Guyana Staff Concluding Statement of the 2023 Article IV Mission
IMF News, September 11, 2023
Source details
- Canonical URL
- Guyana Staff Concluding Statement of the 2023 Article IV Mission
Other formats
Bibliographic details
- Published: September 11, 2023
Overview and growth outlook
- The Guyanese economy continues to grow very rapidly, supported by the government’s modernization plans, including the unparalleled oil sector expansion.
- Following record real GDP growth in 2022—62.3 percent, the highest in the world—real GDP is expected to continue to grow extremely fast in 2023 (38 percent).
- Oil production is ramping up with the coming on stream of a third oil field; three new approved fields will come on stream between 2024-27, and a sixth field is expected to come on stream in the first half of 2028.
- Sustained real non-oil GDP growth of 5.5 percent is projected over the medium term.
- Projected medium-term expansion: real GDP growth on average of 20 percent per year during 2024-28.
Recent performance and inflation, external position
- Real non-oil GDP grew by 12.3 percent in the first half of 2023 (after a strong 2022).
- CPI inflation reached 7.2 percent at end-2022 and declined to 1.2 percent on a y/y basis in July 2023, with the decline in transportation and communication prices.
- The external current account swung into a large surplus in 2022, of 23.8 percent of GDP, and another large surplus is expected in 2023.
- Banks are well capitalized and liquid.
Medium-term prospects and risks
- Upside risks: further oil discoveries; stronger-than-expected construction growth and public investment supporting higher short-term non-oil growth.
- Downside risks: inflationary pressures and appreciation of the real exchange rate beyond the level implied by a balanced expansion, overheating, crowding out of credit to the private sector, adverse climate shocks, and volatile or lower than projected commodity prices.
- Gross international reserves (excluding the Natural Resource Fund) are expected to continue to accumulate, with reserves coverage indicators continuing to strengthen.
- Substantial savings will accumulate offshore in the Natural Resource Fund (NRF) in the medium term.
Fiscal and monetary policy assessment
- Staff view the current expansionary fiscal policy stance as appropriate given the country’s development needs and the existing slack in the economy.
- Unemployment was 12.4 percent in 2022; staff estimates show that the output gap remains negative.
- Monetary policy appropriately balances the expansionary fiscal stance.
- Increase in broad money of about 10 percent until June 2023 (since December 2022), and in credit to the private sector of about 5 percent in the same period, remain below the nominal growth of the non-oil economy.
- Although credit to the government is increasing, it is not crowding out credit to the private sector.
- Bank of Guyana is monitoring macro-financial risks with eight indicators, including credit-to-GDP measures and the systemic risk matrix.
- Over the medium-term, moderating fiscal impulses are projected to achieve a zero overall fiscal balance by 2028.
- Public sector debt is projected to decline gradually as a share of GDP over the medium term (after declining to 26 percent at end-2022, from 43.2 percent of GDP in 2021).
- The real exchange rate is expected to appreciate, and inflation to increase, as the economy closes its development gap.
Staff recommendations — macroeconomic stability and policy mix
- Continue focus on maintaining macroeconomic stability through an appropriate policy mix.
- Continue close monitoring of macroeconomic and financial indicators.
- Tighten monetary policy stance and use macroprudential tools as needed (e.g. loan-to-value ratio or debt-to-income requirements).
- In the medium term, review the exchange rate framework to ensure that it best serves the economy.
Fiscal framework, public investment, and PFM
- Adopt over the medium-term a comprehensive medium-term fiscal framework (MTFF), together with further modernizing the public investment management and public financial management (PIM and PFM) frameworks.
- The MTFF should contain a clear medium-term fiscal anchor, a transition path, and an operational target.
- As a fiscal anchor, staff recommend setting a path for the non-oil primary balance (as a percent of non-oil GDP) consistent with the NRF ceilings on withdrawals of oil revenues and ensuring inter-generational equity.
- Conduct periodic expenditure reviews to ensure macroeconomic stability and preserve competitiveness by setting the pace of public investment to take into account absorption and institutional capacity constraints.
Financial sector oversight and data
- Staff strongly support authorities’ efforts to maintain financial stability.
- Macro-financial risks are well monitored with a broad spectrum of indicators, including credit-to-GDP ratio and the systemic risk matrix.
- Staff welcome BoG’s asset quality reviews, progress in conducting stress testing exercises, and strategies to promote financial inclusion.
- Staff support completion of the implementation of the 2016 FSAP recommendations, including closely monitoring sectoral lending exposures, related party lending, banks’ ownership structure and increasing competition in the banking sector.
- Improving data collection and statistics on corporate and household balance sheets and real estate prices is critical to strengthen banking supervision and to move towards broad-based risk-based supervision.
AML/CFT, governance, and anticorruption
- Staff commend progress in strengthening AML/CFT, governance, and anti-corruption frameworks and support further advances in their effective implementation.
- Authorities have continuously engaged with the Caribbean Financial Action Task Force (CFATF) to prepare for the scheduled 4th round of mutual evaluation currently underway and are further strengthening the AML/CFT framework.
- Guyana approved a National Policy and Strategy for Combating Money Laundering, Terrorism Financing which addresses the risks identified in its 2021 National Risk Assessment and introduced in parliament legislative amendments to the AML/CFT Act.
- Several pillars of the anticorruption framework have been further strengthened, including the Integrity and Public Procurement Commissions and the National Procurement and Tender Administration Board.
- Efforts of the Integrity Commission led to a significant increase in the number of timely asset declarations of public officials.
- Authorities are undergoing a review of the United Nations Convention Against Corruption (UNCAC) and the 6th round in the Follow-Up Mechanism for the Implementation of the Inter-American Convention against Corruption (MESICIC).
Oil wealth management and transparency
- Staff commend progress to strengthen management of oil wealth and fiscal transparency.
- The NRF Act, amended in 2021, enhanced transparency and accountability of the use of oil revenues.
- In 2022, governance of the NRF was strengthened with the appointment of three critical bodies: the NRF Board of Directors, the Public Accountability and Oversight Committee, and the Investment Committee.
- The year 2022 was the first year when oil revenues were transferred from the NRF to the budget. The use of the funds is reported in the budget documents, and all receipts are published. The process continued with the 2023 budget.
- Authorities made progress implementing recommendations of the 2019 Extractive Industries Transparency Initiative (EITI) reports, notably on reconciliation with the fiscal regime; staff support efforts to address remaining gaps, including moving towards electronic disclosure and adequate follow-up.
- The 1986 Petroleum Exploration and Production Act was modernized and approved by parliament in August 2023; the new Act enhances the regulation of exploration and production of oil.
- A new Profit Sharing Agreement (PSA) has been designed, will be used for the auction of 14 new oil and gas blocks, and will increase the government share of oil profits.
Climate policy and Low Carbon Development Strategy (LCDS)
- Staff laud the authorities’ climate efforts and the reinstatement of the Low Carbon Development Strategy (LCDS).
- LCDS combines utilizing natural resources sustainably to combat climate change by maintaining forest coverage and preserving sequestration rates while receiving income for these efforts.
- In 2022, after Guyana was awarded the first jurisdiction scale certification of carbon credits, Guyana sold 37.5 million carbon credits for US$750 million, to be paid during 2022-32 (a third of the credits Guyana will receive over 2016-30), one of the largest transactions in the world.
- The strategy allows funds to be used for flood management, diversifying the energy matrix, and provides resources for Amerindian communities.
- Staff support LCDS 2030—launched in July 2022—which expands nature conservation to include biodiversity conservation, watershed management, and the ocean economy for protection and payments.
Structural reforms, business climate, labor, and statistics
- Staff strongly support efforts to improve the business climate and address labor shortages.
- Authorities are preparing and implementing reforms to increase digitalization and boost labor and total factor productivity (such as single window processing of permits, digital ID and digital banking records).
- Authorities are working to increase electricity supply through a diversified energy matrix, improve reliability, and decrease cost.
- Sustained efforts to address labor shortages include providing facilities for vocational training, resources for online training, and incentives to set up businesses outside the capital.
- Staff welcome efforts to modernize official statistics, supported by IMF capacity development; CARTAC is supporting the authorities’ efforts to rebase GDP and CPI.
- Staff stand ready to provide additional capacity development assistance, including with the development of capital markets and other pressing areas.
Acknowledgements
- The mission thanks the Guyanese authorities and counterparts for constructive, candid policy dialogue, productive collaboration, and warm hospitality.
Source: Guyana Staff Concluding Statement of the 2023 Article IV Mission (September 11, 2023).