IMF highlights; says country’s current expansionary fiscal policy stance appropriate

projects real GDP growth on average of 20 per cent per year during 2024-2028

GUYANA’S economy is on the rise and this is credited to the government’s modernisation plans and implementation of prudent fiscal policies.
According to the International Monetary Fund (IMF)’s report documenting the conclusions of its Article IV Consultation with local authorities, Guyana has experienced record real Gross Domestic Product (GDP) growth, with a staggering 62.3 per cent increase in 2022 – the highest in the world.
The growth is expected to continue in 2023, with a projected 38 per cent increase in real GDP, as Guyana continues to build its image as a top destination for investment.
Pointing to sector achievements which drive this growth, the IMF report highlighted that oil production is ramping up with the coming on stream of a third oil field, and growth in the non-oil sector, which is supported by the implementation of a fast-paced public investment programme focused on providing transportation, housing, and flood management infrastructure, and raising human capital.

Spillovers from oil and construction are supporting growth in the services and supplies sectors, while agriculture, mining and quarrying are also performing well.
After a strong 2022, in the first half of 2023, real non-oil GDP grew by 12.3 per cent. The report stated that the outlook for medium-term growth is better than ever before, as the country’s oil production will continue to expand rapidly with three new approved fields set to come on stream between 2024 and 2027, and a sixth field is expected to come on stream in the first half of 2028.

Sustained real non-oil GDP growth of 5.5 per cent is projected, as the government continues its ambitious plans to address developmental needs, the IMF said.
“Guyana’s favourable medium-term growth prospects are accompanied by upside and downside risks. On the upside, further oil discoveries would continue to improve growth prospects.
“Construction growth and strong public investment may support higher than expected short-term non-oil growth, but could also lead to inflationary pressures and the appreciation of the real exchange rate beyond the level implied by a balanced expansion of the economy, overheating, and the crowding out of credit to the private sector,” the international organisation said, adding: “Adverse climate shocks, and volatile or lower than projected commodity prices, may also negatively impact the economy.”
However, the IMF acknowledged that the fiscal and monetary policy mix is appropriate at this time.
“The IMF views the current expansionary fiscal policy stance as appropriate, given the country’s development needs and the existing slack in the economy,” the international organisation said.

Monetary policy appropriately balances the expansionary fiscal stance. The increase in broad money (money supply) of about 10 per cent until June 2023 (since December 2022), and in credit to the private sector of about five per cent in the same period, remain below the nominal growth of the non-oil economy.
Although credit to the government is also increasing, it is not crowding out credit to the private sector. Further, the IMF noted the Bank of Guyana’s monitoring of macro-financial risks with eight indicators, including credit-to-GDP measures and the systemic risk matrix.

FISCAL DISCIPLINE
“The authorities’ commitment to fiscal discipline is welcome and allows for a balanced growth path. Over the medium-term, moderating fiscal impulses are projected to achieve a zero overall fiscal balance by 2028.

“This will allow for an expansion of the economy (real GDP growth on average of 20 per cent per year during 2024-2028) without creating macroeconomic imbalances. Public investment is expected to be financed primarily by oil revenues in the medium term,” the IMF said.

Public sector debt is projected to decline gradually as a share of GDP over the medium term, after declining to 26 per cent at end-2022, from 43.2 per cent of GDP in 2021.
Gross international reserves (excluding the National Resource Fund) are expected to continue to accumulate, with reserve coverage indicators continuing to strengthen. At the same time, substantial savings will accumulate offshore in the medium term in the Natural Resource Fund (NRF).
The IMF also supports the local authorities’ efforts to improve the business climate and address labour shortages.
“The authorities are preparing and implementing a range of reforms designed to increase the digitalisation of the economy and to boost labour and total factor productivity such as single window processing of permits, digital ID and digital banking records.

“Staff support the authorities’ efforts to increase electricity supply through a diversified energy matrix, improve its reliability, and decrease its cost,” the IMF said.
The organisation also acknowledged the authorities’ sustained efforts to address labour shortages by providing facilities for vocational training, resources for online training, and incentives to set up businesses outside the capital.