While Guyana’s outlook remains positive for 2011, the International Monetary Fund has warned about lagging sugar productivity, the need for sweeping reforms in the NIS and careful monitoring of the fiscal risks associated with the Amaila Falls Hydro Project.
In its March 4 Public Information Notice (PIN), the IMF said that Guyana’s outlook remains positive for 2011, which it noted was an election year, and through the medium term. It posited that road works, construction of the Amaila Falls Hydro Project (AFHP), and implementation of the Low Carbon Development Strategy (LCDS) should maintain growth levels above the long-run trend of three per cent, at around five per cent over the medium term. This growth it sees tapering off in 2015 as one-off projects such as AFHP are completed. It cited downside risks – linked to fiscal pressures – arising from falling productivity in the Guyana Sugar Corporation (GuySuCo), the need to bolster the finances of the National Insurance Scheme (NIS), and a possible fall-off in aid pledges.
In its assessment, the Executive Board of the IMF commended the authorities for macroeconomic policies that have buttressed stability in the face of external and domestic shocks. The directors pointed to the development of forestry-based environmental services, private sector plans for the tapping of Guyana’s natural resources, and large infrastructure investments which are supporting Guyana’s medium-term growth prospects.
Directors welcomed the continued commitment to fiscal prudence and recommended contingency measures to lower risks from volatile grant disbursements. “In this regard, a few Directors called on the donor community to fulfill their development assistance commitments.”
Directors contended that the further strengthening of the fiscal position calls for sweeping reforms in the National Insurance System and key public enterprises. Actuarial reports on the NIS have pointed to dire consequences for the National Insurance Scheme if sweeping changes aren’t made. “Directors also encouraged the authorities to monitor carefully the fiscal risks associated with the construction of a large hydro power plant, advising the adoption of international best practices for public-private partnerships.” The Amaila project has been mired in controversies over the selection of the contractor for the access road, the cost of the project and whether it will indeed yield cheaper power for consumers.
Directors in the PIN were of the opinion that monetary management has been pivotal to macroeconomic stability. “They noted that there may be scope for early tightening, if increases in commodity prices were to threaten the authorities’ inflation objective. 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.”
Pointing out that financial sector indicators had im-proved, directors stressed the need for continued close prudential oversight. They welcomed laws establishing the licensing and supervisory framework for credit bureau operations and bringing the New Building Society under the supervision of the central bank.
Directors in the PIN endorsed the authorities’ Low Carbon Development Strategy, which seeks to push competitiveness and private investment. “Its successful implementation, with international support, will lift Guyana’s long-term growth prospects and reduce poverty. Considering the authorities’ intention to finalize soon their poverty reduction strategy, Directors encouraged a continued dialogue with all stakeholders to maintain consensus on the development agenda.”
Directors adverted to the improvements in data quality achieved in 2010 and welcomed the authorities’ decision to subscribe to the Fund’s General Data Dissemination System.
On February 16, 2011, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Guyana.
The IMF assessment found that despite external and domestic shocks, the Guyanese economy demonstrated resilience and registered a fifth consecutive year of robust growth in 2010.
In 2010, it noted that the overall fiscal balance was estimated to have weakened by close to 1 percentage point of GDP, to 4.3 per cent of GDP, due to weak performance in public enterprises, not fully countered by a decline in investment and despite strong central government revenues. Public debt was broadly unchanged, at 61 per cent of GDP, the PIN noted.
During 2010, the IMF pointed out that 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 organization 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 modernization plans in the sugar industry with the reorientation of cane fields to accommodate mechanization. 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. On the infrastructure front, major refurbishment and upgrading of the electricity transmission and distribution network, along with the access road to the Amaila Falls hydro power plant project site, have commenced. In the area of statistics, the authorities have signed on to the IMF’s General Data Dissemination System (GDDS).”
