2008: -4.7; 2009: -3.3; 2010: -3.2; 2011: -3.2
- Financing (percent of GDP): 2006: 7.2; 2007: 4.9; 2008: 4.7; 2009: 3.3; 2010: 3.2; 2011: 3.2
  - Net foreign financing: 2006: 6.3; 2007: 5.5; 2008: 6.8; 2009: 4.9; 2010: 8.0; 2011: 7.0
  - Net domestic financing: 2006: 0.9; 2007: 0.5; 2008: 0.5; 2009: -0.8; 2010: -1.3; 2011: -1.4

### Bank of Guyana and monetary survey (Table 4)
- Bank of Guyana net foreign assets (G$ billions, end-period): 2006: 36.6; 2007: 44.7; 2008: 54.2; 2009: 108.7; 2010: 117.2; 2011: 136.4
- Base money (G$ billions, end-period): 2006: 47.9; 2007: 51.1; 2008: 54.9; 2009: 68.4; 2010: 73.4; 2011: 80.7
- Broad money (G$ billions, end-period): 2006: 143.8; 2007: 163.4; 2008: 184.2; 2009: 202.1; 2010: 229.0; 2011: 260.2
- Domestic credit (12-month percent change): 2006: 4.3; 2007: 5.6; 2008: 30.4; 2009: -13.3; 2010: 9.7; 2011: 18.5
- Private sector credit (12-month percent change): 2006: 17.9; 2007: 18.7; 2008: 21.8; 2009: 5.7; 2010: 10.7; 2011: 17.3
- Memorandum items:
  - Bank of Guyana's net foreign assets (US$ millions): 2006: 182.1; 2007: 219.5; 2008: 264.2; 2009: 534.8; 2010: 571.9; 2011: 659.2
  - Commercial banks' net foreign assets (US$ millions): 2006: 93.9; 2007: 188.9; 2008: 194.5; 2009: 163.9; 2010: 149.5; 2011: 168.5
  - Money multiplier: 2006: 3.0; 2007: 3.2; 2008: 3.4; 2009: 3.0; 2010: 3.1; 2011: 3.2

### External financing requirements and sources (Table 5)
- Financing requirement (US$ millions) 2006–2014 (selected): 2006: 49; 2007: 26; 2008: 20; 2009: 37; 2010: 38; 2011: 30; 2012: 36; 2013: 37; 2014: 34
- External current account deficit (excludes official transfers) (US$ millions): 2006: 226; 2007: 205; 2008: 305; 2009: 214; 2010: 256; 2011: 256; 2012: 266; 2013: 259; 2014: 224
- Gross international reserves (increase = +) (US$ millions): 2006: 263; 2007: 743; 2008: 267; 2009: 368; 2010: 0; 2011: 724; 2012: 736
- Available financing (US$ millions) 2006–2014 (selected): 2006: 49; 2007: 26; 2008: 20; 2009: 37; 2010: 38; 2011: 36; 2012: 37; 2013: 34; 2014: 36
- Net external financing components include capital transfers (MDRI), official transfers, NFPS loans, other public sector net, private sector net, and exceptional financing.

### Indicators of external and financial vulnerability (Table 6)
- Public sector debt-to-GDP (percent): 2006: 93.1; 2007: 60.0; 2008: 61.6; 2009: 61.4; 2010: 63.0; 2011: 64.6; 2012: 66.0; 2013: 67.1; 2014: 68.5
- NPV of public sector debt-to-GDP (percent): 2006: 65.0; 2007: 41.6; 2008: 41.1; 2009: 48.6; 2010: 49.1; 2011: 49.6; 2012: 50.3; 2013: 51.4; 2014: 53.1
- NPV of public sector debt-to-revenue (percent): 2006: 222.0; 2007: 152.3; 2008: 158.9; 2009: 169.0; 2010: 167.9; 2011: 169.7; 2012: 169.0; 2013: 174.1; 2014: 184.4
- Share of nonperforming loans in total loans: 2006: 11.6; 2007: 10.7; 2008: 9.5; 2009: 8.3
- CPI-inflation (end of period) (percent): 2006: 4.2; 2007: 14.0; 2008: 6.4; 2009: 3.6; 2010–2014: 4.0 (each year)
- Current account balance-to-GDP (percent): 2006: -13.1; 2007: -11.1; 2008: -13.2; 2009: -8.5; 2010: -10.0; 2011: -9.4; 2012: -8.7; 2013: -8.0; 2014: -6.5
- Gross official reserves (US$ millions): 2006: 277.3; 2007: 312.6; 2008: 355.9; 2009: 623.0; 2010: 658.6; 2011: 738.5; 2012: 810.2; 2013: 857.2; 2014: 892.9
- Gross official reserves in months of imports: 2006: 3.1; 2007: 2.9; 2008: 2.7; 2009: 5.1; 2010: 4.9; 2011: 5.2; 2012–2014: 5.4 (each year)
- External public sector debt to GDP (percent): 2006: 71.8; 2007: 41.6; 2008: 43.7; 2009: 46.1; 2010: 50.4; 2011: 54.5; 2012: 56.7; 2013: 57.1; 2014: 57.2
- Memorandum: Public sector debt-to-GDP excluding unspent PetroCaribe (percent): 2006: 93.1; 2007: 58.9; 2008: 57.7; 2009: 56.8; 2010: 55.2; 2011: 55.0; 2012: 54.4; 2013: 53.9; 2014: 53.6

### Medium-term macroeconomic framework (Tables 7–8)
- Real GDP projections (annual percent change): 2010: 4.4; 2011: 4.9; 2012: 4.2; 2013: 3.9; 2014: 3.6
- Consumer prices (average) projected at 4.0 percent for 2011–2014.
- Investment (percent of GDP) projected: 2010: 18.2; 2011: 19.0; 2012: 19.3; 2013: 18.2; 2014: 17.4
- Overall balance (after grants) projected (percent of GDP): 2010: -3.2; 2011: -3.2; 2012: -2.9; 2013: -2.5; 2014: -2.2
- Total public sector debt (end of period) projected (percent of GDP): 2010: 55.2; 2011: 55.0; 2012: 54.4; 2013: 53.9; 2014: 53.6
- External sector projections (US$ millions): Current account (incl. official transfers): 2010: -218.6; 2011: -222.2; 2012: -222.0; 2013: -217.6; 2014: -182.9
- Exports and imports projections (US$ millions): Exports (f.o.b.) 2010: 877.5; 2011: 945.3; 2014: 1,186.1. Imports (c.i.f.) 2010: 1,305.4; 2011: 1,388.9; 2014: 1,618.3
- Oil price assumption (US$/b) projections: 2010: 76.0; 2011: 82.0; 2012: 84.8; 2013: 86.5; 2014: 88.5
- GDP (US$ million) projections: 2010: 2,187; 2011: 2,370; 2012: 2,550; 2013: 2,706; 2014: 2,829

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

### 31.       Guyana has been affected by the

### Guyana has been affected by the global crisis

### Impact of the global crisis on the real sector and external inflows
- Main transmission channel: real sector. Initially limited direct exposure to the financial shock, but suffered from declines in main sources of foreign income—remittances and FDI inflows—driven by contraction of growth and employment in developed economies.
- Reduction in prices and global demand hit commodity exports.

### Sectoral exports and production (2009)
- Export demand reduced by the steep decline in global economic activity; lower export prices adversely affected exports and growth.
- Largest price declines: bauxite and rice.
- Rice output: grew by 9 percent in 2009.
- Bauxite output: declined by 31 percent in 2009.
- Gold production: increased by 21 percent in 2009 following a firming up in the gold price of 12½ percent.

### Remittances
- Remittances grew at an average rate of nearly 55 percent a year in 2004–08.
- Remittances reached about 17 percent of (new) GDP by 2008—the largest level in the region.
- Remittances declined by 9 percent in 2009.

### Private sector survey findings (Persaud, Chinnatambi and Roopehand-Edwards (2010))
- Decline in production ranged from 5–30 percent across different sectors (based on focus groups and surveys).
- Manufacturing production and sales: declined by approximately 15 percent overall in the first half of 2009, relative to the same period in 2008.
- Distribution activity: fell by some 15 percent.
- Tourism: declined by around 20 percent.
- Firms’ responses: hoarding employment and pursuing other cost cutting strategies.

### EU sugar preferences and market context
- EU Sugar Protocol guaranteed purchases for some 160,000 metric tons a year at a fixed price.
- 2008 average guaranteed price under the Protocol: US$715 per ton (€485 per ton).
- 2008 U.S. market price offered: US$470 per ton.
- 2008 average world market price: US$275 per ton.
- Removal of most EU advantages in October 2009; transitional arrangements:
  - Minimum guaranteed price of €301.5 a ton until September 2012.
  - Guyana may sell at world market prices if higher (has been the case since late 2009).
  - CARIFORUM-EU EPA ensures sugar is duty and quota free since October 2009, with a transitional safeguard mechanism for the next 6 years limiting exports in the event of risk of serious damage to the EU sugar industry.
- Other trading arrangements:
  - United States: 2009 USDA TRQ allocation to Guyana = 12,636 metric tons of raw sugar for fiscal year 2009; quota unlikely to be filled due in part to lower U.S. market prices.
  - CARICOM: CET applies a 40 percent duty to brown (raw) cane sugar from outside the region, allowing Guyana to import sugar from CARICOM for domestic consumption to benefit from EU prices when production capacity was low.
- Importance of EU market: EU accounted for at least 90 percent of total Guyanese sugar exports.
- Windfall revenue from EU preferences: nearly 55 percent of total sugar revenue in recent years.

### Sugar sector modernization challenges
- Modernization program launched in 2000 with EU transitional financial package to raise output and reduce production costs; included construction of large Skeldon factory (recently completed).
- 2009 issues: technical problems at new factory, labor disputes, managerial weaknesses, and weather shocks.
- Needed actions: significant strengthening of management and improving labor and business practices.

### Fiscal structural policies and vulnerability
- Fiscal balance highly exposed to exogenous shocks; large exposures to sugar revenues and grants.
- Vulnerabilities transmitted through commodity exports and fuel imports, remittances, and other channels of regional contagion.
- Overall fiscal balance is not the best measure of discretionary fiscal effort; it is a key determinant of debt dynamics.
- Preferred metric: fiscal impulse measured by change in the “cyclically adjusted” domestic primary balance, which excludes external revenues from sugar and grants and the impact of the domestic business cycle on tax revenues.
- Fiscal impulse allows assessment of discretionary policy magnitude and guiding the medium-term fiscal framework to enable neutral or countercyclical policies consistent with reducing public debt-to-GDP ratio to sustainable levels.
- Historical stance (staff estimates):
  - Fiscal impulse broadly countercyclical for most of the past decade.
  - 2005: steep real GDP decline after floods partly offset by strong expansionary fiscal impulse.
  - 2007: fiscal tightening accompanied closing output gap.
  - 2008: fiscal measures contained pass-through of commodity prices and output shortfalls in sugar sector.
  - 2009: fiscal retrenchment supported the debt sustainability goal.
- 2010–12 outlook on fiscal stance:
  - Policies in 2010 remain supportive to growth given a negative (albeit closing) output gap.
  - Authorities’ efforts to reduce the infrastructure gap in 2011–12 would entail a positive fiscal impulse; this could appear somewhat pro-cyclical as the output gap narrows.
  - Risks: infrastructure spending could raise potential output and widen the gap; downside risks could slow output growth and prevent the gap from closing as projected.

### Financial sector condition (as of end-September / end-December 2009)
- Banking system resilient to direct impact of the global crisis.
- Regulatory minimum CAR: 8 percent.
- Banks’ risk-weighted CAR rose from 14.9 percent in December 2008 to 18.3 percent in December 2009, as banks raised the share of risk-free T-Bills in total assets.
- Nonperforming loans (NPLs): about 8.3 percent of total loans (banks); provisions cover 54 percent of NPLs.
- Loan concentration: top 20 borrowers accounted for about 35½ percent of the loan portfolio as of end-December 2009—some 7 percent higher than by end-2008.
- Loans to related parties: remained broadly unchanged (y/y) at 4½ percent as of end-December 2009.
- September 2009 assessment: banks remain resilient; vulnerabilities emerge only after severe shocks across the economy or a combination of shocks; most banks have relatively small loan portfolios compared with total assets and high liquidity.
- Nonbank financial sector after CLICO crisis:
  - Collapse of CLICO resulted in a fall of domestic life insurance policies of about 70 percent, reducing the nonbank sector by about 8 percent.
  - New Building Society: main nonbank financial institution with some 80 percent of nonbank deposits; remained an important mortgage lender with slowing private sector credit growth and relatively large exposures to key borrowers.
- In nonbanks, NPLs remain high at slightly below 25 percent in September 2009.
- Exposure to top 20 borrowers relative to capital base decreased from 166.8 percent in December 2008 to 160.5 by end-2009.

### Fund relations, statistical issues, and multilateral relations (summary)
- 2008 Article IV consultation concluded February 27, 2009 (SM/09/41).
- Completion point under enhanced HIPC determined December 18, 2003; MDRI granted in January 2006.
- FSAP carried out in November 2005; FSSA discussed August 2006 (SM/06/292).
- Technical assistance provided by FAD, STA, LEG, and CARTAC since 2005.
- Guyana’s outstanding purchases and loans as of December 31, 2009: SDR 37.06 million.
- Exchange arrangements:
  - Guyana accepted obligations of Article VIII—Section 2, 3, and 4.
  - Maintains an exchange system free of restrictions on payments/transfers for international transactions, except certain restrictions for national and international security.
  - De jure exchange rate regime: managed float.
  - Fund-classified de facto regime: stabilized arrangement.
- Statistical issues:
  - Data broadly adequate for surveillance but timeliness, reliability, and coverage hamper continuous assessment.
  - Most data available only during missions and by telephone/email, except monetary statistics, exchange rates, interest rates, and financial prudential indicators (available with a lag from the Bank of Guyana website).
  - GDP rebased with 2006 prices—more than a sixty percent increase compared to the old GDP based on 1988 prices.
  - Authorities compiling a rebased CPI basket to be released through 2010.
  - Authorities considering subscribing to the General Data Dissemination System (GDDS).
- Relations with the World Bank Group (as of December 31, 2009):
  - IDA portfolio: two projects totaling US$21.3 million (HIV/AIDS US$10 million; Water Sector Consolidation US$11.3 million), plus Trust Fund portfolio of US$18.9 million.
  - New CAS (2009–2012) included two new lending projects: Forestry, Climate Change, and Community Project (US$3 million); Education Quality Project (US$3 million); and three analytical activities.
- Relations with the Inter-American Development Bank (as of December 31, 2009):
  - Outstanding debt to the IDB: US$259.4 million (excluding undisbursed HIPC debt relief, but after MDRI).
  - Undisbursed portfolio totals US$195.1 million.
  - IDB cancelled US$356.5 million (principal) of Guyana’s outstanding debt effective January 2007; a further US$35 million cancelled from some loans in execution which were undisbursed.
  - Lending to Guyana continued to be concessional, consisting of a 50–50 blend from the IDB’s Fund for Special Operations and Ordinary Capital.

### Debt sustainability assessment (summary)
- DSA indicates Guyana’s risk of debt distress remains moderate.
- Recent GDP rebasing improved Guyana’s debt-to-GDP ratios significantly.
- Key risks to sustainability:
  - Departure from agreed fiscal consolidation path, particularly if foreign external financing is higher or at less concessional terms than currently envisaged.
  - Further delays in completing modernization of the public sugar company, which remains important to baseline growth projection.
  - Weaker or slower global recovery.
  - Higher-than-projected world oil prices.
- Policy emphasis: authorities’ continued commitment to fiscal consolidation and structural reforms to entrench long-term growth would help reduce risks over time.
- Historical debt relief:
  - 2006–07 MDRI relief from Fund, World Bank, and IDB: US$611 million.
  - November 2006: Japan finalized bilateral debt cancellation (Paris Club).
  - July 2007: China wrote off US$15 million.
  - 2008: Venezuela cancelled US$12.5 million; Russia cancelled about US$0.25 million.
  - Ongoing negotiations with Kuwait and Libya on debt relief worth US$61.9 and US$38.8 million, respectively (not yet concluded).
- Public debt dynamics:
  - Total gross public debt: 60 percent of GDP in 2007; rose to around 61½ percent of GDP in 2008–09.
  - Gross external debt fell from 71¾ percent of GDP at end-2006 to 41½ percent of GDP at end-2007 (HIPC relief), then rose to about 46 percent of GDP by 2009.
  - Central government short-term domestic debt (gross basis) fell from 21¼ percent of GDP in 2006 to 15¼ percent in 2009.

*International Monetary Fund — Guyana: Selected excerpts from IMF/World Bank staff reports (March 1, 2010).*

### 3.      Guyana has sustained a solid macroeconomic performance in recent years,

### 3.      Guyana has sustained a solid macroeconomic performance in recent years,

### Macroeconomic performance and recent developments
- Newly released GDP series (based on 2006 prices) suggest that Guyana’s economic growth exceeded 4 percent a year on average during 2007–09—compared with 3½ percent in the previous GDP series (based on 1988 prices).
- Nominal GDP at market value is some 65 percent higher than before.
- Inflation declined steadily since the imported price shock of 2008, to around 3½ percent at end-2009, supported by a cautious monetary policy stance and the softening in world commodity prices.
- The non-financial public sector (NFPS) deficit declined from 8.6 percent of GDP in 2005 to 3.3 percent of GDP in 2009.
- The 2009 fiscal consolidation effort produced a deficit ¾ percent narrower than the budget target, largely due to stronger-than-envisaged tax revenues.

### External stock of debt (as of end-2009) — by creditor (US$ million; Share of total)
- Total Public External Debt: 933.0 100
- Non-Financial Public Sector: 827.6 88.7
- Multilateral: 447.8 48.0
- Bilateral: 375.2 40.2
  - of which Paris Club: 54.8 5.9
- Commercial Bank: 3.8 0.4
- Other: 0.8 0.1
- Central Bank: 105.4 11.3
  - Multilateral: 89.2 9.6
  - Bilateral: 0.0 0.0
  - Suppliers' Credit: 12.7 1.4
  - Other: 3.5 0.4
- Source: Ministry of Finance of Guyana

### External sustainability, reserves and financing
- In 2009, the current account narrowed by some 5 percent of GDP to 8½ percent of GDP, largely on account of a reduction of imports, particularly of fuel.
- Capital and financial inflows remained strong, supported by official financing (including the Fund’s SDR allocation, along with concessional loan and grant disbursements).
  - The SDR allocation is assumed to bolster up reserve accumulation, as indicated by the authorities.
- Domestic commercial banks reduced their net foreign assets to benefit from the relatively higher domestic interest rate, adding to external inflows.
- Gross international reserves (GIR) increased to US$623 million by end-year (exceeding 5 months of imports).
- Authorities accumulated some 4¼ percent of GDP in an escrow account where disbursements under Venezuela’s PetroCaribe Initiative are saved.
  - The authorities have saved, on average, nearly 70 percent of PetroCaribe disbursements in 2007–09, and plan to save almost 94 percent in 2010.

### Baseline scenario: projections and key assumptions
- Real GDP growth projections:
  - Output growth of 3¼ percent in 2009.
  - Real GDP expected to rise at an annual average rate of 4¼ percent through 2014 (broadly equal to the average in 2006–09).
  - Real GDP growth would stabilize at potential level of around 3¼ percent over the long term.
  - Revised projection projects slightly lower real GDP growth in 2010–14 than envisaged in the 2008 Article IV Consultation (which envisaged 4.6 percent on average).
  - Long-term growth of over 3¼ percent in 2010–30, slightly higher than the 3 percent potential assumed in the 2008 DSA.
- Growth drivers:
  - Key public infrastructure investment projects (including in energy and roads).
  - Yields from the sugar modernization plan (expected to deliver an annual average growth of nearly 11 percent in raw sugar production in 2010–14).
  - Growth in commodity export sectors, including gold and bauxite.
- External current account:
  - Projected to widen to 10 percent of GDP in 2010.
  - Projected to decline gradually to 6½ percent of GDP by 2014, and to about 3½ percent by 2030.
  - Adjustment supported by higher commodity exports and a moderate recovery in imports.
  - Nearly all bilateral disbursements by PetroCaribe are projected to be saved, in line with authorities’ commitment.
- Fiscal policy and public debt:
  - NFPS deficit maintained at around 3¼ percent of GDP in 2010–11, converging to 2¼ percent of GDP by 2014.
  - Strategy supports growth while allowing reduction in net public debt-to-GDP ratio (excluding PetroCaribe savings).
  - Gross public debt projected to increase somewhat over the medium term before converging to over 45 percent of GDP by 2030.
- External financing assumptions:
  - High and stable inflows projected over medium term.
  - In 2010–14, FDI projected to reach some 7 percent of GDP per year on average.
  - Concessional loans and grant gross disbursements together would average some 10 percent of GDP annually in 2010–14.
  - In the long run, FDI would decline to about 4½ percent of GDP.
  - Concessional loans and grants would fall gradually to some 3½ percent of GDP.
  - PetroCaribe financing projected at 2–4 percent of GDP and assumed to be discontinued by end-2014.
  - Projections for PetroCaribe disbursements provided by the authorities are based on the end-2009 WEO oil price baseline.

### Box 1 — The rebased GDP figures (summary)
- GDP rebased from 1988 to 2006; 2009 GDP at market prices is higher by 64 percent relative to previous estimate.
- Preliminary estimates: new GDP per capita reached US$2,630 as of end-2008, up from US$1,504 in the old series.
- Rebasing captured changes in relative industrial costs and price structures, formalization of the large informal sector since the late 1980s, and emergence of new economic activities.
- Changes in sectoral composition include:
  - Government services now capture statutory bodies; health and education separated to include private activities.
  - Distribution sector: expanded coverage of commodity flows and improved trade margins.
  - Mining and quarrying: larger share of gold and diamond production, lower share of bauxite.
  - Manufacturing: expanded index to 47 products.
  - Transportation and communications: added cell phone activities, internet and TV broadcasting.
- Sugar sector importance in total output declined due to reclassification and improved measurement.

### Risks to the outlook
- Downside risks:
  - Protracted global recovery affecting FDI, remittances, exports and growth.
  - Higher-than-envisaged oil prices widening the current account due to significant fuel import exposure.
  - Delays in sugar company modernization, compounded by elimination of EU preferential sugar prices.
  - Buffers: comfortable reserve levels and PetroCaribe escrow savings.
- Upside potential:
  - Successful completion of large infrastructure projects not included in baseline (e.g., hydropower plant at Amalia Falls), potentially reducing oil-price exposure.
  - Positive prospects for eventual oil extraction and export (currently expected for 2014).
  - Development of global carbon credit markets supporting the Low Carbon Development Strategy (LCDS).

### Assessment of debt sustainability — external debt
- Overall assessment: moderate risk of debt distress (unchanged from 2008 Article IV Consultation).
- Under baseline scenario:
  - All sustainability indicators remain below thresholds except a temporary and minor breach by the PV of the gross external debt-to-GDP ratio.
  - The breach is driven by relatively high upfront gross borrowing projected in the PSIP (including PetroCaribe) and by a reduction in the discount rate used in the DSA (one percentage point lower than last year).
  - External debt burden indicators improve significantly over the long term.
  - Debt-service ratios projected to remain low (about 4 percent of exports and 10 percent of revenue in the long term).
- Inclusion of remittances:
  - Trajectories for sustainability indicators remain well within thresholds, with a very minor exception of the PV of debt-to-GDP-and-remittances ratio.
  - Debt-service ratios continue to indicate comfortable capacity to repay.
- Sensitivity analysis and stress tests:
  - PV of external debt-to-GDP: rebased GDP does not prevent breaches in stress tests; highest long-term risks associated with combined shock B4 and 30 percent nominal depreciation B6.
  - PV of external debt-to-revenue: breaches in 2 of 8 tests (same as 2008 DSA):
    - Under A1 (historical averages in 2010–30), PV debt-to-revenue breaches threshold in 2023 and remains above until end of projection.
    - Under B5 (net non-debt creating flows, real GDP, exports and GDP deflator at historical average minus one standard deviation in 2009/10), PV debt-to-revenue rises to 284 percent in 2012 and declines below threshold starting in 2022.
  - PV of external debt-to-exports: minor temporary breach under extreme combination B5 in 2012 when PV peaks at 153 percent of exports (threshold 150 percent).
- Notes:
  - Gross debt includes total value of PetroCaribe disbursements as debt, although authorities have saved most disbursements in an escrow account; debt net of such savings is significantly lower.
  - Using the discount rate from the 2008 Article IV Consultation removes the PV debt-to-GDP breach completely (PV debt-to-GDP peaks at 37½ percent of GDP in 2014).

### Assessment of debt sustainability — public debt
- Total gross public debt assessment also indicates moderate risk of debt distress, driven largely by external debt dynamics.
- Conditions for manageability:
  - Authorities adhere to fiscal consolidation strategy.
  - Financing remains at sufficiently high concessional terms.
- Financing assumptions:
  - No recourse to domestic financing of the fiscal deficit in the medium term; gradual redemption of domestic securities assumed.
  - As external financing falls beyond 2012, domestic financing needs remain broadly constant until 2020 and decline thereafter.
- Projections:
  - PV of total public debt-to-revenue ratio rises from 168 percent in 2010 to about 184 percent in 2014, reflecting large external disbursements, then gradually declines to 157 percent by 2030.
  - Projected primary fiscal balances are consistent with debt sustainability given authorities’ commitment to implement the agreed fiscal framework.

*Source: Ministry of Finance of Guyana; IMF staff analysis as presented in the document.*

### 12.      Under alternative scenarios and stress tests, total public debt vulnerabilities

### 12. Under alternative scenarios and stress tests, total public debt vulnerabilities

### Key findings on public debt vulnerabilities
- PV of public debt-to-GDP ratio:
  - In test B1 (GDP growth at its historical average minus one standard deviation in 2011–12) the PV of public debt-to-GDP ratio almost reaches 100 percent by 2030.
- PV of public debt-to-revenue ratio:
  - Under B1 (GDP growth at its historical average minus one standard deviation in 2011–12) the PV of public debt would reach 390 percent of revenue by 2030.
  - Under A1 (real GDP growth and primary balances at historical averages), A3 (permanently lower GDP growth), or B3 (GDP and the primary balance both at their historical average using one half standard deviation shocks in 2011–12), the PV of public debt-to-revenue would exceed the threshold of 300 percent.
- Sensitivity analysis implications:
  - Severe shocks to GDP growth and primary balances would push public debt and debt service obligations up relative to fiscal revenue, potentially posing debt repayment risks.
  - Results underscore importance of pursuing sound macroeconomic policies to achieve high GDP growth and maintain low fiscal deficits.

### IV. Alternative scenarios — A. External debt net of PetroCaribe savings
- PetroCaribe savings treatment and impact:
  - Upfront borrowing from PetroCaribe is projected to be saved in an escrow account, accumulating until 2014, then gradually unwound, helping maintain net debt indicators on a downward path.
  - When only the spent part of PetroCaribe financing is considered (net-debt DSA), debt indicators improve substantially versus the gross-basis baseline.
  - PV of the external debt-to-revenue ratio would reach 126 percent in 2014 (some 34 percentage points lower than in the baseline scenario).
  - Under the baseline scenario, the PV of debt-to-GDP would rise by about three percentage points in both 2010 and 2011 in the gross DSA, compared to an increase of 0.5 percent and 1.3 percent, respectively, in the net-debt DSA.
- Long-term convergence:
  - Net-debt indicators converge to values similar to the baseline in the long term as PetroCaribe savings are used up.

### IV. Alternative scenarios — B. A “High Investment, Low Growth” scenario
- Probability and structural context:
  - The emergence of a “high investment, low growth” scenario does not appear high probability relative to the baseline.
  - Guyana’s economic structure strengthened in the last decade with decline in traditional commodity export sectors and rise in non-tradable and service sectors.
- Historical growth context:
  - Average growth was 0.6 percent in 2000–04.
  - Average growth rose to 3.1 percent in 2005–09 (despite a contraction of 2 percent in 2005 due to a flood).
  - Average growth rate for 2006–09 was 4.4 percent.
  - The average projection is 3.5 percent in 2010–30.
- Stress test A1 (gross external debt, key variables at 10-year historical averages in 2010–30 while public investment disbursements continue):
  - Gross external debt would rise rapidly over the medium term.
  - PV of debt-to-GDP would exceed the 40 percent of GDP threshold as soon as in 2012, reaching nearly 70 percent of GDP by 2030.
  - PV of debt-to-exports would remain within the sustainable range.
  - PV of debt-to-revenue would exceed its threshold of 250 percent by the end of the projection period.
  - All debt service ratios would remain well within their thresholds.

- Policy implication:
  - Stress tests indicate risks from unproductive public investment, underscoring need to implement high-quality projects.

### IV. Alternative scenarios — C. Impact of reduced concessional financing
- Scenario assumptions:
  - Assumes an average of about 32 percent of total disbursements (currently concessional) would gradually be converted into commercial terms in the period 2010–14.
  - Concessionality assumptions for 2014–30 remain as in the baseline.
- Impacts on debt indicators:
  - External debt indicators would significantly worsen if future disbursements were less concessional.
  - The breach of the PV of debt-to-GDP threshold would be longer and more pronounced than under current concessional terms.
  - Under reduced concessionality, the PV of external debt to exports could exceed its threshold under the most extreme shock (where it did not with full concessionality).
  - A more pronounced and prolonged breach of the PV external debt-to-revenue threshold would occur.

### Overall conclusions and policy recommendations
- Maintain sound macroeconomic policies to support high GDP growth and low fiscal deficits to prevent large increases in PV public debt ratios.
- Ensure PetroCaribe savings are managed prudently (accumulating until 2014 and unwound gradually) to stabilize net debt indicators.
- Prioritize high-quality public investment to avoid the “high investment, low growth” outcome that leads to rapid debt accumulation.
- Preserve access to concessional financing; avoidance of large shifts toward commercial financing is important to prevent significant deterioration in external debt indicators.

*Source: IMF staff analysis in chapter “12. Under alternative scenarios and stress tests, total public debt vulnerabilities”*

### 19.      Guyana remains at a moderate risk of debt distress. Most of the relevant external

### _cr10292 - 19.      Guyana remains at a moderate risk of debt distress. Most of the relevant external

### Debt sustainability assessment
- Guyana remains at a moderate risk of debt distress.
- Most relevant external debt indicators are well below their thresholds in the baseline scenario.
- The PV of debt-to-GDP ratio shows only a minor and temporary breach which does not alter the assessment of moderate risk.
- Sustainability indicators for public sector debt show broadly the same level of vulnerability as external debt, given public debt's large share of the total—including that related to currency risk.
- The presence of some risk of debt distress underscores the importance of:
  - further entrenching fiscal consolidation;
  - maintaining a prudent macroeconomic framework supportive of growth and external stability;
  - broadening sources of growth; and
  - maintaining prudent fiscal and debt strategies, including focusing on concessional lending.

### Stress tests and concessionality assumptions
- The package of loans shocked in the exercise represents:
  - nearly 40 percent of total annual disbursements in 2010-12,
  - 30 percent of total disbursements in 2013,
  - and 13¼ percent of total disbursements in 2014.
- Concessionality schedule for the shock package (relative to baseline):
  - 2010: 100 percent concessional disbursement;
  - 2011: 75 percent concessional;
  - 2012: 50 percent concessional;
  - 2013: 25 percent concessional;
  - 2014: fully commercial (0 percent concessional).
- From 2014 onwards, the previous assumptions on concessionality terms are unchanged relative to the baseline.
- The most extreme stress test referenced corresponds in most figures to a "Combination shock" (figures b–f identify the Combination shock as the most extreme in 2020).

### Key indicators and projections (selected figures from 2010–30 baseline and scenarios)
- Debt accumulation and concessionality:
  - Grant element of new borrowing examples: 32.8, 32.0, 32.4, 30.9, 28.0, 9.7, 27.6, 9.7, 9.7, 9.7 (values appear across tables for different years/scenarios).
- Baseline macro framework (selected items, in percent unless noted):
  - Real GDP (percentage change) examples: 3.3, 4.4, 4.9, 4.2, 3.9, 3.6, 3.3, 3.2, 3.1, 4.2, 3.2, 3.5 (various years/averages).
  - GDP (in billions of G$): 413.1, 448.1, 490.4, 535.7, 579.9, 624.4, 933.9, 1310.6, 1867.0, 535.7, 1166.1, 1016.0 (selected years and aggregates).
  - End-of-period inflation: 3.6, 4.0, 4.0, 4.0, 4.0, 4.0, 4.0, 4.0, 4.0, 4.0, 4.0, 4.0 (consistent projection).
- Central government operations (percent of GDP, selected):
  - Revenue and grants: 28.8, 29.2, 29.2, 29.8, 29.5, 28.8, 25.9, 25.6, 25.4, 29.3, 25.9, 26.7.
  - Tax revenue (of which): 21.6, 21.0, 21.0, 21.0, 21.0, 21.0, 21.0, 21.0, 21.0, 21.0, 21.0, 21.0.
  - Expenditure: 32.0, 32.5, 32.4, 32.7, 32.1, 30.9, 27.9, 27.6, 27.4, 32.1, 27.9, 28.9.
  - Current expenditure: 19.5, 19.4, 19.0, 18.8, 19.0, 19.0, 18.3, 17.5, 16.7, 19.0, 17.9, 18.1.
  - Capital expenditure: 12.6, 13.1, 13.5, 13.9, 13.0, 12.0, 9.6, 10.1, 10.6, 13.1, 10.1, 10.8.
  - Primary balance (excluding Skeldon): -1.0, -0.6, -1.8, -1.5, -1.1, -0.7, -0.5, -0.6, -0.7, -1.1, -0.6, -0.7.
  - Overall balance after grants: -3.3, -3.2, -3.2, -2.9, -2.5, -2.2, -2.0, -2.0, -2.0, -2.8, -2.0, -2.2.
- Balance of payments and external:
  - Current account balance (incl. official transfers): -8.5, -10.0, -9.4, -8.7, -8.0, -6.5, -5.6, -4.6, -3.6, -8.5, -5.1, -5.9.
  - Exports of goods and services: 48.0, 49.3, 48.8, 48.7, 49.2, 51.1, 52.2, 52.9, 53.3, 49.4, 52.5, 51.7.
  - Imports of goods and services: 72.6, 74.2, 72.5, 71.2, 70.5, 70.7, 70.7, 70.2, 69.7, 71.8, 70.3, 70.7.
  - Gross official reserves (in months of imports): 5.1, 4.9, 5.2, 5.4, 5.4, 5.4, 5.6, 5.8, 6.0, 5.2, 5.7, 5.6.
- Debt metrics (selected baseline projections and sensitivities):
  - PV of external debt (selected years): 33.4, 36.5, 39.4, 41.0, 41.4, 41.7, 40.7, 37.7, 32.2 (appear in tables as projections).
  - PV of PPG external debt in percent of exports (selected): 69.5, 74.0, 80.7, 84.2, 84.2, 81.7, 80.4, 72.3, 60.4.
  - PV of PPG external debt in percent of government revenues (selected): 135.8, 142.7, 157.6, 160.0, 158.5, 159.8, 156.8, 155.0, 132.8.
  - Debt service-to-exports ratio (in percent, selected): 2.3, 2.1, 1.8, 2.9, 3.7, 4.4, 4.8, 4.8, 5.0, 4.5, 4.3.
  - PPG debt service-to-revenue ratio (in percent, selected): 4.5, 4.9, 3.5, 5.5, 7.3, 8.3, 9.0, 9.5, 9.8, 9.6, 9.5.
  - Public sector debt (overall, percent of GDP, selected): 60.0, 61.6, 61.4, 63.0, 64.6, 66.0, 67.1, 68.5, 66.0, 58.5, 44.2 (various years/averages).
  - PV of public sector debt (selected): 48.6, 49.1, 49.6, 50.3, 51.4, 53.1, 51.9, 49.0, 39.7.
  - Gross financing need (percent of GDP, selected): 23.0, 21.7, 20.6, 18.1, 15.9, 13.6, 12.6, 13.1, 14.3, 14.3, 11.3.
- Sensitivity analyses (Table summaries):
  - Baseline PV of debt-to-GDP ratio examples: 33, 36, 39, 41, 41, 42, 41, 38, 32 (years 2009–2030).
  - Alternative scenarios and bound tests can raise PV and ratios substantially (examples: PV-to-exports reaching 110, 130, 286 under certain A/B scenarios across years in Table 3).

### Policy recommendations and implications (extracted from text)
- Further entrench fiscal consolidation to reduce vulnerability.
- Maintain a prudent macroeconomic framework supportive of growth and external stability.
- Broaden sources of growth to reduce reliance on limited revenue and export bases.
- Maintain prudent fiscal and debt strategies, including:
  - focusing on concessional lending where possible to preserve gains in sustainability;
  - monitoring the concessionality of new public borrowing (grant element and grant-equivalent financing metrics are tracked).
- Use stress test results (e.g., Combination shock outcomes) to inform contingency planning given scenarios where indicators breach thresholds.

*Prepared by the Western Hemisphere Department, March 1, 2010.*

### 6.4 percent as of end-2008, reflecting the softening in world commodity prices.

### _cr10292 - 6.4 percent as of end-2008, reflecting the softening in world commodity prices.

### Recent economic developments and external sector
- Current account deficit declined by 5 percent of GDP (to 8.5 percent of GDP), largely led by a reduction in imports, particularly of fuel.
- Guyana’s gross international reserves rose to US$623 million by end-year (over 5 months of imports).
- The nominal exchange rate remained stable; the real effective exchange rate is assessed to be broadly in equilibrium.
- The international reserve position strengthened significantly in 2009, supported by strong official inflows (including concessional loans and grants, and the Fund’s Special Drawing Rights allocation) and steady short-term capital inflows by commercial banks—attracted to higher domestic interest rates—which helped offset a decline in Foreign Direct Investment.
- Expansion in private sector credit moderated to about 6 percent in 2009 (down from nearly 22 percent in 2008), reflecting both a deceleration in private sector credit demand and tighter lending standards by the banking sector.
- Balance of payments returned a substantial surplus in 2009 despite declines in export earnings and remittances; exports fell with lower commodity prices and reduced global demand for bauxite, while gold prices and production supported export receipts and merchandise imports fell sharply (notably fuel and lubricants).

### Fiscal policy, public debt, and public finances
- Macroeconomic policies remained prudent; monetary policy tightened somewhat in 2009, supporting the decline in inflation and external stability.
- The fiscal deficit for the non-financial public sector declined to 3.3 percent of GDP (equivalent to 5.3 percent of old GDP) from 4.7 percent of GDP in 2008, on the back of higher-than-expected revenues that supported the full execution of priority spending, including on infrastructure.
- Public debt developments:
  - “Guyana’s public debt has fallen from 93.1 percent of GDP as of end-2006 to 56.8 percent of GDP in 2009,” assisted by debt relief operations and fiscal consolidation efforts.
  - A later paragraph states: “Guyana’s public debt to GDP ratio fell to 61.4 in 2009 percent from over 90 percent in 2006.” (Both formulations appear in the source text.)
- From the Selected Economic Indicators table (end-of-period series): Total public sector debt 93.1 (2006), 58.9 (2007), 57.7 (2008), 56.8 (2009), 55.2 (2010), 55.0 (2011).
- Nonfinancial public sector: Revenue and grants 29.3 (2006), 27.5 (2007), 25.9 (2008), 28.8 (2009), 29.2 (2010), 29.2 (2011); Expenditure 36.5 (2006), 32.4 (2007), 30.6 (2008), 32.0 (2009), 32.5 (2010), 32.4 (2011).
- Overall balance (after grants) 1/: -7.2 (2006), -4.9 (2007), -4.7 (2008), -3.3 (2009), -3.2 (2010), -3.2 (2011).

### Monetary policy and financial sector stability
- Monetary policy focused on maintaining price and exchange rate stability and on supporting growth in private sector credit.
- Consumer prices (average): 6.7 (2006), 12.2 (2007), 8.1 (2008), 2.9 (2009), 3.8 (2010), 4.0 (2011). Consumer prices (end of period): 4.2 (2006), 14.0 (2007), 6.4 (2008), 3.6 (2009), 4.0 (2010), 4.0 (2011).
- The financial sector was not directly affected by the global crisis and remains adequately capitalized, highly liquid and profitable.
- Nonperforming loans to total loans fell from 17.8 percent in 2004 to 8.3 percent in 2009.
- Supervisory measures and legislation enacted or advanced in 2009: consolidation of insurance and bank supervision at the central bank, incorporation of risk-based supervision, issuance of new guidelines on risk management, enactment of Anti-Money Laundering/Combating the Financing of Terrorism legislation, and the Money Transfer Agencies Act.
- Executive Directors encouraged banks to increase provisioning, monitor asset quality, and further tighten legislation on exposure to large borrowers and related-party lending; recommended gradually bringing all non-bank financial institutions under a similar regulatory perimeter.

### Structural reforms and public investment management
- Fiscal management and transparency improvements:
  - Introduction of a modern chart of accounts for capital expenditure into the integrated financial management system, enhancing accounting and transparency of public investment.
  - Continued efforts to strengthen the Guyana Revenue Authority, including consolidation of the new functional organization, rolling out of the integrated tax information system, and improvements in filing, refund, arrears collection and audit functions.
- Reforms to support growth:
  - Modernizing the sugar sector, including recovery measures for the public sugar company and ensuring the new plant at Skeldon becomes fully operational.
  - Implementation of the Low Carbon Development Strategy (LCDS), including a model agreement signed with Norway expected to support development of non-traditional economic sectors and conversion of Guyana’s energy sector.
- Public-private partnership (PPP) guidance:
  - Authorities committed to seek highly concessional terms when contracting debt and to minimize fiscal risks from public investment and PPPs, paying close attention to international best practices and to reflect firm or contingent liabilities related to PPPs in public debt statistics.

### Outlook, risks, and projections
- Growth outlook:
  - Growth is expected to benefit from the global recovery, modernization of the sugar sector and start up of investment projects, which could spur average growth to 4-5 percent in the medium term.
  - Selected Economic Indicators: Real GDP 5.1 (2006), 7.0 (2007), 2.0 (2008), 3.3 (2009), 4.4 (2010), 4.9 (2011). Real GDP per capita 4.8 (2006), 6.7 (2007), 1.5 (2008), 3.0 (2009), 4.0 (2010), 4.6 (2011).
- External and fiscal outlook:
  - Current account projected to widen somewhat in 2010 with uptick in domestic demand and increase in fuel prices, but to narrow gradually over time.
  - The fiscal deficit is projected to narrow to 3.2 percent of GDP in 2010 and remain at this level before declining further to under 3 percent in 2012.
- Inflation and reserves:
  - Inflation projected to increase to 4 percent in 2010 in expectation of higher oil prices.
  - Gross official reserves (end of period, US$ million): 277.3 (2006), 312.6 (2007), 355.9 (2008), 623.0 (2009), 658.6 (2010), 738.5 (2011). Months of imports of goods and services: 3.1 (2006), 2.9 (2007), 2.7 (2008), 5.1 (2009), 4.9 (2010), 5.2 (2011).
- Noted risks:
  - Slower-than-envisaged global recovery; sharper-than-projected oil price increases; slower modernization of the sugar sector and loss of preferential sugar prices—each could complicate the outlook.
  - Upside potential: full implementation of the LCDS, eventual exploitation of Guyana’s oil reserves, and sound completion of key large public-private investment projects.
- Specific resource expectations from Norway–Guyana MOU (LCDS):
  - Expected receipt of US$30 million in 2010 and a total of US$250 million by 2015.

### Executive Board assessment and policy recommendations
- Executive Directors noted that Guyana weathered the global crisis well, with solid macroeconomic performance supported by prudent policies.
- They commended authorities’ commitment to entrench macroeconomic stability and fiscal sustainability while promoting long-term growth and poverty reduction.
- Fiscal stance:
  - Directors observed that strong fiscal consolidation in 2009 provides space for a more gradual tightening to support infrastructure investment and growth, but cautioned that a cautious fiscal stance remains warranted given remaining vulnerabilities.
  - Directors supported commitment to prudent expenditure policies and continued structural reforms to safeguard fiscal sustainability.
- Debt and PPPs:
  - Directors commended efforts to seek highly concessional debt terms, minimize fiscal risks from public investment and PPPs, and to enhance assessment and fiscal accounting of public investment; they urged reflecting PPP contingent liabilities in public debt statistics.
- Financial sector and supervision:
  - Directors welcomed strengthened supervision, advised increasing provisioning, monitoring asset quality, tightening rules on large exposures and related-party lending, and gradually bringing non-bank financial institutions under supervision.
- Exchange rate policy:
  - Directors commended prudent monetary policy and low inflation; noted exchange rate appears broadly aligned with fundamentals.
  - Some Directors supported a gradual approach toward greater exchange rate flexibility; others recommended a more detailed assessment of pros and cons of greater flexibility for Guyana.
- Statistics and poverty reduction:
  - Directors commended upgrades in statistical capacity (national accounts rebasing) and supported the forthcoming publication of the Poverty Reduction Strategy Paper to underpin poverty reduction and Millennium Development Goals efforts.

_Italic: Source: IMF Article IV consultation materials and accompanying statement and Selected Economic Indicators as presented in the provided content unit._

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2010/_cr10292.pdf_