IMF Executive Board Concludes Article IV Consultation with Guyana
June 28, 2017
On May 24, 2017, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation [1] with Guyana.
Real economic activity expanded by 3.3 percent in 2016. Subdued agricultural commodity prices, adverse weather and delays in public investment weighed down on activity, while large increases in gold output helped support growth. Consumer prices increased by 1.5 percent in the twelve months ending in December 2016, as weather-related shocks to food prices reversed the deflationary trend. The overall non-financial public sector deficit widened to 2.9 percent of GDP in 2016 from 0.2 percent in 2015. Despite slower-than-expected economic growth, fiscal revenue increased owing to improvements in tax administration and higher mining royalties. Total expenditure increased by 2.8 percentage points of GDP, but the increase was lower than budgeted due to delays in capital expenditure. The current account moved from a 5.7 percent of GDP deficit in 2015 to a 0.4 percent surplus in 2016, driven by the large increase in gold exports and improved terms of trade. Gross international reserves stood at 3.6 months of import at end-2016.
Bank capital adequacy ratios appear comfortable (averaging 25.4 percent as of end-2016). But nonperforming loans remain high, at 12.9 percent of total loans at end-2016 from 11.5 percent at end-2015 and provisioning remains very low (45.8 percent at end-2016). Progress in strengthening the financial stability framework was assessed in detail during this Article IV consultation as part of the IMF’s Financial Sector Assessment Program (FSAP), which analyzes financial sector soundness and associated policies. The FSAP’s findings are summarized in the accompanying Financial System Stability Assessment (FSSA).
The macroeconomic outlook is positive for 2017 and the medium-term. Growth is projected at 3.5 percent in 2017, supported by an increase in public investment, continued expansion in the extractive sector, and a recovery in rice production. Twelve-month inflation is expected to remain low at around 2.6 percent by year-end. The fiscal deficit is projected to widen to 7.2 percent of GDP in 2017, due in part to delayed capital spending from 2016. The shares of current and capital spending in GDP are projected to increase by 0.6 and 1.8 percent, respectively. Tax revenue is projected to remain stable at about 21.5 percent of GDP. The current account deficit is projected at -3 percent of GDP, financed by investment inflows and donor-supported investment. Net international reserve cover is projected to remain stable at 3.6 months of imports at end-2017.
Executive Board Assessment [2]
Executive Directors broadly agreed with the thrust of the staff appraisal. They welcomed Guyana’s continued economic growth, the improvement in its external position, and its positive medium‑term outlook, which is supported by the expected start of oil production in 2020. Noting that the economy is vulnerable to external shocks and domestic challenges remain, Directors underscored the importance of preserving macroeconomic and financial stability while making growth more broad‑based and inclusive.
Directors welcomed the authorities’ plans to establish a comprehensive framework for managing oil wealth, and stressed the importance of having a transparent and rules‑based framework in place before oil production starts. Most Directors supported staff’s recommendation for a moderate fiscal consolidation to slow debt accumulation and safeguard against adverse shocks before the onset of oil production. A few Directors considered a more gradual consolidation appropriate in light of the country’s development needs. More generally, Directors recommended moderating the growth of current expenditures and moving ahead with the reform of public enterprises, notably the sugar and electricity companies, while providing a safety net for those affected by these reforms.
Directors concurred that issuance of longer‑term domestic debt instruments could provide a stable source of financing, be used to settle the government’s negative balance at the central bank, and help develop domestic capital markets. They cautioned, however, that a significant increase in domestic debt could drive up borrowing costs. In this regard, Directors commended the authorities for continuing to refrain from non‑concessional external borrowing. Regarding Guyana’s ongoing negotiations with bilateral non‑Paris Club creditors, a few Directors reiterated the importance of preserving comparability of treatment across official bilateral creditors.
Directors welcomed the recent increase in exchange rate flexibility, and encouraged the authorities to allow the exchange rate to play a stronger automatic stabilizer role going forward. They noted that a clear communication strategy will be important in this regard, and encouraged the authorities to auction foreign exchange when conducting official transactions to help improve price discovery and transparency in the foreign exchange market. Directors agreed that the currently accommodative monetary policy stance is appropriate, but stressed the importance of remaining vigilant for possible inflationary pressures and being ready to tighten monetary policy as appropriate.
Directors noted that the banking sector appears resilient to severe shocks, and welcomed the authorities’ plans to continue bringing the supervisory and regulatory frameworks in line with the 2016 FSAP recommendations. They encouraged further steps to reduce the stock of nonperforming loans, and higher provisioning to account for slow collateral recovery, unrecorded related‑party exposures, and loan misclassifications. Directors also called for amending the Financial Institutions Act to operationalize the crisis management framework and establish an emergency liquidity assistance framework.
Directors commended the authorities for exiting the Financial Action Task Force follow‑up process, and encouraged further strengthening the anti‑money laundering and combating the financing of terrorism framework, drawing on the recent National Risk Assessment. They also noted the progress on replacing correspondent banking relationships, and suggested continued vigilance of this issue.
Directors underscored that further improvements to the business climate, diversification efforts, and structural reforms of key economic sectors are needed to support more broad‑based and inclusive growth.
It is expected that the next Article IV consultation with Guyana will take place on the standard 12‑month cycle.
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I. Social Indicators |
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Population, 2015 (thousands) |
767 |
Population not using an improved |
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Life expectancy at birth (years), 2014 |
66 |
water source (%), 2010 |
6.0 |
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Under-five mortality rate (per 1,000 live births), 2010 |
30 |
Gini index, 1992-2007 |
44.6 |
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Population living below the poverty line (%), 2000-06 |
35 |
HDI rank, 2014 |
124 |
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II. Economic Indicators |
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Est. |
Projections |
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|
2013 |
2014 |
2015 |
2016 |
2017 |
2018 |
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Production and prices |
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|
Real GDP |
5.2 |
3.8 |
3.1 |
3.3 |
3.5 |
3.6 |
|
Real GDP per capita |
4.8 |
3.4 |
2.7 |
3.2 |
3.2 |
3.3 |
|
Consumer prices (average) |
1.9 |
0.7 |
-0.9 |
0.8 |
2.3 |
2.7 |
|
Consumer prices (end of period) |
0.9 |
1.2 |
-1.8 |
1.5 |
2.6 |
2.7 |
|
Terms of trade |
-4.5 |
-3.0 |
22.6 |
7.5 |
-7.8 |
-0.2 |
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(In percent of GDP) |
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National accounts |
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|
Investment |
16.9 |
16.6 |
13.9 |
14.9 |
16.9 |
17.1 |
|
Private sector |
8.3 |
8.3 |
8.3 |
8.0 |
8.2 |
8.3 |
|
Public sector |
8.6 |
8.2 |
5.6 |
6.9 |
8.7 |
8.8 |
|
National saving 1/ |
3.6 |
6.9 |
8.2 |
15.3 |
14.9 |
12.9 |
|
Private sector |
-1.2 |
4.9 |
3.7 |
11.9 |
14.2 |
12.3 |
|
Public sector |
4.8 |
2.1 |
4.5 |
3.4 |
0.7 |
0.7 |
|
External savings |
13.3 |
9.6 |
5.7 |
-0.4 |
2.0 |
4.1 |
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Nonfinancial public sector |
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Revenue and grants |
24.6 |
23.6 |
27.8 |
28.0 |
26.1 |
26.8 |
|
Expenditure |
28.3 |
29.3 |
28.1 |
30.9 |
33.3 |
33.1 |
|
Current |
19.6 |
21.1 |
22.5 |
24.0 |
24.6 |
24.3 |
|
Capital |
8.6 |
8.2 |
5.6 |
6.9 |
8.7 |
8.8 |
|
Overall balance (after grants) 2/ |
-3.6 |
-5.7 |
-0.2 |
-2.9 |
-7.2 |
-6.3 |
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Total public sector gross debt (end of period) 3/ |
57.9 |
51.9 |
48.3 |
49.6 |
55.1 |
58.5 |
|
External |
41.8 |
39.5 |
35.9 |
33.8 |
34.2 |
34.6 |
|
Domestic |
16.1 |
12.3 |
12.4 |
15.8 |
20.9 |
23.9 |
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(Annual percentage change, end of period) |
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Money and credit |
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Broad money |
3.8 |
5.2 |
1.5 |
5.0 |
14.9 |
10.2 |
|
Domestic credit of the banking system |
25.8 |
20.5 |
17.6 |
6.4 |
11.5 |
8.2 |
|
Public sector (net) 4/ |
14.9 |
34.5 |
75.0 |
137.8 |
800.5 |
62.8 |
|
Private sector |
14.5 |
9.1 |
6.2 |
2.1 |
3.0 |
3.0 |
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(In millions of U.S. dollars, unless otherwise indicated; end of period) |
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External sector |
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Current account balance 2/ |
-398.5 |
-296.2 |
-181.4 |
13.7 |
-71.4 |
-153.8 |
|
(Percent of GDP) |
-13.3 |
-9.6 |
-5.7 |
0.4 |
-2.0 |
-4.1 |
|
Gross official reserves |
776.9 |
665.6 |
598.5 |
615.3 |
664.6 |
755.1 |
|
Months of imports of goods and services |
4.0 |
3.5 |
3.5 |
3.6 |
3.6 |
3.8 |
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Memorandum items: |
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Nominal GDP (G$ billion) |
614.1 |
635.3 |
657.4 |
709.7 |
755.1 |
800.4 |
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Per capita GDP, US$ |
3,929 |
4,029 |
4,151 |
4,475 |
4,662 |
4,817 |
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Guyana dollar/U.S. dollar (period average) |
205.4 |
206.4 |
206.5 |
206.5 |
… |
… |
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Sources: Guyanese authorities; UNDP Human Development Report; and Fund staff estimates and projections. |
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1/ Includes public enterprises. |
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2/ Including official transfers. |
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3/ The 2015-16 public debt to GDP ratios have been adjusted to reflect unsettled government balances at the central bank. |
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4/ The increase in public sector (net) is from a small base, which makes the series volatile. |
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[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
[2] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm .
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