Guyana: Staff Concluding Statement of the 2022 Article IV Mission
IMF News, June 3, 2022
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- Published: June 3, 2022
Mission and consultations
- Mission period: virtual discussions during May 18-June 1st.
- Mission leadership: Ms. Alina Carare (incoming mission head) and Meredith McIntyre (outgoing mission head).
- Meetings with: Finance Minister Dr. Ashni Singh; Minister of Parliamentary Affairs and Governance Gail Teixeira; Central Bank Governor Gobind Ganga; other senior officials; representatives from the private sector, banks, the opposition party, labor unions, and other stakeholders, including Guyana’s international development partners.
- IMF Executive Board is expected to discuss Guyana’s Article IV consultation on August 31st, 2022.
Recent economic performance and external position
- Non-oil Gross Domestic Product (GDP) growth in 2021: 4.6 percent.
- Pandemic and 2021 floods negatively impacted the economy; recovery supported by the oil boom and policy actions.
- Impact of the war in Ukraine in 2022: exacerbated inflationary pressures due primarily to higher fuel and food prices; government implemented measures to mitigate impact on vulnerable households and the economy.
- Current account: widened significantly in 2021 in part reflecting increased capital imports.
- Foreign exchange (FX) reserve position: improved due to the new Special Drawing Rights (SDR) allocation.
Fiscal position and public debt
- Fiscal stance in 2021: remained appropriately supportive after marked deterioration in 2020.
- Public debt at end-2021: 42.9 percent of GDP.
- Fiscal responses in 2020–2021: reallocation of expenditures towards cash grants and transfers and ‘shovel ready’ public investment projects (primarily improving road networks and providing affordable housing); eased the tax burden on the most vulnerable.
Oil resources, prospects, and risks
- Commercially recoverable petroleum reserves: estimated to be well over 11 billion barrels.
- Regional rank: the third largest in Latin America and Caribbean.
- Per capita: one of the highest levels of oil reserves per capita in the world.
- Expected oil production path: increase significantly with the coming on stream of two large oilfields in the Stabroek Block during 2022-26.
- Potential benefits: build substantial fiscal and external buffers, address infrastructure gaps and human development needs.
- Risks: increased dependence on oil revenues exposes the economy to volatility in global oil prices; a slowing global economy and repercussions from the war in Ukraine could adversely affect non-oil exports.
- Upside possibilities: higher global oil prices and additional gas and oil discoveries could significantly improve long-term prospects.
Public investment, fiscal framework, and policy recommendations
- Staff support: feasible and moderate increase in public investment while strengthening the medium-term framework for fiscal policy.
- Staff cautions:
- A large surge in public investment could add inflationary pressure, affect competitiveness of the non-oil economy, lead to an eventual loss in FX reserves, and might not be sustainable over the medium-term.
- Management and sequencing:
- Urge strengthening capacity to manage public investment, based on recommendations from the 2017 PIMA report.
- Recommend setting annual budgets within a fiscal framework that, over the medium term, constrains the annual non-oil overall fiscal deficit (after grants) to not exceed the expected transfer from the NRF, to anchor fiscal policy in a sustainable way.
- This rule will ensure fiscal spending, including capital spending, is increased at a measured pace to address development needs without macroeconomic imbalances.
- Recommend further analysis of the oil transfer rules to ensure the long-term sustainability of the NRF and intergenerational equity.
Natural Resource Fund and transparency
- Staff welcome recent amendments to the National Resources Fund Act.
- Amendments: set clear ceilings on withdrawals from the Fund for budgetary spending and promote transparency in the management and use of oil resources.
- Staff praise: authorities’ thorough review of the 2019 NRF Act before making amendments and the restraint in using any oil revenues before the passage of the amendments.
Financial sector soundness and supervision
- Financial sector: well capitalized and stable.
- Macro-financial monitoring: eight indicators, including credit to GDP measures and the systemic risk matrix.
- Capital to risk-adjusted assets ratio: about 29 percent (regulatory minimum: 8 percent).
- Bank of Guyana reforms: (i) revising the guidelines of asset quality reviews (including revised credit classification and provisioning for the loss category) and (ii) implementing some pillars of Basel II and III.
- Non-performing loans: declined from 10.8 percent at end-2020 to 6.75 percent as of end-March 2022.
AML/CFT and financial integrity
- Status: Guyana has recently strengthened the AML/CFT framework.
- Delistings: removed from the Caribbean Financial Action Task Force (CFATF) and the European Commission’s Money-Laundering Blacklists.
- Next steps: mutually evaluated again by end-2023.
- National Risk Assessment: completed; Bank of Guyana working on recommendations with requested support from the Caribbean Regional Technical Assistance Center (CARTAC).
Monetary policy, exchange rate, and financial deepening
- Staff view: exchange rate stability serves Guyana’s needs best currently.
- Policy stance: use of the exchange rate as the nominal anchor is currently appropriate, concurrent with efforts to diversify the non-oil economy and deepen domestic financial markets.
- Buffers: accumulation of substantial buffers in the NRF will strengthen headroom to maintain a stable exchange rate.
- Medium- to long-term: as Guyana becomes a major oil producer, staff support aims to deepen financial markets and recommend revising the monetary policy framework to ensure it is well suited for the economy’s needs, including allowing the exchange rate to absorb shocks and increase its flexibility to maintain competitiveness.
Governance, anticorruption, and fiscal transparency
- Progress: good progress in strengthening the anti-corruption framework and fiscal transparency.
- Strengthened pillars: Integrity and Public Procurement Commissions (IC and PPC) and the National Procurement and Tender Administration Board (NPTAB).
- Fiscal transparency practices:
- Audit reports of public expenditures, including for COVID, are published and their recommendations are followed up on.
- Asset declarations of a large number of public officials are submitted annually.
- Public procurement tenders are streamed live.
- Extractive industries transparency:
- Progress implementing recommendations of the 2019 and 2021 EITI reports, notably on reconciliation with the fiscal regime.
- Some progress on information sharing and publication of extractive industries’ financial statements.
- Authorities strengthening capacity to address remaining gaps, including moving towards electronic disclosure and adequate follow-up.
IMF assistance and capacity development
- Fund readiness: ready to assist authorities’ capacity development needs.
- Areas for technical assistance: macroeconomic and fiscal management, development of financial market infrastructure, and strengthening of statistical capabilities.
Guyana: Staff Concluding Statement of the 2022 Article IV Mission — June 3, 2022