The Speaker of Canada’s House of Commons lower chamber is resigning from the position for publicly praising Yaroslav Hunka, a former Nazi soldier. His resignation will take effect from Wednesday. Acknowledging that he had made a mistake by inviting the ex-soldier to attend a session in the House honouring Ukrainian President Volodymyr Zelenskiy, the Speaker stated that the public recognition has caused pain to individuals and communities, including the Jewish community in Canada and around the world. Accordingly, he accepted full responsibility for his actions. Hunka had served in one of Adolf Hitler’s Waffen SS units during World War II.
Three weeks ago, the International Monetary Fund (IMF) released the preliminary results of its 2023 Article IV Consultations on Guyana. During the period 28 August to 11 September 2023, a team from the IMF held discussions with senior government officials as well as representatives of the private sector, the banks, trade unions and other stakeholders. Following this, the team prepared its assessment, in the form of a Concluding Statement, which is subject to the approval of the IMF Executive Board. Based on the preliminary findings, the team will then prepare a full report for consideration by management after which it is presented to the Board for discussion and decision.
The Alliance for Change (AFC) has, however, complained that it was not consulted and that, while the assessment paints a mostly glowing picture of Guyana’s economic circumstances, the reality is nowhere near the truth for many ordinary citizens who were also not consulted. In today’s article, we highlight the main points of the Concluding Statement.
GDP growth
Following real GDP growth in 2022 of 62.3 percent, the economy is expected to grow by 38 percent in 2023, mainly due to anticipated increase in oil production as well as growth in the non-oil sector, including support services to the oil and gas sector as well as anticipated enhanced performance in agriculture, mining and quarrying. In the first half of 2023 real non-oil GDP grew by 12.3 percent.
In several of our articles, we cautioned against the interpretation of Guyana’s GDP growth as well as its income status as measures of economic and social well-being of the country’s citizens. One recalls that the World Bank’s most recent assessment is that some 47 percent of the population lives on less than US$5.50 per day which is the threshold for upper-middle income countries. Guyana has been categorized a high income country with a Gross National Income (GNI) per capita of US$15,050 by virtue of the country becoming a major oil-producing nation. This is notwithstanding that 87.5 percent of the value of the oil produced does not belong to the country. Guyana’s GNI per capita is also 4.35 times the private sector minimum wage of G$60,147 per month. On the Human Development Index, which measures a country’s progress in health, education and standard of living, among others, the country ranked 108 out of 191 countries in 2021.
Policy makers take pride and delight in referring to Guyana being one of the fastest growing economy in the world with unprecedented growth and medium-term prospects better than ever before, assertions repeated by the IMF team in their Concluding Statement. However, one need to seriously reflect on what this all means for the majority of the population who have to grapple with low wages and salaries, the high cost of living, and general living standards. While foreign investors and overseas-based Guyanese may find such pronouncements as positive indicators and an incentive to invest in the country, the plight of the ordinary Guyanese should never be overlooked.
Considering the volatility of oil prices and the risk of unforeseen events that may have an adverse effect on oil production, two main issues need to be tackled. The first is to ensure that the economy is sufficiently diversified to withstand any possible shocks arising therefrom. At the moment, the economy is not doing well in terms of non-oil production, as indicated in the latest Bank of Guyana report. According to the Bank, the economy recorded mixed output performances in the major sectors during the first quarter of 2023, with the non-oil economy experiencing moderate growth. While there was increased production in relation to sugar and rice due to favourable weather conditions, forestry, bauxite, gold, and quarrying and mining recorded declines.
The second issue relates to climate change. Guyana is at high risk of climate-induced hazards, including increases in heavy rainfall and related occurrences of flooding, sea-level rise and storm surges, especially in coastal areas. According to the World Bank, research shows that the impact of rising sea levels and intensified storm surges in Guyana would be among the greatest in the world, exposing 100 percent of the country’s coastal agriculture and 66.4 percent of coastal urban areas to flooding and coastal erosion, with potential GDP losses projected to exceed 46.4 percent. Unfortunately, these issues have not been adequately dealt with in the Concluding Statement which focused mainly on what it described as the unparalleled oil expansion, record real GDP growth being the highest in the world, and projections in the medium term being “better than ever before”.
Inflation
The inflation rate was 7.2 percent at end of 2022. It declined to 1.2 percent on a year to year basis as of July 2023. However, this assessment is inconsistent with that contained in the Ministry of Finance’s 2023 Mid-Year Report which indicated that inflation was 4.6 percent. Whatever the figure, both assessments of the rate of inflation do not concur with the reality of the situation where there have been persistent complaints about high food prices and the cost of living generally.
Balance of payments
The external current account moved into a large surplus in 2022, of 23.8 percent of GDP, and another large surplus is expected in 2023. Banks are well capitalized and liquid.
Employment
Although there was robust employment growth in the oil, services and construction sectors, the unemployment rate was 12.4 percent in 2022.
Fiscal and monetary policies
The increases in broad money of about 10 percent and credit to the private sector of about 5 percent for the period January – June 2023, were below the nominal growth of the non-oil economy. Although credit to the government is also increasing, it is not crowding out credit to the private sector. The Bank of Guyana monitors macro-financial risks with eight indicators, including credit-to-GDP measures and the systemic risk matrix.
Public debt
The public debt is projected to decline gradually as a share of GDP over the medium term after declining to 26 percent of GDP at the end of 2022, from 43.2 percent in 2021. Again, we may point out that although the public debt keeps increasing, the debt-to-GDP ratio has been declining, due mainly to the inclusion of the total oil production in the calculation of the GDP.
Exchange rate and international reserves
The real exchange rate is expected to appreciate, and inflation to increase, as the economy closes its development gap. Gross international reserves are expected to continue to accumulate, with reserves coverage indicators continuing to strengthen. At the same time, there will be substantial savings in the medium term in the Natural Resource Fund (NRF). We should, however, point out that at the end of June 2023, the reserves stood at US$736 million which is perhaps less than one month’s coverage of imports. The NRF balance as at this date was US$1,723.5 million.
Governance arrangements
The IMF team commended the Authorities for progress in strengthening AML/CFT, governance and anti-corruption frameworks. It also stated that several pillars of the anti-corruption framework have been further strengthened, including the Integrity Commission, the Public Procurement Commission and the National Procurement and Tender Administration Board (NPTAB). The team did not, however, assess the effectiveness of the framework for which many stakeholders have serious reservations, especially the way members of these anti-corruption bodies are selected, their independence from the Executive, and their professional and technical backgrounds.
While one may view the increase in the number of asset declarations as an indicator of improvement in the fight against public sector corruption, these declarations must be carefully scrutinized for possible mismatch with observable lifestyles. The Integrity Commission is also yet to initiate prosecution against defaulting officials. Jamaica’s Integrity Commission, for example, has ruled that the Speaker of the House should be charged for failing to include a motor vehicle in her financial declarations that she had acquired through a concession granted to legislators.
As regards the Procurement Commission and the NPTAB, one may wish to reflect on the comments of Member of Parliament and member of the Public Accounts Committee, Mahesh Mahipal, as reported in yesterday’s publication of the Kaieteur News. Mr. Mahipal asserted that ‘[t]he pervasive corruption allegations … have cast a long and ominous shadow, and at its epicenter lies the National Procurement and Tender Administration Board (NPTAB)’. How does one explain the current chairman of the NPTAB holding two full-time positions – one as chairman, and the other, as the head of the Government’s public investment programme?
Natural Resource Fund
The IMF team commended the authorities for progress to strengthen the management of oil wealth and its fiscal transparency, especially as regards the passing of the Natural Resource Fund Act 2021 to enhance transparency and accountability of the use of oil revenues, in reference to the appointment of a Board of Directors, the Public Accountability and Oversight Committee, and the Investment Committee.
No mention was, however, made of the Petroleum Commission Bill 2017 which sought to vest in the Commission the responsibility for monitoring and regulating the efficient, safe, effective and environmentally responsible exploration, development and production of petroleum in Guyana. The Bill was laid in the National Assembly and was referred to a Special Select Committee for detailed scrutiny. It, however, lapsed after the 2020 elections, and despite assurances given by the present Administration, no effort has so far been made to re-table the draft legislation.
Nor was there mention of the NRF Act 2018 which was repealed and replaced by the NRF Act 2021 which many believe to be a lesser legislative framework for the management of oil revenues. For example, there was provision for: (i) an Investment Committee comprising six members with experience and expertise in financial investments and portfolio management to advise the Minister; and (ii) a Macroeconomic Committee comprising five members with expertise and experience in macroeconomics to advise on the Economically Sustainable Amount that can be withdrawn for the NRF. The Minister in turn was then responsible for calculating the Fiscally Sustainable Amount based on the calculation outlined in the First Schedule of the Bill.
Implementation of EITI recommendations
The IMF team stated that the authorities have made progress in implementing the recommendations of the Extractive Industries Transparency Initiative (EITI). This is not an accurate statement since most of the recommendations contained in the 2020 EITI report remained unimplemented and can be traced back to previous years. In fact, the 2019 report concluded that continued inaction on some of the recommendations previously made: (i) stymies progress in meeting the requirements of the EITI Standard; (ii) impedes preventative actions to correct and address discrepancies between declarations by government agencies and the extractive entities; (iii) adversely affects the data quality and comprehensiveness of the disclosures, which may reduce the public’s confidence in the report’s data; and (iv) compromises the fundamental purpose of EITI open data as a tool for government to improve policy making and sector management.
Petroleum Activities Act 2023
The 1986 Petroleum (Exploration and Production) Act was modernized in the form of the Petroleum Activities Act 2023. The new Act enhances the regulation of exploration and production of oil, and further paves the way for developing the oil and gas industry. However, there was no mention of the over-concentration of powers in the hands of the minister of Natural Resources. A new Petroleum Sharing Agreement has also been designed, which is likely to increase Guyana’s share of oil revenues.
Climate change
The Authorities successfully reinstated the Low Carbon Development Strategy (LCDS), which combines utilizing the natural resources in a sustainable manner to combat climate change, by maintaining forest coverage and preserving the sequestration rates of Guyana’s forests, and receiving income for these efforts. In 2022, Guyana sold 37.5 million carbon credits for US$750 million, to be paid during the period 2022 to 2032 to be used for flood management, diversifying the energy matrix, and providing resources for Amerindian communities.
The Authorities have enhanced the LCDS (LCDS 2030) which expands the focus of nature conservation to include biodiversity conservation, watershed management, and the ocean economy.
Business climate
The Authorities are implementing a range of reforms designed to increase the digitalization of the economy and to boost labour and total factor productivity. Efforts are also being made: (i) to increase electricity supply through a diversified energy matrix, to improve its reliability, and to decrease its cost; and (ii) to address labour shortages through providing facilities for vocational training, resources for online training, and incentives to set up businesses outside the capital.
Medium-term outlook
According to the IMF team, the outlook for medium-term growth is better than ever before. Oil production is expected to continue to expand rapidly as three new approved fields will come on stream between 2024-27, and a sixth field is expected to come on stream in the first half of 2028. Sustained real non-oil GDP growth of 5.5 percent is projected. However, while further oil discoveries would continue to improve growth prospects, construction growth and strong public investment could lead to inflationary pressures and appreciation of the real exchange rate, and may result in overheating and crowding out of credit to the private sector. Adverse climate shocks, and volatile or lower than projected commodity prices, may also negatively impact the economy.
Recommendations
The IMF team has made the following recommendations:
Given the medium-term risks of inflationary pressures and real exchange rate appreciation beyond the level implied by a balanced expansion of the economy, the Authorities should continue to focus on maintaining macroeconomic stability through an appropriate policy mix, involving debt sustainability, close monitoring of macroeconomic and financial indicators, tightening monetary policy stance and using macroprudential tools as needed. In the medium term, the Authorities should review the exchange rate framework to ensure that it best serves the economy;
Adopting a comprehensive medium-term fiscal framework (MTFF), together with further modernizing the public investment management and public financial management frameworks. The MTFF contains a clear medium-term fiscal anchor, a transition path, and an operational target. As a fiscal anchor, the Authorities should set a path for the non-oil primary balance (as a percent of non-oil GDP) that is consistent with the NRF ceilings on withdrawals of oil revenues and ensuring inter-generational equity; and
Conducting periodic expenditure reviews to ensure macroeconomic stability and preserving competitiveness by setting the pace of public investment to take into account absorption and institutional capacity constraints of the economy.
