Guyana: Staff Concluding Statement of the 2019 Article IV Mission
IMF News, June 17, 2019
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- Published: June 17, 2019
Mission and engagement
- A Staff team from the International Monetary Fund (IMF), led by Mr. Arnold McIntyre, visited Georgetown during June 3–14 to hold discussions for the 2019 Article IV Consultation.
- The team met with Prime Minister Moses Nagamootoo, Finance Minister Winston Jordan, Minister of Legal Affairs and Attorney General Basil Williams, Central Bank Governor Gobind Ganga, other senior officials, representatives from the private sector, banks, the opposition party, labor unions, and other stakeholders.
- The IMF Executive Board is expected to discuss Guyana’s Article IV consultation in August 2019.
Recent macroeconomic performance and outlook
- Real GDP grew by 4.1 percent in 2018, up from 2.1 percent in 2017, led by construction and services sectors.
- Inflation remained steady at 1.6 percent at end-2018.
- For 2019, the mission projects real economic growth of 4.4 percent, driven by continued strength in construction and services ahead of oil production in 2020, and strong recovery in mining.
- The authorities do not foresee any significant spillovers from the crisis in Venezuela at present; however, the influx of migrants into the hinterland and rural areas could put socio-economic pressures on local communities.
External sector and reserves
- In 2018, the current account deficit rose to 17.5 percent of GDP, from 6.8 percent in 2017.
- The deficit was largely financed by FDI related to the petroleum sector.
- Reserves stood at US$528 million in December 2018.
- Weaker export performance and higher imports driven by high value imports related to oil production contributed to the weaker current account balance.
Public finances and fiscal framework
- The central government’s deficit was 3.5 percent of GDP in 2018, lower than the budgeted 5.4 percent of GDP.
- The better-than-expected outturn was largely supported by stronger revenues from the pickup in economic activity, improvements in tax administration, and the tax amnesty program.
- In 2019, the fiscal stance is projected to be appropriately expansionary, at 5 percent of GDP, driven by significant need for infrastructure development and capacity building ahead of oil production.
- Medium-term prospects are very favorable with the commencement of oil production in 2020 presenting an opportunity to scale-up capital and current spending at a measured pace.
- The mission welcomes the passage of the Natural Resource Fund (NRF) legislation and recommends:
- Complementing the NRF legislation with a fiscal framework that constrains borrowing and achieves a balanced budget in the near- to medium-term.
- Ensuring the annual non-oil deficit should not exceed the expected transfer from the NRF.
- Preserving the spirit of the NRF framework to save part of the income from oil as net wealth for future generations.
- Scaling-up public spending gradually to reduce absorptive capacity constraints, avoid waste, and minimize macroeconomic distortions related to “Dutch” disease.
Governance, transparency, and natural resource management
- The mission supports continued efforts to strengthen institutional, governance and management practices to reduce vulnerability to corruption.
- Commends modernization of revenue administration and strengthening of the public investment management system; urges greater urgency on weaknesses identified in the 2017 Public Investment Management Assessment ahead of expected increases in public spending.
- Encourages rigorous project selection and prioritization within the Green State Development Strategy and consideration of mechanisms to further improve fiscal transparency, including relating to natural resource management.
- Guyana completed its first Extractive Industries Transparency Initiative (EITI) Report in 2019 and started implementing its recommendations.
- The re-establishment of the Integrity Commission resulted in over 50 percent of politically exposed persons (PEPs) and other required officers making declarations within the first year; the mission urges ensuring greater compliance over time with the asset declaration regime.
- Authorities expressed concern that the absence of a ring-fencing arrangement in the Stabroek Production Sharing Agreement could affect projected government oil revenues; rapid appraisal and development of multiple fields could reallocate costs across fields. Authorities are developing strategies including a national oil depletion policy and clearer ring-fencing rules for new investments.
Monetary policy and exchange rate
- The mission recommends continual reassessment of the monetary policy stance to reflect changes in macroeconomic outlook or risks.
- Encourages exchange rate flexibility as part of the monetary policy framework, given expected large and potentially volatile foreign inflows from oil production.
- Recommends considering development, over the medium-term and supported by IMF Technical Assistance, of the necessary infrastructure for a suitable monetary policy framework that facilitates growth and adjustment to oil price shocks while maintaining price stability.
Financial sector stability and regulatory reforms
- The financial sector remains stable; staff supports implementation of 2016 FSAP recommendations.
- Credit to the private sector grew by 4.0 percent in 2018, faster than 2.1 percent in 2017.
- Banking sector nonperforming loans (NPLs) to total loans ratio fell slightly to 11.9 percent as of end-December 2018, from 12.2 percent a year before, but remained high.
- Staff recommends an Asset Quality Review to examine banks’ credit risks and enhance financial sector stability.
- Four bills approved by Parliament in 2018 cover deposit insurance, emergency liquidity assistance, bank resolution, and national payment system.
- The transition to Basel II regime (with some elements of Basel III) is on track for completion by end-2019.
- Staff encourages implementing remaining FSAP recommendations, including eliminating reduced provisioning requirements for “well-secured” portions of NPLs and raising the minimum capital adequacy requirement to 12 percent.
- Commendable progress on anti-money laundering and counter terrorism financing based on the 2017 national risk assessment:
- Guyana was officially removed from the European Commission’s Money-Laundering Blacklist in February 2019.
- Guyana is scheduled to undertake a mutual evaluation by the Caribbean Financial Action Task Force in 2022.
- The Financial Intelligence Unit (FIU) is actively examining suspicious transactions, money laundering, terrorist financing and criminal proceeds including those of PEPs, and is working towards greater collaboration with other global FIUs.
Structural reforms and human capital
- Structural reforms are needed to support economic diversification and achieve inclusive and equitable growth.
- Major obstacles to growth include infrastructure bottlenecks, skilled labor shortages, and weaknesses in electricity supply.
- Staff supports proposed increases in investments to improve access to roads, electricity, and telecommunication services, including the hinterland.
- Simultaneous investment in upgrading the education system is critical to enhance skills and employment prospects.
- To address skills gaps and meet expected labor demand, Guyana could adopt more liberal or open immigration policies, including free movement of all categories of workers from other CARICOM countries.
- Promoting more flexible working arrangements could help increase female labor participation.
- Further regulatory and administrative reforms—including property rights, insolvency regime reform, and reducing bureaucratic red-tape—would strengthen competitiveness.
IMF Staff Concluding Statement, June 17, 2019