IMF lauds Guyana’s strong macroeconomic performance

- new report recognises country’s efforts to reduce public debt, poverty

THE Executive Board of the International Monetary Fund (IMF) has said Guyana’s “strong macroeconomic performance” contributed to a reduction in both public debt levels and sustained poverty reduction.A report just released said: “The Directors commended the authorities for the progress, so far, in poverty reduction.” The IMF called for the current Administration to build on existing efforts 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,” the compilation recommended. The IMF also underscored the need for steps to increase productivity in traditional sectors, such as agriculture and mining and said they should also be part of a strategy to foster more inclusive growth. The compilation stated that the economy has experienced seven years of uninterrupted growth averaging about four percent annually. It continued: “The key pillars of the macroeconomic resurgence have been sustained reforms, in particular the implementation of VAT, favourable 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).”

REMAINED LOW 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 the IMF said, adding that a 12-month inflation remained low at 3.4 percent, notwithstanding higher energy and food prices. In financial year 2012, the overall fiscal deficit was 4.5 percent of Gross Domestic Product (GDP), virtually unchanged from the 2011 outturn, according to the IMF. It added 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 one 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 positions 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 of 2012. Meanwhile, the banking soundness indicators have remained strong, with capital adequacy ratios well above the regulatory minimum requirement, non-performing loans (NPLs) between five and six percent over the last three years and provisioning for bad loans at comfortable levels. According to the report, the successes were underpinned by favourable 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,” it said. The report also 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.

IMPLEMENTING REFORMS According to it, 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. The report maintained that the macroeconomic outlook is, generally, positive for 2013 and the medium term. 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 per cent by year end. The revised 2013 budget envisages an overall fiscal deficit of 5.2 percent of GDP, largely related to worsening performance of public enterprises, which are projected to return a deficit of 0.4 percent of GDP compared to a surplus of 1.3 percent in 2012. Higher VAT receipts are projected to raise Central Government non-grant revenue by 0.9 percent of GDP while its capital expenditure is anticipated to rise by 0.4 percent of GDP and the public wage bill, as a percentage of GDP, will remain broadly stable and transfers would decline by 0.7 percent of GDP. The IMF forecast that the current account deficit would widen to 16.8 percent of GDP in 2013, driven by higher fuel imports, lower commodity prices and lower remittances, which are projected to fall with slowing activity in major host countries. At the same time, with larger disbursements related to an ambitious public investment programme and resilient FDI, gross international reserves are projected to remain adequate at 3.6 months of imports. The Board welcomed Guyana’s strong growth over the past several years. Under Article IV of the 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 return to headquarters, they prepare the report which forms the basis for discussion by the Executive Board.