“Reducing the costs of doing business, strengthening private sector confidence, and advancing productivity-enhancing reforms are essential for sustaining growth in the short-term, and for reaping the full benefits of the oil windfall once it materializes.”
These were the words of the International Monetary Fund (IMF) following the the June 2018 conclusion of its Article IV consultation with Guyana. Its report was presented on July 13.
While the IMF outlined that Guyana’s macroeconomic outlook remains favorable due to the impending short fall of oil come 2020, the Fund said that Guyana’s short-term financing needs “should be carefully managed.”
As it pertains to oil, the IMF posited that “the rules-based fiscal framework for managing oil wealth should be transparent and consistent with the resource fund deposit/withdrawal rules. It should provide the basis for determining the allocation of annual oil revenue for stabilization and domestic capital expenditure, as well as intergenerational savings. The consistency between the fund deposit/withdrawal rules and a fiscal rule could be reinforced by a fiscal responsibility legislation.”
Addressing the growth rate which fell to 2.1 per cent in 2017 from 3.4 per cent in 2016, the IMF attributed this to the lower than expected mining output and weak performance in the sugar sector.
According to the IMF, inflation remained stable at 1.5 per cent at the end 2017, while the external balance turned negative due to weaker than expected export growth and higher oil prices.
In 2017, the current account recorded a deficit of 6.7 per cent of GDP from a surplus of 0.4 percent in 2016. Apart from being an indication that Guyana is importing more and exporting less, the recorded deficit could also mean that Foreign Direct Investment (FDI) in the economy is lacking.
On a different note, the IMF said that improvements in tax administration contributed to a 1.2 percentage point increase in the tax revenue to GDP ratio, which was partly offset by a 0.4 percentage point decline in the ratio for non-tax revenue.
However, it was also outlined that the Public debt, an indication of how much Government owes to external lenders, stood at 52.2 per cent of GDP at the end of 2017.
Moreover, “Credit to the private sector grew 2.1 percent in 2017 due to a combination of weak demand and banks continuing to strengthen their balance sheets.”
It was also expounded while the banking system is relatively stable, non-performing loans (NPLs) remain high at 12.2 per cent of total loans at the end of 2017, down from 12.9 per cent at end of 2016.
This is an indication that borrowers are still having a hard time repaying loans, a situation which, observers contend, points to the economy being in distress.
Explaining that the exchange rate should play a more active role in cushioning external shocks going forward, the IMF posited that “Guyana remains vulnerable to external shocks given the concentration of its exports in a few commodities and its reliance on imported oil in the short-term. Over the long-term, building an adequate buffer stock of savings from the oil revenues would also help cope with external shocks.”
Moreover, the IMF said that “enhancing competitiveness and supporting inclusive growth should remain a high priority” while expounding on the need for the incumbent Administration to place greater efforts on lowering the cost of doing business by “addressing infrastructure-related bottlenecks, reducing energy costs, and cutting red tape.”
“Increasing female labor force participation and bridging the gaps with the Hinterland can boost growth and help spread its benefits more widely” said the IMF.
According to the IMF “Oil exploration and production should be included in the national accounts when they are rebased, and also in the BOP statistics. Strengthening external sector statistics and compiling an international investment position should be a priority.”