Foreign Reserves held by BoG and not used to finance gov’t projects – Finance Ministry

Finance Minister, Dr Ashni Singh
Finance Minister, Dr Ashni Singh
Finance Minister, Dr Ashni Singh

[] – The Ministry of Finance, headed by Dr Ashni Singh, has debunked reports by the Alliance For Change (AFC) as it relates to the country’s economy and reserves.

A statement from the Finance Ministry noted that the AFC’s statements are “indicative of a worrying lack of basic knowledge of macroeconomic accounts, of the framework within which external reserves are generated and managed, and of recent developments in the global and domestic economy.”

The Ministry explained that the Bank of Guyana (BoG), by law, holds and manages the country’s foreign exchange reserves. These reserves include foreign currency deposits, treasury bills, bonds, gold and Special Drawing Rights (SDRs) with the IMF.

“The reserves are held to meet defined foreign payment obligations such as sovereign debts, financing imports, absorbing unforeseen external shocks, and intervening in the foreign currency market during times of volatility. The Bank of Guyana has never used its foreign reserves for purposes other than those listed above. Moreover, the foreign reserves are not available at any time to finance Government expenditure.”

The statement further noted, “The quantity of foreign exchange reserves can change as and when there are changes in the value of imports, exports and capital flows which are reflected in the overall balance of payments position. For example, an increase in net exports and capital inflows usually has a positive effect on the balance of payments which increases the level of foreign exchange reserves. A decrease in net exports and capital inflows will have the opposite effect.”

“The foreign exchange reserves held by the Bank were US$862.2 million, US$776.9 million and US$665.6 million at the end of 2012, 2013 and 2014 respectively. The decline in reserves in 2013 and 2014 is explained by its use to offset the balance of payments deficit of US$119.5 million and US$111.3 million caused by lower net exports and capital flows in 2013 and 2014 respectively.

“The principal contributing factor underlying the expansion in the balance of payments deficit, and by extension the decline in the foreign reserves, is the reduction in gold export receipts. Total gold exports declined from US$716.9 million in 2012, to US$648.5 million in 2013, to US$469.8in 2014, principally reflecting the rapid decline in price observed over the period.

“Put simply, while Guyana’s gold exports declined by US$247.1 million from the end of 2012 to the end of 2014, Guyana’s external reserves declined by only US$196.6 million during the same period.”

According to the Ministry, there are many benchmarks for measuring the adequacy level of foreign reserves of a country and the most common measure is the import cover which is the level of foreign reserves to cover a number of months of import of goods and services.

“In 2014, the level of import cover was adequate with cover of 3.6 months, comfortably above standard benchmarks. It also worthwhile to note that, at the end of 2014, the commercial banks foreign assets increased by US$44.2 million from its 2012 level to US$357.6 million, additional evidence of adequacy of foreign currency assets in the financial system as a whole.”

The Ministry clarified, “The apparent bewilderment amongst the AFC leadership on the reason for the decline in Guyana’s foreign reserves, and their reckless speculation that the external reserves can be “dipped into” for the purposes of financing government expenditure, are without basis or merit, and are reflective of an alarming lack of familiarity with both basic operations of government finance and recent developments in the economy.”




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