Press Release No. 00/60

The Executive Board of the International Monetary Fund (IMF) has approved the second-year program for Guyana under the Poverty Reduction and Growth Facility (PRGF)¹ in an amount equivalent to SDR 17.92 million (about US$23 million), to support the government's economic program. The decision will enable Guyana to draw an amount equivalent to SDR 6.96 million (about US$9 million) immediately. The IMF and the World Bank Group's International Development Association (IDA) have also agreed to support a comprehensive debt reduction package for Guyana under the Enhanced Heavily Indebted Poor Countries (HIPC) Initiative ² (see Press Release 00/61).

Guyana's three-year program, originally supported under the ESAF, was first approved on July 15, 1998 (see Press Release No. 98/29), in an amount equivalent to SDR 53.76 million (about US$69 million), of which an amount equivalent to SDR 17.92 million (about US$23 million) has been disbursed. On May 14, 1999, the IMF and the World Bank agreed that Guyana had met the requirements to receive debt service relief from its external creditors under the HIPC Initiative (see Press Release No. 99/17).

In commenting on the Executive Board discussion on Guyana, Eduardo Aninat, Deputy Managing Director of the IMF said:

"Guyana has established a satisfactory track record in implementing a comprehensive program of macroeconomic, structural and social reforms under the program supported by the Poverty Reduction and Growth Facility (PRGF). Economic growth in 1999 has recovered, the overall fiscal deficit (after grants) has been smaller than projected, and progress has been achieved in structural reforms, particularly the recent privatizations of large enterprises.

"The authorities are encouraged to remain steadfast in their two-pronged fiscal strategy to refrain from domestic borrowing and to improve public saving performance over the medium term, following the projected sharp decline in 2000. Expenditure restraint in non-priority areas and a reduction in the ratio of the government wage bill-to-GDP over the medium term will be essential. The authorities are therefore urged to monitor fiscal developments closely, and to stand ready to take corrective fiscal actions if needed to achieve the program's objectives. The rationalization of the civil service and the implementation of a comprehensive civil service reform in the medium term will enable the authorities to undertake expenditure in priority areas, such as health and education.

"The authorities intend to modernize the government-owned sugar company to enable it to compete internationally, given the phasing out of preferential export markets. It is important that the modernization plan be economically viable and technically sound. The authorities are urged to finalize soon, in collaboration with the World Bank, a plan that could be supported by the international community. Other structural measures include the intention to bring the government-owned commercial bank to the point of sale soon and to privatize the two bauxite companies.

"The Fund agrees that the Interim Poverty Reduction Strategy Paper provides a sound basis for the development of a participatory Poverty Reduction Strategy Paper (PRSP) and for reaching the decision point under the enhanced HIPC Initiative. The full PRSP will detail the authorities' plans to reduce the incidence of poverty and their plans regarding delivery of essential services, especially in the rural areas, as well as monitor overall implementation and progress with the poverty reduction strategy. It will be important to ensure that the full PRSP also garners broad ownership by civil society. The Fund agrees that Guyana has established a satisfactory track record of good economic performance in the context of IMF and World Bank-supported poverty reduction programs to reach the decision point under the enhanced HIPC Initiative. Guyana would reach the floating completion point after preparation of a PRSP developed through a participatory process, maintenance of a stable macroeconomic environment, as evidenced by satisfactory performance under a program supported by a PRGF arrangement, and satisfactory implementation of key measures, particularly in the areas of health, education, poverty reduction, and governance", Aninat said.

Program summary

Guyana's economic performance improved remarkably during 1991-97 as the country reduced its financial imbalances and implemented wide-ranging structural reforms to increase economic efficiency. Since late 1997, however, the country has encountered a series of shocks (terms of trade deterioration, adverse weather conditions, and domestic civil disturbances) and legally mandated large wage increases for government employees. Real GDP grew by 3 percent in 1999, following a decline in 1998, but 12-month inflation rose to 8½ percent at end-1999 from 4½ percent at end-1998.

The economic program for 2000-01 and the medium term is aimed at reducing poverty through targeted programs, structural reforms, and maintenance of financial stability. The program seeks to achieve an average annual increase of 4½ percent in real GDP, bring inflation gradually down to 3 percent, and maintain a reasonable cushion of international reserves against shocks.

Fiscal policy under the program is consistent with the Interim Poverty Reduction Strategy. It is based on the authorities' two-pronged strategy to refrain from domestic borrowing and to improve public saving over the medium term. It entails more spending on poverty-reduction projects and the restructuring of public enterprises which will contribute to larger public sector deficits relative to the original program. The proposed larger deficits should be more than financed by greater flows of concessional loans and grants, consistent with a stable macroeconomic environment.

The overall public sector deficit (after grants) is expected to rise to 6½ percent in 2000 and 9½ percent in 2001, from 1 percent in 1999, before turning into a surplus in 2005. Public sector saving would decline sharply in 2000-because the large increase in current expenditures is not expected to be fully offset by the anticipated rise in revenue-but is projected to increase to 3½ percent of GDP in 2001 and to 9 percent by 2005, from 2½ percent in 2000, mainly through expenditure restraint and increases in the current surpluses of the rest of the public sector.

The structural reforms to be implemented under the program include restructuring of the civil service; privatization of the Guyana National Cooperative Bank and other companies that have already been brought to the point of sale; modernization of the state-owned sugar company, GUYSUCO; strengthening of bank supervision; and improvements in the environment for private sector activity.

The social sector policy in the program aims at increased spending on basic health and education, as well as on the provision of potable water and sanitation services, and on low-income housing. In May 2000, the authorities decided on a policy of providing free universal access to secondary education to all students within three years, substantially improving on the current access rate of 58 percent. The authorities are also committed to increasing the budgetary allocation for social spending in the hinterland over the next three years. With support from bilateral donors, the authorities intend to develop medium-term expenditure programs for each ministry to improve budget preparation and to exercise better execution and performance monitoring based on sector-specific indicators. Along with the computerization of budget and treasury operations, this will enhance capacity to assess the impact of poverty-reduction programs.

Guyana joined the IMF on September 26, 1966; its quota³ is SDR 90.9 million (about US$ 117  million). Guyana's outstanding use of IMF credits totals SDR 86.7  million (about US$ 112  million).

Guyana: Selected Economic and Financial Indicators 1/           Program   1997 1998 1999 2000 2001 2002 2003 2004 2005                     (Percentage change)                     Production and prices                   Real GDP (factor cost) 6.2 -1.7 3.0 2.5 4.2 3.3 5.3 4.0 4.4 Nominal GDP (market prices) 7.7 1.2 11.7 8.8 8.9 5.9 7.3 6.2 6.5 GDP deflator (factor cost) 2.7 2.6 9.6 6.8 5.1 3.1 2.2 2.4 2.3 Consumer prices (average) 3.6 4.6 7.5 6.6 7.3 5.0 3.0 3.0 3.0 Consumer prices (end of period) 4.2 4.7 8.7 8.0 6.0 4.0 3.0 3.0 3.0 Real GDP per capita 5.5 -1.5 1.9 1.4 3.1 2.2 4.2 3.0 3.3                     (In percent of GDP)                     National accounts                   Investment 30.3 28.8 24.5 28.7 33.6 34.8 29.3 33.4 29.9 Private sector 12.3 13.4 12.6 12.5 13.9 14.8 15.1 15.4 16.7 Public sector 18.1 15.4 11.8 16.2 19.7 20.0 14.2 18.0 13.2                     National saving 16.2 15.0 13.4 10.0 11.0 12.7 15.2 16.6 17.5 Private sector 6.8 6.0 7.0 7.6 7.7 8.0 8.2 8.4 8.4 Public sector 9.4 9.0 6.4 2.4 3.4 4.7 7.0 8.1 9.1                     External current account balance                   (excluding transfers) -14.2 -13.7 -11.0 -18.6 -22.6 -22.1 -14.0 -16.9 -12.5                     Public sector                   Revenue 36.4 35.5 33.7 34.9 34.8 34.6 35.8 36.0 36.1 Expenditure 45.1 41.9 39.1 48.7 51.1 49.9 42.9 46.0 40.3 Current 27.0 26.5 27.3 32.5 31.4 30.0 28.8 27.9 27.0 Capital 18.1 15.4 11.8 16.2 19.7 20.0 14.2 18.0 13.2 Saving 9.4 9.0 6.4 2.4 3.4 4.7 7.0 8.1 9.1 Overall balance (before grants) 2/ -8.7 -6.4 -5.4 -13.8 -16.3 -15.3 -7.2 -10.0 -4.2 Grants (including original HIPC relief) 5.7 1.6 4.4 7.5 6.8 6.7 5.9 5.3 5.1 Overall balance (after grants) 2/ -3.0 -4.8 -1.0 -6.3 -9.5 -8.6 -1.3 -4.6 0.9 Net external financing 0.4 2.2 5.1 7.7 10.3 9.7 3.9 5.6 2.4 Net domestic financing 2.6 2.6 -4.0 -1.4 -0.8 -1.1 -2.6 -1.0 -3.3   (Percentage change relative to broad money at the beginning of the year)                     Money and credit (end of period)                   Domestic credit of the banking system 18.3 15.6 -3.7 3.1 5.2 4.2 3.5 4.1 2.8 Public sector (net) 3.4 4.8 -9.5 -1.7 -0.6 -1.4 -3.6 -1.2 -4.5 Private sector 14.9 10.8 5.8 4.9 5.8 5.6 7.1 5.3 7.3 Broad money 11.7 6.8 12.1 8.2 10.9 8.1 9.3 8.2 8.5                     Interest rates (end of period)                   Treasury bills (91 days) 8.2 8.8 11.1 ... ... ... ... ... ... Commercial lending rate 18.3 18.3 18.1 ... ... ... ... ... ... Small savings rate 7.4 7.1 8.1 ... ... ... ... ... ...                     (In millions of U.S. dollars, unless otherwise indicated; end of period)                     External sector                   Overall balance of payments 4.3 -17.4 -2.2 7.1 -16.8 -10.3 11.4 8.7 14.1 Gross official reserves 315 276 267 275 283 289 299 304 317 Months of imports 3/ 4.7 4.3 4.4 3.9 3.7 3.7 3.9 3.7 3.9                     (In percent; unless otherwise indicated)                     Real effective exchange rate 4/ 8.7 -12.5 2.0 ... ... ... ... ... ...                     Memorandum items:                   Nominal GDP (G$ billions) 106.7 108.0 120.7 131.3 142.9 151.4 162.4 172.6 183.8 Guyana dollar/U.S. dollar 5/ 142.4 150.5 177.6 ... ... ... ... ... ...                                         Sources: Data provided by the Guyanese authorities; and IMF staff estimates and projections.                           1/ The program for 2000-05 include the GUYSUCO modernization investment plan and privatization of the GNCB. 2/ Includes severance payments of 0.3 percent of GDP in 2000 and 0.3 percent of GDP in 2001.     3/ Imports of goods and nonfactor services.                 4/ Twelve-month rate of change, depreciation (-).               5/ Period average.                   1 On November 22, 1999, the IMF's concessional facility for low-income countries, the Enhanced Structural Adjustment Facility (ESAF), was renamed the Poverty Reduction and Growth Facility (PRGF), and its purposes were redefined. It is intended that PRGF-supported programs will in time be based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners, and articulated in a poverty reduction strategy paper (PRSP). This is intended to ensure that each PRGF-supported program is consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. At this time for Guyana, pending the completion of a PRSP, a preliminary framework has been set out in an interim PRSP, and a participatory process is under way. It is understood that all policy undertakings in the interim PRSP beyond the first year are subject to reexamination and modification in line with the strategy that is to be elaborated in the PRSP. Once completed and broadly endorsed by the Executive Boards of the IMF and World Bank, the PRSP will provide the policy framework for future reviews under this PRGF arrangement. PRGF loans carry an interest rate of 0.5 percent a year and are repayable over 10 years with a 5½-year grace period on principal payments. 2 The HIPC Initiative was launched by the IMF and the World Bank in 1996 as the first comprehensive effort to eliminate unsustainable debt in the world's poorest, most heavily indebted countries. In October 1999, the international community agreed to make the Initiative broader, deeper and faster by increasing the number of eligible countries, raising the amount of debt relief each eligible country will receive, and speeding up its delivery. The enhanced Initiative aims, for most HIPCs, to reduce the NPV of debt at the decision point to a maximum of 150 percent of exports, and will be provided on top of traditional debt relief mechanisms. 3 A member's quota in the IMF determines, in particular, the amount of its subscription, its voting weight, its access to IMF financing , and its allocation of SDRs.