IMF lauds Guyana’s strong economic performance


[]During the last decade, Guyana’s strong macroeconomic performance has contributed to a reduction in public debt levels and sustained poverty reduction. The economy has experienced seven years of uninterrupted growth averaging about 4 percent annually.

This is according to the International Monetary Fund (IMF), whose Executive Board recently concluded the Article IV consultation1 with Guyana.

According to the IMF, the key pillars of the macroeconomic resurgence have been sustained reforms, in particular the implementation of VAT, favorable commodity prices, significant inflows of Foreign Direct Investment (FDI) and debt relief under the Heavily Indebted Poor Countries Initiative (HIPC) and Multilateral Debt Relief Initiative (MDRI) initiatives.

“Real economic activity expanded by 4.8 percent in 2012 on the back of broad-based growth in agriculture, manufacturing, mining, construction and other services. Twelve-month inflation remained low at 3.4 percent, notwithstanding higher energy and food prices. In FY2012, the overall fiscal deficit was 4.5 percent of Gross Domestic Product (GDP), virtually unchanged from the 2011 outturn.”

The IMF noted that Central government revenues net of grants declined by 0.8 percent of GDP, reflecting lower income and consumption tax receipts, and non-interest current expenditures rose by 1 percent of GDP mainly on account of higher transfer payments to the electricity and sugar companies.

“The deterioration in the central government balance was offset by improved performance of state-owned enterprises whose financial position shifted from deficit to surplus. The external current account balance was broadly unchanged from 2011 and gross international reserves stood at 4.2 months of imports at end-2012.”

According to the IMF, the banking soundness indicators have remained strong, with capital adequacy ratios well above the regulatory minimum requirement, non – performing loans (NPLs) between 5 and 6 percent over the last three years, and provisioning for bad loans at comfortable levels.

The IMF noted that growth is projected at 4.8 percent in 2013, continuing the broad-based robust expansion in economic activity. Twelve-month inflation is expected to remain low at around 3.5 percent by year-end.

It was noted that the Executive Directors welcomed Guyana’s strong growth over the past several years, underpinned by favorable commodity prices and robust foreign direct investment.

While the medium-term economic outlook remains positive, Directors encouraged the authorities to persevere in their commitment to sound policies and reforms to strengthen policy buffers, promote more inclusive growth, and further reduce poverty.

Directors underscored the importance of prudent fiscal consolidation anchored in a medium-term policy framework that safeguards debt sustainability, bolsters fiscal and external buffers, and addresses unmet development needs.

“Priority should continue to be given to implementing reforms to boost the efficiency of public enterprises and replacing universal subsidies with better-targeted social assistance.”

Acknowledging the potential benefits of a more stable and reliable source of energy, Directors encouraged the authorities to ensure that the large hydroelectric project under consideration remains financially and economically viable to curb fiscal risks.

In this context, they saw merit in strengthening the project and debt management framework, and pursuing international best practices as regard public-private partnerships.

Directors considered that a modestly tighter stance of monetary policy and continued exchange rate flexibility would help safeguard international reserves, contain inflationary pressures, and reduce the current account deficit.

Although risks appear generally limited, Directors recommended continued vigilance over the financial sector. In light of rapid credit growth in recent years and high loan concentration, they advised frequent on-site inspections for larger banks and a better integrated supervision of financial business groups.

“It is urgent to address remaining gaps in the regime to combat money laundering and the financing of terrorism.”

Directors commended the authorities for the progress so far in poverty reduction. However, they considered that further efforts are needed to ensure a more even distribution of the benefits from economic growth.

“In this regard, efforts to lower the cost of energy, address skill mismatches, and improve the business environment represent important policy initiatives.”



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