A RECENT International Monetary Fund (IMF) staff report has projected a 4 per cent growth for Guyana in 2016, but suggested that Guyana moderate growth of wages, as well as reform public enterprises with a view to reducing their reliance on Government support.In this regard, the mission welcomed the improved financial performance of Guyana Power and Light and the reforms proposed by the Commission of Inquiry for the Guyana Sugar Corporation.

But the mission in a statement on their preliminary findings on a recent visit here, noted that the scope and pace of reform should take into account social implications.

“Containing current expenditure would provide additional space for public investment, while preserving debt sustainability. The magnitude and sources of financing of the deficit have implications for growth. Domestic financing may crowd out credit to the private sector and raise interest rates,” the mission said.

Regarding external financing, the mission welcomed Guyana’s intentions to continue to refrain from non-concessional external borrowing that would raise the interest rate burden and adversely affect debt sustainability.

“The authorities’ exclusion of possible future hydrocarbon export income from their medium-term plans is commendable,” the IMF mission also noted.

It stressed that Guyana’s monetary policy stance should remain accommodative, pointing out that lower prices for imported goods, including fuel, continue to restrain inflation.

The mission observed that credit to the private sector had expanded at a rapid pace over the past decade, but broadly in line with economic activity and financial deepening.

Credit growth has moderated since 2015, mainly on account of reduced lending to businesses.

“As long as inflationary pressures remain contained, a more accommodative monetary policy stance, with base and broad money growing more rapidly than nominal GDP, remains appropriate,” the mission contended.

However, it said that while banks remain well capitalised, heightened vigilance is warranted due to increases in non-performing loans.

Recent changes to credit-reporting legislation, the mission said, are welcome and encourage Guyana to continue to strengthen financial sector supervision.

SUGGESTIONS
In particular, the mission suggested tightening: (i) provisioning requirements; (ii) large exposure limits: (iii) restrictions on related lending; and, (iv) loan-classification rules.

“In addition, the stress testing toolkit could be expanded to include shocks to loan collateral values and also take into account inter-linkages among economic sectors, borrowers, and financial entities,” the mission noted.

A Financial Sector Assessment Programme mission will visit Guyana in May to provide a more granular analysis of financial sector challenges and assist the authorities with strengthening the prudential toolkit.

Meanwhile, the mission said while recent steps by Guyana towards strengthening the Anti-Money Laundering and Combating the Financing of Terrorism framework are welcome, Guyana should address remaining deficiencies promptly.

It also urged Guyana to accelerate the implementation of the action plan agreed with the Financial Action Task Force.

Guyana’s economy remains resilient and continues to grow despite significant global headwinds.

In 2015, real GDP grew at 3 per cent, notwithstanding lower commodity export prices, delays in budget implementation, and political uncertainty in the run-up to general elections.

POSITIVE PROJECTIONS
Developments in the global economy remain a drag on growth, particularly for commodity exporters. Nevertheless, growth is projected to increase this year, supported by an increase in gold production and public investment.

Guyana has projected a 4.4 per cent growth in 2016, but the mission projects 4.0 per cent. According to the mission, boosting private sector confidence is key for growth momentum, and commended Guyana for maintaining macroeconomic stability.

The steep decline in international oil prices narrowed the current account deficit. Lower prices reduced the cost of fuel imports, which more than offset the impact of lower commodity export prices, reducing the current account deficit to 4.6 per cent of GDP in 2015 from 10.8 per cent in 2014.

Reserves stood at 3.6 months of imports at end-2015 and are projected to increase over the medium-term, bolstered by foreign investment and donor support for public investment.

“The exchange rate has remained broadly stable due to offsetting positive and negative external shocks. Nevertheless, Guyana remains vulnerable to movements in commodity prices due to dependence on imported oil and the concentration of exports on a few commodities,” the mission reported.

The mission said exchange-rate flexibility would continue to facilitate adjustment to external developments, mitigate their effect on growth, and safeguard reserves.

The fiscal balance improved in 2015, reflecting one-off factors. The overall non-financial public sector deficit narrowed to 0.2 per cent of GDP in 2015 from 5.7 percent in 2014.

Despite an economic slowdown, revenue increased buoyed by fuel excises (which were raised as the international oil price declined), and a one-off increase in non-tax revenue from statutory agencies.

According to the mission, capital expenditure declined by nearly 30 per cent, reflecting the late start of the public investment programme, and going forward, the deficit is expected to remain between five and six per cent of GDP.

“The authorities have an ambitious investment strategy for environmentally sustainable and socially inclusive growth. Improvements in transportation and telecommunication infrastructure and renewable energy projects will boost productivity, integrate remote regions, facilitate economic diversification, and ease key impediments to growth. These investments should stimulate economic activity, provide a durable increase in competitiveness, and ensure that the benefits of growth are more broadly distributed,” the mission said.