NRF savings expected to increase to 36.5% of GDP by 2028 – IMF

The Liza Destiny FPSO

The International Monetary Fund (IMF) is projecting that Guyana’s savings in the Natural Resource Fund (NRF) will increase to 36.5 per cent of its Gross Domestic Product (GDP) by 2028, a fact that creates fiscal space for the Government to continue its public spending strategy. At the end of 2021, Guyana’s GDP stood at US$8.044 billion.

According to the IMF in its recent Article IV consultation report, Guyana is at a critical juncture when it comes to its economy and a comprehensive fiscal policy will be important for navigating the current situation and ensuring oil wealth is managed effectively and equitably.

The report further notes that long-term fiscal and debt sustainability, something the Government has cited when it comes to how it is spending Guyana’s oil wealth, cannot be ignored… especially since oil is not an infinite resource.

“Moreover, savings accumulated in the Natural Resource Fund, consistent with a zero overall fiscal balance by 2028 and thereafter, are projected to rise substantially (around 36.5 per cent of GDP by 2028).”

“Nevertheless, favourable debt dynamics indicate that issues of overheating, absorptive and institutional capacity constraints, and inflationary and real exchange rate pressures are likely to be more pressing policy challenges over the near- and medium-term,” the IMF said.

It was explained that these considerations, together with the limitations of the current fiscal policies and examples from other oil-rich countries, prompted the IMF to recommend a comprehensive fiscal policy framework be implemented.

They further urged that this policy be based on a medium-term fiscal framework (MTFF), an updated Public Financial Management (PFM) and public investment management frameworks… all combined with the Government pursuing a policy of zero overall fiscal balance by 2028.

According to the IMF, a zero overall fiscal balance should be pursued after a period of higher public spending to meet current human capital and physical infrastructure needs. In fact, Guyana is currently on a trajectory of increased public spending.

“The authorities are encouraged to carry out an in-depth analysis, by an independent consultant, of existing absorptive and institutional capacity constraints on scaling up of public spending; this could be a crucial input in the setting of expenditure limits in the context of the MTFF,” the report states.

According to the Economic Commission for Latin America and the Caribbean (ECLAC), Guyana’s public sector spending has more than doubled in recent times, with programmes such as hospitals, schools and road infrastructure benefitting from Guyana’s injection of oil money to accelerate capital expenditure to benefit ordinary Guyanese.

In its 2023 “Preliminary Overview of the Economies of Latin America and the Caribbean” report, ECLAC noted that across the Region, capital expenditures are expected to remain stable around their previous year’s level, while in Guyana, the Government has been accelerating its expenditure on public investment programmes.

“In Guyana, expenditure on the public investment programme more than doubled, driven by the construction of hospitals, schools, housing, roads and agricultural infrastructure. It should be kept in mind that the execution of capital expenditures tends to be concentrated in the last quarter, so the figures for the first half of the year do not necessarily indicate the level of spending that will be achieved by the year-end,” ECLAC further said.

While public spending has doubled, there have been some criticisms about the Government’s increases to public servants… even though an across-the-board 6.5 per cent pay rise was granted for all public servants in December last. This increase is expected to benefit over 54,000 public servants, teachers, members of the Disciplined Services, holders of constitutional offices, and Government pensioners; and place an additional $7.5 billion in disposal income annually in the hands of these employees.

Recently, Vice President Bharrat Jagdeo had noted that people are focusing on the fact that Guyana is now an oil-producing nation, and how much money it is earning from that sector; but they have failed to recognise all the other initiatives that the Government is undertaking, such as increasing the grants to school children by some $10.5 billion this year alone, and another $14.5 billion for increases to old age pensions.

These, he outlined, are annualised and recurrent expenses, like salary increases, that need to be sustained in the future as well. The Vice President had highlighted the certainties regarding the future of fossil fuel, noting that if global demand plummets to a point where it is not sustainable to continue production, then it will be difficult for Guyana to sustain these recurring expenses, as has been happening in neighbouring countries in the Region.