According to the International Monetary Fund (IMF), Guyana’s economic growth was in 2018 strengthened with broad-based expansion across all major sectors but structural reforms including possibly “more liberal” immigration policies are needed to support economic diversification, and achieve inclusive and equitable growth.
Yesterday, the IMF issued the concluding statement of its 2019 Article IV Mission. According to the Statement, due to the construction and services sectors, real GDP grew by 4.1 percent in 2018, up from 2.1 percent in 2017 while inflation remained steady at 1.6 percent at end-2018, on the back of stable food prices and exchange rate. It is expected that continued strength in the construction and service sectors and strong recovery in mining will lead to a 4.4 percent real economic growth in 2019.
Despite these improvements, weaker export performance and higher imports driven by high value imports related to oil production contributed to a weaker current account balance. Specifically in 2018, the current account deficit rose to 17.5 percent of GDP, from 6.8 percent in 2017.
On the other hand, improvements were also seen in the public financial sector with the central government’s deficit recorded at 3.5 percent of GDP, lower than the budgeted 5.4 percent of GDP.
“The better-than-expected outturn was largely supported by stronger revenues arising from the pickup in economic activity, as well as continued improvements in tax administration and the tax amnesty program which relaxed interest and penalties on payments of outstanding taxes,” the statement explained adding that the expenditure grew at a weaker pace due to slower capital spending as a result of capacity issues in both the public and private sector.
In 2019 this is expected to expand at 5 percent of GDP, driven by significant need for infrastructure development and capacity building ahead of oil production.
This development of both infrastructural and human resources was highlighted as necessary for long- term growth.
The statement stressed that “infrastructure bottlenecks, skilled labor shortages, and weaknesses in electricity supply are major obstacles to growth.”
The Staff therefore supported government’s proposed increase in investments to improve access to roads, electricity, and telecommunication services to enhance economic activities, including in the hinterland.
Employment prospects
“Simultaneous investment in upgrading the education system is critical and would enhance skills and employment prospects,” the statement noted before suggesting that Guyana could adopt more liberal or open immigration policies to address the skills gap and satisfy an expected increase in labour demand.
Some of the policies suggested include free movement of all categories of workers from other CARICOM countries and promoting more flexible working arrangements to help increase female labour participation.
“Further regulatory and administrative reforms—including property rights and insolvency regime and reducing bureaucratic red-tape—would help strengthen competitiveness,” the statement adds.
At the same time the staff indicated that while government does not foresee any significant spillovers from the crisis in Venezuela they acknowledge that the influx of migrants into the hinterland and rural areas could put socio-economic pressures on the local communities.
They also suggest that while oil production in 2020 presents an opportunity to scale-up capital and current spending it must be done at a measured pace over the medium term to address infrastructure gaps and human development needs, while lessening debt sustainability concerns at the same time.
Natural Resource Fund
They welcomed the passage of the Natural Resource Fund (NRF) legislation for managing the country’s natural resource wealth but recommended complementing the NRF legislation with a fiscal framework that constrains borrowing and achieves a balanced budget in the near- to medium-term.
“To achieve this target, the annual non-oil deficit should not exceed the expected transfer from the NRF. This would ensure that excessive public expenditure will not lead to debt growing at the same time as the NRF accumulates. It is also necessary to preserve the spirit of the NRF framework, which appropriately aims to save part of the income from oil as net wealth for future generations,” the statement advised.
Specifically, according to the IMF staff, the pace of scaling-up public spending needs to be gradual to reduce bottlenecks from absorptive capacity constraints, avoid waste, and minimize macroeconomic distortions related to “Dutch” disease that has often inflicted economies experiencing sizable increases in resource-based income.
Additionally the statement commended ongoing efforts to modernize the revenue administration and strengthen the public investment management system but reiterated the importance of addressing the weaknesses identified in the 2017 Public Investment Management Assessment.
“Greater urgency is attached to these reforms ahead of the expected increase in public spending as oil production begins,” they stressed.
The team noted that Guyana completed its first Extractive Industries Transparency Initiative (EITI) Report in 2019, started implementing its recommendations to further enhance transparency in the extractive industry and recently re-established the Integrity Commission resulting in over 50 percent of politically exposed persons (PEPs) and other required officers making declarations within the first year.
“Ensuring greater compliance over time with the asset declaration regime would underscore the authorities’ support and commitment to the UN convention against corruption,” the team noted before welcoming the progress made in strengthening public procurement, and encouraging the authorities to ensure timely compliance with existing regulations and take further actions to fortify the transparency of the procurement system.
The team was led by Arnold McIntyre and visited between June 3–14 during which time they met with Prime Minister Moses Nagamootoo, Finance Minister Winston Jordan, Minister of Legal Affairs and Attorney General Basil Williams, Central Bank Governor Gobind Ganga, other senior officials, representatives from the private sector, banks, the opposition party, labour unions, and other stakeholders.
