With Guyana’s Gross Domestic Product (GDP) growth projected at 57.8% for 2022, the International Monetary Fund (IMF) has said “continued prudent policies and structural reforms” are needed to avoid macroeconomic vulnerabilities and to ensure inclusive growth and intergenerational equity.
The upward projection of Guyana’s gross domestic product (GDP) has been largely linked to the significant increase in oil production. The IMF said that oil GDP is expected to grow over 100% this year and by about 30% on average per year during 2023-26.
“Oil production has the potential to transform profoundly Guyana’s economy (overall real GDP growth rate is projected to be 57.8% in 2022). Guy-ana’s commercially recoverable petroleum reserves is expected to reach over 11 billion barrels, one of the highest levels per capita in the world. This could help Guyana build up substantial fiscal and external buffers to absorb shocks while addressing infrastructure gaps and human development needs,” the IMF said in a statement yesterday announcing the conclusion of its Executive Board’s consultation on Article IV with Guyana.
The statement noted that the main downside risks to Guyana’s economic outlook include volatility in global oil prices, a slowing global economy, or rapid increases in investment which could lead to macroeconomic imbalances, while upside risks include higher global oil prices and additional gas and oil discoveries.
Back in June, following a visit from the Article IV mission to Guyana, the IMF team had cautioned over the pace of public investment. However, it also contended that Guy-ana’s medium-term pros-pects are more favourable than ever before, with increasing oil production having the potential to transform its economy.
That team was led by Alina Carare (then incoming mission head) and Meredith McIntyre (outgoing mission head), who held virtual discussions from May 18 to June 1. Missions are undertaken as part of regular consultations under Article IV of the IMF’s Articles of Agreement, in the context of a request to use IMF resources (borrow from the IMF), as part of discussions of staff monitored programs, or as part of other staff monitoring of economic developments.
The team had met with Finance Minister Dr Ashni Singh, Minister of Parlia-mentary Affairs and Governance Gail Teixeira, Central Bank Governor Gobind Ganga, other senior officials, representatives from the private sector, banks, the opposition party, labour unions, and other stakeholders, including Guyana’s international development partners.
Yesterday’s statement informed that despite the pandemic-induced recession in 2020, and protracted political transition, non-oil economic growth recovered in 2021 even after being negatively im-pacted by floods. Inflation increased markedly since 2021 owing to the floods and supply-side disruptions, as well as continually rising fuel and food prices.
Providing an assessment of the Executive Directors’ review, the IMF noted that the team agreed with the thrust of the staff appraisal and welcomed the broad-based economic recovery in 2021, following a protracted political transition and the unprecedented high real GDP growth, supported by a steep rise in oil production and accommodative policies.
“Directors highlighted that the increasing oil production could help transform the economy, address development needs, and build substantial buffers to absorb shocks. Neverthe-less, considering the potential challenges related to volatility in global oil prices and effective management of natural resources, they highlighted the need for continued prudent policies and structural reforms, assisted by Fund technical assistance, to avoid the buildup of macroeconomic vulnerabilities, ensure inclusive growth and intergenerational equity, as well as address structural weaknesses and climate challenges,” the statement from the IMF said.
The IMF said that its Directors welcomed the significant decline in public debt and favourable debt dynamics going forward. It added that the Guyanese authorities’ commitment to maintaining debt sustainability was also welcomed and stressed the importance of anchoring fiscal policy in a medium-term framework.
“They welcomed the restraint in using oil revenues before the passage of the recent amendments of the Natural Resource Fund Act and encouraged continued prudent management of oil revenues. Directors called for moderately ramping up public investment by constraining the annual non-oil overall fiscal balance to not exceed the expected oil transfers. They also encouraged the authorities to continue improving the targeting of social spending,” IMF informed.
According to the statement, the Directors agreed with the authorities that exchange rate stability serves Guyana’s current needs best and emphasized the importance of taking measures to further develop and deepen financial and foreign exchange markets, as the oil production increases. They saw merit in revising the monetary policy framework over the medium to long-term to ensure it is well suited for the economy’s needs, and that it allows more flexibility in the exchange rate to absorb shocks and help maintain competitiveness.
Additionally, the IMF Directors, in their assessment, commended the authorities’ efforts to maintain financial stability and promote financial inclusion. IMF noted that they welcomed the progress in implementing the 2016 FSAP recommendations and the commitment to fully implement the recently strengthened AML/CFT framework.
“Directors called for the continuation of broad-based reforms to address structural weaknesses and diversify the economy, emphasizing the significant human development and infrastructure needs. They commended the authorities’ progress in strengthening Guyana’s anti-corruption framework and fiscal transparency and encouraged continued progress on the implementation of the recommendations provided by the Extractive Industries Transparency Initiative (EITI). Directors commended the authorities’ efforts to build resilience to climate change as envisioned under their Low Carbon Development Strategy,” the Executive Directors said.
Back in June, the team said that Guyana’s medium-term prospects are more favourable than ever before, with increasing oil production having the potential to transform its economy. It noted that oil production is expected to increase significantly with the coming onstream of two large oilfields in the Stabroek Block during 2022-26. “Guyana’s commercially recoverable petroleum reserves is estimated to be well over 11 billion barrels, the third largest in Latin America and Caribbean, and one of the highest levels of oil reserves per capita in the world. This could help Guyana build up substantial fiscal and external buffers to absorb shocks while addressing infrastructure gaps and human development needs,” it said in a statement at the time.
At the same time, it had been noted that increased dependence on oil revenues will expose the economy to volatility in global oil prices. “A slowing global economy and the repercussions from the war in Ukraine could also adversely affect non-oil exports,” it added, before pointing out that higher global oil prices and additional gas and oil discoveries could significantly improve Guyana’s long-term economic prospects.
The IMF staff, according to the statement, strongly support the authorities’ goals to transform the economy, address development needs in an inclusive way, and protect the long-term economic well-being of the country. It voiced support for the authorities’ efforts to reduce electricity costs, improve transport infrastructure, diversify the economy, improve access to and quality of social services, and advance more broadly towards the Sustainable Development Goals. Staff also commended the authorities’ efforts outlined in the Low Carbon Development Strategy 2030 to maintain the country’s forest coverage and address climate change challenges by shifting towards renewable energy sources, while entering the international carbon credits market.
