According to media reports, subsidiaries and/or affiliates of Chinese companies competing to build Guyana’s natural gas power plant at Wales, West Bank Demerara, have been blacklisted for fraudulent practices in relation to the award of contracts funded by World Bank. In September 2019, the Bank blacklisted the subsidiary of one company with a 20-month debarment for providing falsified documents on past performance on the basis of which it won a contract for a transmission and distribution rehabilitation project in Zambia. The ban was, however, lifted in May 2021, following certain actions the company took as regards its integrity and compliance management systems and corporate governance arrangements.
Last May, in a separate case involving the same company, Zambia’s Anti-Corruption Commission arrested the country’s former Secretary to the Treasury for failure to follow the approved procedures when he authorized an advance payment of US$33.8 million for the construction of a university. To date, no university has been built. The architect for the project was also arrested.
By Section 3(2) of the Procurement (Suspension and Debarment) Regulations 2019, the Public Procurement Commission (PPC) is required to automatically debar any supplier or contractor from participating in the procurement process in Guyana if that supplier or contractor has been debarred by another jurisdiction or by an international organization. An examination of the PPC’s website shows eleven instances of debarment, none of which relate to the above companies. We hope that the new PPC will consider it necessary to update the list of debarred suppliers and contractors in order to comply with the above Regulations. The concerned Ministries should also reject tenders of companies that have not met the qualification requirements set out in Section 5 of the Procurement Act, especially as regards debarment in other jurisdictions as well as unsatisfactory past performance.
Article IV of the International Monetary Fund’s (IMF) Articles of Agreement provides for the IMF to hold bilateral discussions with member countries, usually every year. A staff team would visit the country, collect economic and financial information, and discuss with officials the country’s economic developments and policies. On return to headquarters, the team would prepare a report which forms the basis for discussion by the Executive Board. During the period May-June 2022, the IMF team visited Guyana, held discussions with key officials and other stakeholders, and issued its report on 20 July 2022. On 31 August 2022, the Board met, considered the report and issued a media release last Tuesday.
In our article of 1 August 2022, we discussed the main points of the staff report which spoke very favourably about Guyana’s economic performance last year, especially the overall real Gross Domestic Product (GDP) growth and the prospects over the medium term. In today’s article, we highlight the main points of the Executive Board’s assessment of the report as reflected in its media release.
Real GDP growth
The Board agreed with the thrust of the staff report, especially the projected overall GDP growth of 57.8 percent in 2022 as well as the recovery of non-oil GDP growth of 4.6 percent in 2021 despite setbacks arising from COVID-19 pandemic, protracted political transition and flooding in 2021. According to the Bank of Guyana’s first quarterly report for 2022, the non-oil economy’s performance was mixed, with both rice and sugar experiencing decline in production by 53.1 percent and 47.7 percent, respectively. There was, however, no quantification of the non-oil growth. The 2022 Mid-Year Report issued by the Ministry of Finance last August indicated that the non-oil growth for the first half of 2022 was 8.3 percent, with a projected growth of 9.9 percent for the entire year.
The Board expressed the view that, with an estimated 100 percent increase in oil GDP in 2022 as well as a 30 percent increase over the period 2023-2026, oil production has the potential to profoundly transform Guyana’s economy. This includes building up substantial fiscal and external buffers to absorb shocks while at the same time addressing infrastructure gaps and human development needs.
Inflation
According to the Board, inflation increased markedly since 2021 due to the floods, supply-side disruptions, and continually rising fuel and food prices. No figure was mentioned. However, the Bank of Guyana’s first quarterly report for 2022 indicated that inflation was 1.8 percent, which we felt should have been significantly higher, considering the experiences of other countries such as the United States, Canada, the UK, and here in the Caribbean. The Ministry of Finance’s 2022 Mid-Year Report indicated that consumer prices were 4.9 percent higher than levels recorded at the end of 2021, with a projection of 5.8 percent for 2022 which we believe does not accord with the reality of the situation on the ground.
Exchange rate
The Board considered that, while the exchange rate stability serves Guyana’s current needs, it is necessary for measures to be taken to further develop and deepen financial and foreign exchange markets, as the oil production increases. In this regard, it stated that there is merit in revising the monetary policy framework over the medium to long-term to ensure it is well suited for the economy’s needs. This would allow more flexibility in the exchange rate to absorb shocks and help maintain competitiveness.
According to the 2022 Mid-Year report, the official exchange rate of the Guyana dollar to the US dollar remained stable at $208.5. However, the market mid-rate appreciated marginally from $208.8 to $206.9.
Public debt
The Board stated that it welcomed the significant decline in public debt and the Government’s commitment to ensure debt sustainability. It, however, stressed the importance of having fiscal policy in line with a medium-term framework. The IMF has consistently advocated for such a framework (both budget and fiscal) to be in place, around which the annual estimates of revenue and expenditure are crafted.
It should be pointed out that, while the debt-to-GDP ratio has declined by virtue of a significant increase in the GDP arising from oil production, the actual total public debt has increased. According to the 2022 Mid-Year report, the total public debt, inclusive of publicly guaranteed debt amounting to US$2.4 million, was US$3,248.8 million, compared with US$3,126.7 million at the end of 2021, an increase of US$122.1 billion.
The external debt at the end of June was US$1,370.8 million, compared with US$1,392.8 million at the end of 2021, a decrease of US$22 million. Internal debt, however, increased by 8.3 percent from US$1,733.9 million at the end of 2021 to US$1,878 million. This was mainly due to a 21.8 percent increase in the stock of Treasury Bills to US$856 million. Internal debt is projected to increase further by 6.6 percent to US$2,002.6 million by year-end in anticipation of the issuance of new Treasury Bills; while the total public debt is projected to increase to US$3,520.5 million by the end of the year.
Use of oil revenue
The Board stated that it 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. It called for measured increase in spending on public investment to ensure that the annual non-oil overall fiscal balance does not exceed the expected oil transfers. The Board also encouraged the Government to continue its efforts on improving social spending.
Financial stability
The Board commended the Government for its efforts to maintain financial stability and promote financial inclusion. (The World Bank has defined financial inclusion to mean ‘individuals and businesses [having] access to useful and affordable financial products and services that meet their needs – transactions, payments, savings, credit and insurance – delivered in a responsible and sustainable way’.) It also welcomed the progress in implementing the 2016 Financial Sector Assessment Program (FSAP) recommendations and the commitment to fully implement the recently strengthened AML/CFT framework. It encouraged further efforts in this area, in particular to strengthen the regulation of digital payments. (The FSAP looks at four key areas of banking supervision: on-site supervision, bank failure and distress management, disclosure of information and bank corporate governance.)
The Board also called for the continuation of broad-based reforms to address structural weaknesses and to diversify the economy, with emphasis on human development and infrastructure needs. The annex to the media release contains a table showing that 35 percent of Guyana’s population live below the poverty line. The poverty line is defined as ‘the amount of income a person or family needs in order to maintain an acceptable standard of living, and below which they are considered poor’. Guyana has also been ranked 122 on the Human Development Index.
As regards the AML/CFT framework, it will be recalled that legislation was passed in 2009. However, there were significant deficiencies and non-compliance with the Financial Action Task Force (FATF) standard recommendations. After several years of political wrangling over the extent of the amendments that needed to be made to comply with the FATF requirements, it was not until June 2015 that the necessary amendments were made. Since then there were minor amendments to AML/CFT Act.
Anti-corruption and fiscal transparency
The Board commended the Government for progress made in strengthening Guyana’s anti-corruption framework and fiscal transparency as well as its efforts to build resilience to climate change as envisioned under their Low Carbon Development Strategy. It encouraged continued progress on implementation of the recommendations contained in the Extractive Industries Transparency Initiative (EITI) assessments.
There have so far been three EITI annual reports covering the years 2017, 2018 and 2019. The first report identified significant shortcomings/deficiencies as well as non-compliance with the EITI Standard, and recommendations were made for remedial action, including:
(a) Establishing an open database, especially as regards beneficial ownership of companies operating in the extractive sector;
(b) Inventorising licences/permits and maintaining a register;
(c) Publicising mining agreements and maintaining an archive;
(d) Awarding mineral agreements based on tendering and providing a clear definition of and distinction between large-scale licences and medium-scale permits; and
(e) Accelerating reform of the petroleum legislation.
Regrettably, most of the findings and recommendations were repeated in the later reports, indicating little progress or no progress to implement the recommendations. In addition, in the first Validation Report prepared by the EITI Secretariat in April 2022, Guyana scored poorly in all three components – stakeholder management; transparency; and outcomes and impact. According to the EITI Board, the low score on the outcomes and impact component reflected an ad hoc approach to outreach and dissemination; failure to follow-up on EITI recommendations; and insufficient attention to the annual review.
Risks and challenges
The main downside risks to Guyana’s economic outlook relate to the volatility in global oil prices, a slowing global economy, or rapid increases in investment which could lead to macroeconomic imbalances. Considering these risks as well as the need for the effective management of natural resources, The Board emphasized the importance of continued prudent policies and structural reforms to avoid buildup of macroeconomic vulnerabilities, ensuring inclusive growth and intergenerational equity as well as addressing structural weaknesses and climate challenges.
On the other hand, higher global oil prices and additional gas and oil discoveries will provide the Government with additional revenue thereby significantly boosting Guyana’s long-term economic prospects.
