…lauds govt’s prudence, restraint

THE International Monetary Fund (IMF) has cautioned that short-term financing needs should be carefully managed and lauded what it described as the administration’s “prudence and restraint towards borrowing in anticipation of future oil revenue.”
The global lender encouraged that the government should rely as much as possible on multilateral development banks, including their non-concessional financing operations. “Developing the domestic capital markets would provide a more stable source of financing and help meet the needs of domestic long-term institutional investors. Private external borrowing should continue to be avoided, and central bank financing should not be used at all,” the IMF cautioned.

The IMF said too that it welcomes the authorities’ intention to close the overdraft balances at the central bank in the near-term, noting that saving the one-off gains from the tax amnesty would reduce financing needs, and also help preserve external buffers.
It added that the quality and efficiency of government expenditure should continue to be improved, noting that it is important to address the shortcomings identified by the PIMA before public investment is significantly scaled up with oil revenues. For similar reasons, the IMF advised that it would be useful to review current expenditures to ensure they achieve the maximum welfare and inclusion benefits.

Transparent
On the issue of oil revenue, the IMF said the rules-based fiscal framework for managing oil wealth should be transparent and consistent with the resource fund deposit/withdrawal rules. “It should provide the basis for determining the allocation of annual oil revenue for stabilisation and domestic capital expenditure, as well as intergenerational savings. The consistency between the fund deposit/withdrawal rules and a fiscal rule could be reinforced by fiscal responsibility legislation,” the institution said. It noted that monetary policy should gradually revert towards a neutral stance as the economic recovery gains pace, and inflationary pressures arise. “The exchange rate should play a more active role in cushioning external shocks going forward. Guyana remains vulnerable to external shocks given the concentration of its exports in a few commodities and its reliance on imported oil in the short-term. Over the long-term, building an adequate buffer stock of savings from the oil revenues would also help cope with external shocks,” the IMF said.
Meanwhile, other important areas where work still needs to be finalized, include: eliminating reduced provisioning requirements for “well-secured” portions of NPLs; refining the definition of “related parties” with the international standards; reducing the reliance on overdraft lending; clarifying the upstream and downstream ownership of institutions; and raising minimum capital adequacy requirement to 12 percent; and reducing the banks’ large exposure limits.

The IMF said enhancing competitiveness and supporting inclusive growth should remain a high priority, adding that greater efforts are needed to lower the cost of doing business by addressing infrastructure-related bottlenecks, reducing energy costs, and cutting red tape.
“Increasing female labour force participation and bridging the gaps with the hinterland can boost growth and help spread its benefits more widely,” the IMF said. It said oil exploration and production should be included in the national accounts when they are rebased, and also in the BOP statistics. Strengthening external sector statistics and compiling an international investment position should be a priority.

The IMF said Guyana’s macroeconomic outlook remains favourable, noting that while growth slowed down in 2017, it became more broad-based, and is expected to accelerate in the run-up to the start of oil production in 2020. According to the IMF, the extractive industries and public investment will be key drivers of economic growth over the medium-term. Reducing the costs of doing business, strengthening private sector confidence, and advancing productivity-enhancing reforms are essential for sustaining growth in the short-term, and for reaping the full benefits of the oil windfall once it materialises.