…urges continued stakeholder dialogue
The International Monetary Fund (IMF) says despite external and domestic shocks, the Guyanese economy demonstrated resilience and registered a fifth consecutive year of robust growth in 2010, with the economy expanding by around 3.4 percent, slightly more than in 2009. The IMF, in its Article IV consultation with Guyana, concluded on February 16, said expansion in the gold and services sectors, which helped offset lower output in the sugar sector, supported the growth realised.
However, the report said that end-year inflation rose to 4.4 percent, from 3.7 percent in 2009, reflecting higher food prices. “Although the external current account deficit is estimated to have widened to 11.4 percent of GDP, a steady inflow of public external financing and foreign direct investment were sufficient to finance the deficit and strengthen foreign reserves to the equivalent of five months of imports,” the report said.
According to the document, released yesterday, in 2010, the overall fiscal balance is estimated to have weakened by close to 1 percentage point of GDP, to 4.3 percent of GDP, due to weak performance in public enterprises, not fully offset by a decline in investment and despite strong central government revenues.
It said bank prudential indicators have remained stable, with banks generally liquid and well capitalised. The IMF mentioned that in September 2010, the authorities started making payouts to Colonial Life Insurance Company (CLICO) policyholders, in line with their plans to minimise fiscal costs.
“During 2010, structural reforms focused on improving the policy framework and supporting long-term growth. In the area of fiscal policy, efforts to improve the Guyana Revenue Authority (GRA) continued. Its new functional organisation was consolidated, improving further the integrated tax information system (TRIPS), the profiling of taxpayers, and on-site inspections at the country’s ports of entry. In support of long-term growth, the authorities continued their modernisation plans in the sugar industry with the reorientation of cane fields to accommodate mechanisation. In the financial sector, the authorities passed the Credit Bureau Act, and widened the regulatory perimeter by bringing the New Building Society under the jurisdiction of the Bank of Guyana,” the IMF said in their report.
“Guyana’s outlook remains positive for 2011, an election year, and through the medium term. Road projects, construction of a large hydropower plant at Amaila Falls (AFHP), and implementation of the Low Carbon Development Strategy (LCDS) should sustain growth levels above the long-run trend of 3 percent, at around 5 percent over the medium term before tapering off in 2015 as one-off projects are completed,” the report said. However, the IMF warned of downside risks including those linked to fiscal pressures arising from lagging productivity in the Guyana Sugar Corporation, the need to strengthen the finances of the National Insurance Scheme , and a possible fall-off in aid commitments.
In giving their assessment, directors of the IMF Board commended the Government for macroeconomic policies “that have supported resilience in the face of external and domestic shocks.” The directors noted that the development of forestry-based environmental services, private sector plans for the exploitation of Guyana’s natural resources, and large infrastructure investments are supporting Guyana’s medium-term growth prospects.
“Directors welcomed the authorities’ continued commitment to fiscal prudence and recommended contingency measures to mitigate risks from volatile grant disbursements. In this regard, a few directors called on the donor community to fulfil their development assistance commitments,” the IMF said.
“Directors agreed that Guyana’s exchange rate regime has served the country well. Going forward, some directors supported a gradual approach toward greater exchange rate flexibility, while others considered the current policy to be appropriate,” the IMF said.
“Noting that financial sector indicators had improved, directors stressed the need for continued close prudential oversight. They welcomed the laws establishing the licensing and supervisory framework for credit bureau operations and bringing the mortgage bank under the supervision of the central bank,” the IMF said.
Finally, the IMF Directors endorsed Government’s Low Carbon Development Strategy (LDCS), which seeks to boost competitiveness and private investment. The report said that the successful implementation of the LCDS, with international support, would lift Guyana’s long-term growth prospects and reduce poverty.
“Considering the authorities’ intention to finalise soon their poverty reduction strategy, directors encouraged a continued dialogue with all stakeholders to maintain consensus on the development agenda,” the IMF said.