Guyana’s prospects more favourable than ever before

–IMF says, advises country to strengthen capacity to manage public investment

A REPORT on the preliminary findings of a recent International Monetary Fund (IMF) mission to Guyana has found that Guyana’s oil prospects, coupled with its stable financial sector, signals more favourable medium-term prospects for the country than ever before.

Virtual discussions were held recently among members of an IMF mission and local stakeholders, including Senior Minister in the Office of the President with responsibility for Finance, Dr. Ashni Singh; Minister of Parliamentary Affairs and Governance Gail Teixeira; and Central Bank Governor Dr. Gobind Ganga.

A concluding statement from the IMF, issued on Friday, acknowledged that despite the negative impact of several internal and external shocks, Guyana’s economy had been able to stabilise and rebound, while supporting citizens during trying economic times.

Oil production and associated developments were highlighted as major contributors to Guyana’s sound financial performance, which, the IMF noted in previous reports, remained positive throughout the COVID-19 pandemic.

This oil production is expected to usher in many more benefits for the country, particularly with additional oil-and-gas discoveries in the medium-term. Current estimates peg Guyana’s recoverable oil resources in the Stabroek Block at about 11 billion barrels.

“Guyana’s medium-term prospects are more favourable than ever before, with increasing oil production having the potential to transform Guyana’s economy,” the IMF highlighted in its release.
It added: “This could help Guyana build up substantial fiscal and external buffers to absorb shocks, while addressing infrastructure gaps and human development needs.”

What this simply means is that if oil resources are exploited carefully, Guyana could prevent harsh economic shocks, similar to the COVID-19 pandemic and its supply-chain disruptions from impacting the local economy.

The IMF has noted, however, that the country’s fiscal position remained “appropriately supportive in 2021” with the provision of cash transfers/grants, quickly-initiated public investment projects and key tax cuts. Those were done while the country’s debt remained lower than half of its Gross Domestic Product (GDP).

Oil influx aside, the IMF noted, non-oil growth was positive in 2021 following the effects of the COVID-19 pandemic, and the delayed political transition that followed the 2020 General and Regional elections. The international financial institution contended that some of the macroeconomic policies instituted might have contributed to this.

Those policies include an emphasis on public investment and policies to sustain long-term growth, maintaining one of the region’s lowest levels of debt and progress in strengthening both the anti-corruption framework and fiscal transparency.

The financial body also lauded amendments to the Natural Resource Fund (NRF) Act, which now provides a greater level of accountability and improved management of Guyana’s oil wealth. This new law was instituted at the end of 2021, and, since then, all of Guyana’s oil revenues received thus far have been published. Withdrawal of some of those funds, as approved by the National Assembly, have also been communicated to the public.

The engagements between the IMF team and local stakeholders were part of what is known as an Article IV consultation. Through this, an IMF team assesses economic and financial developments, and discusses the country’s economic and financial policies with government and central bank officials. It is expected that global views and international policies might influence national policies.

CAUTION NEEDED
In this report, the IMF has already made some key recommendations. Though oil revenues are expected to contribute significantly to the country’s development, the IMF noted that a dependence on it might expose Guyana’s economy to volatile oil prices. These prices are known to either dip or skyrocket, disrupting revenue projections and actual revenues.

Surging global oil prices have already impacted local consumers by resulting in the higher-than-normal cost of goods. Simultaneously, however, Guyana has been receiving more oil revenues, because its oil is being sold at a higher price internationally.

“On the other hand, higher global oil prices and additional gas and oil discoveries could significantly improve Guyana’s long-term economic prospects,” the IMF related.

Importantly, the IMF also supported public spending in major, transformational projects, but cautioned that the “ramping up” investment could potentially add inflationary pressures within the local economy. As such, the local authorities were encouraged to strengthen the capacity to manage public investment.

The IMF team also recommends setting annual budgets within a fiscal framework that constrains the annual non-oil overall fiscal deficit, not exceeding the expected transfer from the NRF, to anchor fiscal policy in a sustainable way.

“This rule will also ensure that fiscal spending, including capital spending, is increased at a measured pace to address development needs without macroeconomic imbalances,” the body reasoned.

Even so, strong support was signalled for local endeavours, including those geared at cutting electricity costs, improving the transport infrastructure, diversifying the economy, and improving the quality of social services. Support for Guyana’s Low- Carbon Development Strategy (LCDS), an ambitious plan to facilitate future development needs by sustainably harnessing forest resources was also noted.

With the foregoing, the IMF said that it is ready to assist the authorities’ capacity development needs.

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