With significant revenues expected from imminent oil production, the Bank of Guyana (BoG) has started preparation to insulate the economy from inflation and is receiving help from the International Monetary Fund (IMF) and Caribbean Technical Assistance Centre (CARTAC).
“We want to ensure price stability, monetary stability, and financial stability,” BoG Governor Dr Gobind Ganga told Stabroek News yesterday.
Guyana’s inflation rate has remained stable over the past five years at an average of 1.4% and at half year it stood at 1.6%.
However, when looked at over a 12-month period, it grew to 2.4% and this year’s Mid-Year Report said it was driven mainly by higher food prices.
IMF Mission Chief to Guyana Arnold McIntyre, in a recent interview with Trinidadian economist Marla Dukharan, said that Ganga had reached out for the technical assistance to craft a monetary policy that facilitates economic growth and adjustment to oil price shocks.
“We have quite a bit of technical assistance to be given to the Bank of Guyana over the next year or two at the request of Governor to help them develop the architecture of the monetary framework,” McIntyre said.
He explained that that the framework would be structured to support a plan that would include some exchange rate flexibility to allow Guyana to have buffers and respond to oil price shocks.
“If you ramp up and you get the macro-economic distortions, inflation can be your devil so that you start getting double digit inflation. You would be undermining purchasing power and disposable incomes of the individuals and the country. A key charge is to avoid inflationary pressures while at the same time increasing spending to meet development needs and people’s standard of living. That is the difficult balance you will be able to manage. That is what we try to assist in terms of our medium term framework. If we can achieve that and contain inflation, people will see a raise in standards over the time, in the medium to long term,” he added.
Ganga told this newspaper that the BoG is grateful for the IMF’s help, while noting that it has a Money and Capital Market Division which is tasked with providing most of the support. “Here is where they will be. When this flow comes in, we want to deepen the foreign exchange market, money market and at the same time build a capital market where there will be a trading of bonds and that kind of thing. This is where they will help us build that infrastructure. Trading of bonds, treasury bills and so on… will help in terms of price stability,” he said.
Skilled workers
Pointing to Guyana’s growth, McIntyre underscored that revenues from the oil sector will see the economy growing even further but echoed a recent IMF report on this country which stated that Guyana needs to address the issue of lacking skilled workers, as this would be an impediment to the growth.
“We think there is no lack of understanding, of understanding the challenges ahead in this area, of the financial sector development,” McIntyre said.
“…In the western hemisphere, Guyana is the sixth or seventh country with the highest migration rate over the last 20 years…,” he added, while noting that skilled workers make up a significant number of the migrants. “So the shortage of skilled labour is undermining the growth effort and the growth strategy in Guyana,” he said.
The 2019 IMF Staff Report on Guyana has pointed to key weaknesses in the economy that have to be overcome, including the skilled labour shortage and high energy costs. The report stated that the shortage of skilled manpower continues to constrain medium to long-term growth in the country.
“Gross school enrolment ratio at tertiary level for Guyana is about 12% percent, much lower than the Latin America and the Caribbean average of 44 percent”, the report said.
It added that the current low expenditure on education of 10 percent relative to the Caribbean average of 18 percent of total government expenditure underlines the need to increase outlay on education policy reforms, which are aimed at expanding access to education, improving the curriculum to better connect to modern labour market needs and enhancing vocational training.
It also said that to address the skills gap and satisfy an expected increase in the labour demand, Guyana could adopt more liberal or open immigration policies, including free movement of all categories of workers from other CARICOM countries.
The question of migration for labour purposes has become an increasingly controversial topic here in the run up to first oil.
McIntyre said that government is mulling having CARICOM nationals fill immediate openings while it trains its citizenry to meet the diversity of skills that would be needed.
“The education and training institutions, improving the quality of those constantly over time would help you to ensure that productivity levels don’t decline but increase. It is not only a matter of training younger people but all in IT and these things that are so vital for efficient business,” he said, while also warning that ensuring skills to improve the non-oil economy is also critical as the country could run the risk of becoming a monoculture with one booming sector and a “largely inefficient” economy otherwise.
Guyana’s private sector, according to McIntyre, does not have a problem with employing foreign skills. “Particularly, when we spoke to the private sector, they did point out that there is a fairly open labour market policy in Guyana,” he said.
“The government there is obviously contemplating CARICOM allowing all categories to move when you look at the fact that you that you will have about a 40% addition to GDP in four years. Already you see the housing and construction sector is growing. There are a lot of oil sector workers that have to be accommodated …the demand for skilled labour from accounts clerks to IT specialists and so on, is going to be very substantial. Whether that can be entirely met from CARICOM or not we will see,” he added.
