Introduction
My initial response to the query captured in the header of today’s Sunday column is to introduce a careful paraphrase of the official version of key macroeconomic performance data, as cited in the Ministry of Finance, M o F, mid-2024 Report. I focus on the mid—2024 Report’s commentary on Guyana’s inflation. Interest rates, exchange rate and the fiscal sector.
The reported data are cited below. Following that, I juxtapose this with a similarly careful presentation of the results from the IMF Article IV Consultation with Guyana [December 2023].
Inflation
The mid-year 2024 Report states that the Consumer Price Index rose by 1.6 percent at the end of the first half of the year. At the end of June 2024, the 12-month inflation rate stood at 4 percent. This is on account of an increase in the price of food, which contributed 3.8 of the percentage points. The Report anticipated that proactive Government measures would help to contain commodity prices. As such, the end-of-year inflation projection is modestly updated to 3.2 percent for 2024.
Interest Rates
The mid-2024 Report also expected Interest rates to remain stable at end June 2024, when compared with the end of 2023. The 364-day treasury bill yield increased to 1.09 percent from 0.99 percent, while the 182-day treasury bill yield ticked up to 1.00 percent from 0.99 percent. The 91-day treasury bill yield, on the contrary, remained stable at 1.10 percent. Nevertheless, the banks weighted average lending rate declined from 8.36 percent to 8.23 percent, while the small savings rate was unchanged at 0.81 percent over the review period.
Exchange Rates
The official exchange rate of the Guyana dollar to the US dollar was also steady over the review period, unchanged at $208.5. At the same time, the market mid-rate of the Guyana dollar to the US dollar ended the first half at $215.10.
Fiscal Sector
The non-financial public sector recorded a deficit of $30.3 billion in the first half of 2024. Underlying this was the rise in total expenditures of $88 billion, which surpassed the $65.3 billion growth in total revenue collections for the period under review. At the end of June 2024, the overall balance for Central Government (after grants) recorded a deficit of $30.7 billion.
Central Government revenue improved during the first six months of 2024 and amounted to $343.7 billion, reflecting strong performance across several tax categories, alongside higher inflows from the Natural Resource Fund
The IMF ARTICLE IV CONSULTATION DC – December 4, 2023
The Executive Board of the IMF reported that it concluded the Article IV Consultation with Guyana and considered and endorsed the Staff appraisal without a meeting.
It further noted that, the Guyanese economy has tripled in size since the start of oil extraction (end-2019), from one of the lowest GDP per capita in Latin America and the Caribbean in the early nineties.
Its Press Release indicated oil production is supporting the highest real GDP growth in the world in 2022 (62.3 percent). Fundamentals remain strong and there are no signs of inflationary pressures or overheating as of yet.
Going forward, it expected oil production will continue to expand rapidly as four new fields will come on stream by end-2028.
Sustained real non-oil GDP growth is also expected, as the government continues to invest in human capital, lower energy costs, and build infrastructure, including for climate change adaptation. Real GDP is expected to continue to grow extremely fast in 2023 (38.4 percent) and on average of 20 percent per year during 2024-28. Gross international reserves are expected to strengthen.
The IMF expected substantial savings will accumulate in the Natural Resource Fund (NRF) to finance most of the increase in public capital spending for meeting developmental needs
These very favourable prospects are accompanied by balanced risks. On the upside, further oil discoveries would improve Guyana’s long-term economic prospects and a construction boom would support higher short-term growth than projected.
The main downside risks are cited as overheating, leading to inflationary pressures and appreciation of the real exchange rate. However, a range of other downside risks is acknowledged including volatile commodity prices, adverse climate shocks, as well as governance concerns. The latter could negatively impact the economy
. In concluding the 2023 Article IV consultation with Guyana, the Executive Directors endorsed staff’s appraisal, as follows:
“The Guyanese economy continues to experience record growth, supported by the government’s modernization plans and unparalleled oil and gas sector expansion. Guyana’s external position at end 2022 is assessed to be moderately stronger than the level implied by fundamentals and desired policies. Guyana’s debt-sustainability analysis (DSA) indicates that the risk of (overall and external) debt distress remains moderate, with debt dynamics improving significantly with incoming oil revenues. Overall real GDP growth is projected to grow 38.4 percent in 2023 and on average of 20 percent per year during 2024-28”.
Conclusion
As a definitive conclusion the Consultation posited that, given the medium-term risks of inflationary pressures and real exchange rate appreciation staff recommend a continued focus on maintaining macroeconomic stability. Staff assess the 2023 policy mix to be appropriate, with fiscal policy increasing public investment to address the large development needs, and broad money growing in line with non-oil GDP. Staff welcome maintaining debt sustainability and a balanced growth path through moderating fiscal impulses.
The juxtaposition of the mid-2024 Report and the Art IV Consultation suggests the IMF has greenlighted the expansion of cash grants expenditures and possibly open the path to universal basic income, UBI, mechanisms.
