THOUGH non-performing loans remain high, the International Monetary Fund (IMF) during its recently concluded Article IV consultation with Guyana has projected the country’s growth at 3.5 per cent this year, while “real economic activity expanded by 3.3 per cent” last year.

Subdued agricultural commodity prices, adverse weather and delays in public investment weighed down on activity, while large increases in gold output helped support growth, the report said.
Consumer prices increased by 1.5 per cent in the 12 months ending in December 2016, as weather-related shocks to food prices reversed the deflationary trend.
Meanwhile, according to the IMF’s Executive Board, Guyana’s overall non-financial public sector deficit widened to 2.9 per cent of GDP in 2016 from 0.2 per cent in 2015.

Despite slower-than-expected economic growth, fiscal revenue increased owing to improvements in tax administration and higher mining royalties, the report stated, while adding that the total expenditure increased by 2.8 percentage points of GDP, but the increase was lower than budgeted due to delays in capital expenditure.
The current account moved from a 5.7 per cent of GDP deficit in 2015 to a 0.4 per cent surplus in 2016, driven by the large increase in gold exports and improved terms of trade.
Gross international reserves stood at 3.6 months of imports at end-2016.
Additionally, the IMF reported that bank capital adequacy ratios appear comfortable (averaging 25.4 per cent as of end-2016).

“But non-performing loans remain high, at 12.9 per cent of total loans at end-2016 from 11.5 per cent at end-2015 and provisioning remains very low (45.8 per cent at end-2016).”
In a statement issued on its website, the IMF noted that progress in strengthening the financial stability framework was assessed in detail during the Article IV consultation as part of the IMF’s Financial Sector Assessment Program (FSAP), which analyses financial sector soundness and associated policies.
The FSAP’s findings are summarised in the accompanying Financial System Stability Assessment (FSSA).

POSITIVE
As such, it was determined that the macroeconomic outlook is positive for 2017 and the medium-term.
“Growth is projected at 3.5 per cent in 2017, supported by an increase in public investment, continued expansion in the extractive sector, and a recovery in rice production.”
Moreover, 12- month inflation is expected to remain low at around 2.6 per cent by year-end, while the fiscal deficit is projected to widen to 7.2 per cent of GDP in 2017, due in part to delay in capital spending from 2016.

“The shares of current and capital spending in GDP are projected to increase by 0.6 and 1.8 per cent, respectively. Tax revenue is projected to remain stable at about 21.5 per cent of GDP. The current account deficit is projected at -3 per cent of GDP, financed by investment inflows and donor-supported investment. Net international reserves cover is projected to remain stable at 3.6 months of imports at end-2017,” the report stated.
Meanwhile, the executive directors in their assessment welcomed Guyana’s “continued economic growth, the improvement in its external position, and its positive medium-term outlook, which is supported by the expected start of oil production in 2020.”

They underscored the importance of preserving macro-economic and financial stability, while making growth more broad-based and inclusive while noting that the economy is vulnerable to external shocks and domestic challenges remain.
The executive directors also welcomed the plans by authorities here to establish a comprehensive framework for managing oil wealth and stressed the importance of having a transparent and rules-based framework in place before oil production starts.

“Most directors supported staff’s recommendation for a moderate fiscal consolidation to slow debt accumulation and safeguard against adverse shocks before the onset of oil production. A few directors considered a more gradual consolidation appropriate in light of the country’s development needs. More generally, directors recommended moderating the growth of current expenditures and moving ahead with the reform of public enterprises, notably the sugar and electricity companies, while providing a safety net for those affected by these reforms,” the report said.

Additionally, it is believed that the issuance of longer-term domestic debt instruments could provide a stable source of financing which can be used to settle the government’s negative balance at the Central Bank and help develop domestic capital markets.

WARNING
Guyana was however put on warning that a significant increase in domestic debt could drive up borrowing costs.
“In this regard, directors commended the authorities for continuing to refrain from non-concessional external borrowing. Regarding Guyana’s ongoing negotiations with bilateral non-Paris Club creditors, a few directors reiterated the importance of preserving comparability of treatment across official bilateral creditors.”

Moreover, the executive directors welcomed the “recent increase in exchange rate flexibility” and encouraged the authorities to allow the exchange rate to play a stronger automatic stabiliser role going forward.
The IMF establishment of a clear communication strategy is important in this regard and encouraged the authorities to auction foreign exchange when conducting official transactions to help improve price discovery and transparency in the foreign exchange market.

That aside, the directors have also agreed that the current monetary policy which has been described as “accommodative” is appropriate but stressed the importance of remaining vigilant for possible inflationary pressures and being ready to tighten monetary policy as appropriate.
Importantly too, the IMF noted that the banking sector appears “resilient to severe shocks”, and welcomed the authorities’ plans to continue bringing the supervisory and regulatory frameworks in line with the 2016 FSAP recommendations.

Steps to reduce the stock of non-performing loans, and higher provisioning to account for slow collateral recovery, unrecorded related-party exposures, and loan misclassifications were encouraged, as the directors also called for the amendment of the Financial Institutions Act to operationalise the crisis management framework and establish an emergency liquidity assistance framework.

Additionally, local financial authorities were commended for exiting the Financial Action Task Force follow-up process and encouraged the further strengthening the anti-money laundering and combating the financing of terrorism framework, drawing on the recent National Risk Assessment. Progress made with respect to correspondent banking relationships were noted and continued vigilance was suggested.

The need for further improvements to the business climate, diversification efforts, and structural reforms of key economic sectors are needed to support more broad-based and inclusive growth.
The next Article IV consultation with Guyana is to take place on the standard 12-month cycle. The 2016 consultations concluded on May 24, 2017.