…IMF predicts economic growth for Guyana in 2019
…says influx of migrants could put strain on hinterland communities

THE International Monetary Fund (IMF) Monday said that economic growth strengthened in Guyana last year with broad expansion across all major sectors and is predicting economic growth in excess of four per cent this year.

It said that real gross domestic product (GDP) growth grew by 4.1 per cent, up from 2.1 per cent the [previous year and was led by the construction and services sectors. The IMF, which has a mission currently here holding talks with various stakeholders, said that inflation remained steady at 1.6 per cent at the end of last year on the back of stable food prices and exchange rate.

“For 2019, the mission projects real economic growth of 4.4 per cent, driven by continued strength in the construction and services sectors ahead of oil production in 2020, and strong recovery in mining,” the IMF said in a statement, adding that the authorities do not foresee any significant spillovers from the crisis in Venezuela at present.
Influx of migrants

“However, the influx of migrants into the hinterland and rural areas could put socio-economic pressures on the local communities,” it warned, with respect to the number of Venezuelans fleeing the South American country as a result of the economic and political turmoil.

The IMF said weaker export performance and higher imports driven by high value imports related to oil production contributed to a weaker current account balance. In 2018, the current account deficit rose to 17.5 per cent of GDP, from 6.8 per cent in 2017. It said the deficit was largely financed by foreign direct investments (FDI) related to the petroleum sector and that reserves stood at US$528 million in December 2018.

The Washington-based financial institution said that public finances in Guyana improved in 2018. The central government’s deficit was 3.5 per cent of GDP, lower than the budgeted 5.4 per cent of GDP. The better-than-expected outturn was largely supported by stronger revenues arising from the pick-up in economic activity, as well as continued improvements in tax administration and the tax amnesty program which relaxed interest and penalties on payments of outstanding taxes.

“In addition, expenditure grew at a weaker pace due to slower capital spending as a result of capacity issues in both the public and private sector. In 2019, the fiscal stance is projected to be appropriately expansionary, at 5 percent of GDP, driven by significant need for infrastructure development and capacity building ahead of oil production,” the IMF said.

Favourable prospects
It said Guyana’s medium-term prospects are very favourable. The commencement of oil production in 2020 presents an opportunity to scale-up capital and current spending at a measured pace over the medium term to address infrastructure gaps and human development needs, while attenuating debt sustainability concerns at the same time. The IMF mission said it welcomed the passage of the Natural Resource Fund (NRF) legislation for managing the country’s natural resource wealth, saying it underscores the authorities’ commitment to fiscal responsibility.

“To ensure fiscal responsibility is achieved, the mission recommends complementing the NRF legislation with a fiscal framework that constrains borrowing and achieves a balanced budget in the near- to medium-term,” the statement noted. “To achieve this target, the annual non-oil deficit should not exceed the expected transfer from the NRF. This would ensure that excessive public expenditure will not lead to debt growing at the same time as the NRF accumulates.

“It is also necessary to preserve the spirit of the NRF framework, which appropriately aims to save part of the income from oil as net wealth for future generations. The pace of scaling-up public spending needs to be gradual to reduce bottlenecks from absorptive capacity constraints, avoid waste, and minimize macroeconomic distortions related to “Dutch” disease that has often inflicted economies experiencing sizable increases in resource-based income.”

The IMF said it supports the continued efforts by the authorities to strengthen institutional, governance and management practices, which will also help reduce vulnerability to corruption. It commends the ongoing efforts in modernising the revenue administration and strengthening the public investment management system. At the same time, the IMF reiterates the importance of addressing the weaknesses identified in the 2017 Public Investment Management Assessment. “Greater urgency is attached to these reforms ahead of the expected increase in public spending as oil production begins. The mission notes authorities’ intent to move to rigorous project selection and prioritization criteria within the context of the new long-term Green State Development Strategy.”

The IMF said it is encouraging building on recent progress in strengthening transparency and governance.

Guyana completed its first Extractive Industries Transparency Initiative (EITI) Report in 2019 and started implementing its recommendations to further enhance transparency in the extractive industry. In addition, the recent re-establishment of the Integrity Commission has resulted in over 50 per cent of politically exposed persons (PEPs) and other required officers making declarations within the first year.

“Ensuring greater compliance over time with the asset declaration regime would underscore the authorities’ support and commitment to the UN convention against corruption,” the IMF said, adding that it also welcomes the progress made in strengthening public procurement, and encourages the authorities to ensure timely compliance with existing regulations and take further actions to fortify the transparency of the procurement system.

It said that the authorities have indicated their concerns that the absence of a ring-fencing arrangement in the Stabroek Production Sharing Agreement could potentially affect the projected flow of government oil revenues. “The rapid appraisal and development of multiple oil fields could affect the timing and amount of profit oil to be shared with the government from a producing oil field by allocating costs from various fields under development to the producing field. The authorities are developing strategies to mitigate such a possibility, including a national oil depletion policy to guide extraction and production and clearer ring-fencing rules for new investments.”

Reassess money policy
The IMF said it is recommending that the authorities continually reassess the monetary policy stance to reflect changes in macroeconomic outlook or risks surrounding the outlook and is encouraging exchange rate flexibility as part of the monetary policy framework, given the expected large and potentially volatile foreign inflows from oil production.
It is also encouraging the authorities to consider developing over the medium-term, supported by IMF Technical Assistance, the necessary infrastructure for a suitable monetary policy framework that facilitates economic growth and adjustment to oil price shocks while maintaining price stability.

The Washington-based financial institution said Guyana’s financial sector remains stable and it supports the resolute efforts of the authorities in implementing 2016 Financial Sector Assessment Program (FSAP) recommendations. It said credit to the private sector grew by four per cent in 2018, faster than 2.1 per cent in 2017. The banking sector nonperforming loans (NPLs) to total loans ratio have fallen slightly to 11.9 per cent as of the end of December 2018, from 12.2 per cent a year before, but remained high. The IMF Executive Board is expected to discuss Guyana’s Article IV consultation in August 2019.