March 11, 2016
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A Concluding Statement describes the preliminary findings of IMF staff at the end of an official staff visit (or ‘mission’), in most cases to a member country. Missions are undertaken as part of regular (usually annual) consultations under Article IV of the IMF's Articles of Agreement, in the context of a request to use IMF resources (borrow from the IMF), as part of discussions of staff monitored programs, or as part of other staff monitoring of economic developments.
The authorities have consented to the publication of this statement. The views expressed in this statement are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Board. Based on the preliminary findings of this mission, staff will prepare a report that, subject to management approval, will be presented to the IMF Executive Board for discussion and decision.
A staff team from the International Monetary Fund (IMF), led by Mr. Marcos Chamon, visited Guyana during February 24–March 7 to hold discussions for the 2016 Article IV consultation. The team met with Finance Minister Winston Jordan, Public Infrastructure Minister David Patterson, Natural Resources Minister Raphael Trotman, Central Bank Governor Gobind Ganga, and other senior officials, as well as representatives from the private sector, opposition party, labor unions, and other stakeholders.
Guyana’s economy remains resilient and continues to grow despite significant global headwinds. In 2015, real GDP grew at 3.0 percent notwithstanding lower commodity export prices, delays in budget implementation, and political uncertainty in the run-up to general elections. Developments in the global economy remain a drag on growth, particularly for commodity exporters. Nevertheless, growth is projected to increase this year, supported by an increase in gold production and public investment. The authorities project 4.4 percent growth in 2016. The mission projects 4.0 percent. Boosting private sector confidence is key for growth momentum. The mission commended the authorities for maintaining macroeconomic stability.
The steep decline in international oil prices narrowed the current account deficit. Lower prices reduced the cost of fuel imports, which more than offset the impact of lower commodity export prices, reducing the current account deficit to 4.6 percent of GDP in 2015 from 10.8 percent in 2014. Reserves stood at 3.6 months of imports at end-2015 and are projected to increase over the medium-term, bolstered by foreign investment and donor support for public investment. The exchange rate has remained broadly stable due to offsetting positive and negative external shocks. Nevertheless, Guyana remains vulnerable to movements in commodity prices due to dependence on imported oil and the concentration of exports on a few commodities. The mission noted that exchange rate flexibility would continue to facilitate adjustment to external developments, mitigate their effect on growth, and safeguard reserves.
The fiscal balance improved in 2015, reflecting one-off factors. The overall non-financial public sector deficit narrowed to 0.2 percent of GDP in 2015 from 5.7 percent in 2014. Despite an economic slowdown, revenue increased buoyed by fuel excises (which were raised as the international oil price declined), and a one-off increase in non-tax revenue from statutory agencies. Capital expenditure declined by nearly 30 percent, reflecting the late start of the public investment program. Going forward, the deficit is expected to remain between 5 and 6 percent of GDP.
The authorities have an ambitious investment strategy for environmentally sustainable and socially inclusive growth. Improvements in transportation and telecommunication infrastructure and renewable energy projects will boost productivity, integrate remote regions, facilitate economic diversification, and ease key impediments to growth. These investments should stimulate economic activity, provide a durable increase in competitiveness, and ensure that the benefits of growth are more broadly distributed.
Discussions with authorities centered on strategies to maintain fiscal and debt sustainability while boosting growth. Increasing current expenditure will crowd out space for public investment, despite significant donor support. The mission suggested moderating the growth of wages, as well as reforming public enterprises with a view to reduce their reliance on government support. In that regard, the improved financial performance of Guyana Power and Light and the reforms proposed by the Commission of Inquiry for the Guyana Sugar Corporation are welcome. The scope and pace of reform should take into account social implications. Containing current expenditure would provide additional space for public investment while preserving debt sustainability.
The magnitude and sources of financing of the deficit have implications for growth. Domestic financing may crowd out credit to the private sector and raise interest rates. Regarding external financing, the mission welcomed the authorities’ intentions to continue to refrain from non-concessional external borrowing that would raise the interest rate burden and adversely affect debt sustainability. The authorities’ exclusion of possible future hydrocarbon export income from their medium-term plans is commendable.
The monetary policy stance should remain accommodative. Lower prices for imported goods, including fuel, continue to restrain inflation. Credit to the private sector had expanded at a rapid pace over the past decade, but broadly in line with economic activity and financial deepening. Credit growth has moderated since 2015, mainly on account of reduced lending to businesses. As long as inflationary pressures remain contained, a more accommodative monetary policy stance, with base and broad money growing more rapidly than nominal GDP, remains appropriate.
Banks remain well capitalized, but heightened vigilance is warranted due to increases in nonperforming loans. Recent changes to credit reporting legislation are welcome and the authorities are encouraged to continue to strengthen financial sector supervision. In particular, the mission suggested tightening: (i) provisioning requirements; (ii) large exposure limits: (iii) restrictions on related lending; and, (iv) loan classification rules. In addition, the stress testing toolkit could be expanded to include shocks to loan collateral values and also take into account inter-linkages among economic sectors, borrowers, and financial entities. A Financial Sector Assessment Program mission will visit Guyana in May to provide a more granular analysis of financial sector challenges and assist the authorities with strengthening the prudential toolkit.
While recent steps towards strengthening the Anti-Money Laundering and Combating the Financing of Terrorism framework are welcome, the authorities should address remaining deficiencies promptly. The authorities are urged to accelerate the implementation of the action plan agreed with the Financial Action Task Force.
The IMF Executive Board is expected to discuss Guyana’s Article IV consultation in May 2016. The mission is grateful to the authorities and other Guyanese stakeholders for their availability, collaboration, and hospitality.
