By Kiana A. Wilburg  

The APNU/AFC administration has drawn plaudits for steering Guyana’s economy unto the path of sustainable growth. The tool is a strategy that was deemed by the International Monetary Fund (IMF) to be socially inclusive.

Managing Director of the IMF, Christine Lagarde

The Executive Board recently concluded consultations with Guyana for its Article IV mission and released its assessment yesterday on Guyana’s performance thus far. Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year.
A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On its return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
The Directors, in their evaluation of Guyana’s financial system, commended the resilience of the economy, which continues to grow despite global headwinds.
They noted, however, that challenges and risks remain, and encouraged the authorities to build up fiscal buffers, implement structural reforms, and strengthen the financial sector.
The Directors welcomed the positive medium term outlook underpinned by an environmentally sustainable and socially inclusive growth strategy.
They also welcomed the marked improvement in the current account, while noting that Guyana remains vulnerable to changes in commodity prices due to its dependence on imported oil and the concentration of exports on a few commodities.
The IMF officials asserted that Guyana’s exchange rate appears to be broadly in line with fundamentals, and underscored that exchange rate flexibility should play a larger role in helping the nation cope with external shocks.
The Directors stressed the importance of fiscal consolidation in order to safeguard debt sustainability and preserve fiscal and external buffers while maintaining growth momentum.

Finance Minister, Winston Jordan

They recommended that fiscal consolidation efforts focus on moderating the growth of current expenditures, in particular transfers to public enterprises, so as to preserve space for public investment while protecting social spending.
On the revenue side, they said that efforts to broaden the revenue base and strengthen tax administration were encouraged.
The IMF Executives welcomed the efforts to reform public enterprises, notably the sugar and electricity companies, in order to improve efficiency and reduce reliance on government support.
In their review, they encouraged the government to move toward greater economic diversification by advancing reforms to promote competition and improve the business climate.
The Directors said, “Given that the high costs of electricity, transportation and telecommunications have been longstanding impediments to growth, they supported well targeted public investment and liberalizing reforms to lower costs and raise productivity.”
The IMF Members added that the largely concessional nature of debt contributes to resilience and should be preserved. They commended the authorities for taking a cautious approach in factoring in possible future oil income in their medium term fiscal plans.

The Directors also concurred that the monetary policy stance should remain accommodative, as lower prices for imported goods, including fuel, continue to ease inflationary pressures.
While noting that the banking sector appears well capitalized, the Directors recommended heightened vigilance given the rise in nonperforming loans, as well as tightening of provisioning requirements and close monitoring of related party lending.
They looked forward to a more granular analysis of financial sector challenges by the upcoming FSAP mission.
The IMF Team also emphasized the importance of strengthening the anti-money laundering and combating the financing of terrorism framework. They noted that remaining deficiencies amplify the vulnerability to de risking, which will require greater international effort to address.
They urged the prompt implementation of the action plan agreed with the Financial Action Task Force.
As for the macroeconomic outlook, the officials said that this is generally positive for Guyana this year. They said that growth is projected at four percent in 2016, supported by public investment and two new large gold mines.
It said that twelve-month inflation is expected to remain low, around 2.1 percent by year-end. The IMF team said, “Lower oil prices improve the outlook for the current account deficit, which is projected to remain at about four and half percent of GDP in 2016, financed by investment inflows and donor-supported investment. Reserve cover is projected to increase to 3.8 months of imports at end-2016.”
It added, “Real economic activity expanded by three percent in 2015. Lower export commodity prices and budget delays weighted down on activity, while the opening of two new large gold mines helped support growth.
Consumer prices contracted by 1.8 percent in the 12 months ending in December 2015, reflecting lower import prices and a one-off increase in VAT exemptions.”
The team noted that the overall non-financial public sector deficit narrowed to 0.2 percent of GDP in 2015 from 5.7 percent in 2014. It said that despite the slowdown, revenues as a share of GDP increased by 4.2 percentage points, buoyed by fuel excises (which were raised as the international oil price declined), and one-off increases in non-tax revenues.
The IMF Executives articulated as well that expenditures as a share of GDP declined by one percentage point, driven by a 30 percent decline in capital expenditures due to election-related budget delays.