Economic Focus: Guyana’s Foreign Exchange Market

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Foreign exchange is a vital process in any country’s fiscal landscape.
Imagine for a minute that you have a business operating in Guyana, but you need to purchase some important manufacturing materials in the USA. To carry out that transaction with the USA, you would need to purchase US dollars. It makes the process easier while promoting trade at an international level.
The situation is similar at the national level. When countries need to purchase imports that are needed, it is required that they have different currencies in their system in order to effect their purchases from different parts of the world.
In Guyana’s case, for example, the Government would need foreign currency to pay for industrial supplies that are needed on a vast scale for the mining and agriculture sector. Depending on where the purchases have to be made, it would need to have different currencies to make the process easier.
With the aforementioned in mind, it is crucial for the business sector and the Government at large to pay attention to the behaviour of the foreign exchange market, as fluctuations can disrupt the flow of trade and commerce.
While some local financial analysts have detected that there were fluctuations in the exchange rate, specifically a decline in the availability of US dollars, the effect on businesses has been minimal.
Managing the Foreign Exchange Market in Guyana in order to ensure its stability is the Bank of Guyana.
According to its latest statistical report, the total volume of foreign exchange transactions increased by 11.8 percent to US$6,926.2 Million. It said that there was a net purchase of US$77.6 Million.
The Bank noted that the market was impacted by increases in transactions in most of its segments. Money transfer transactions were valued at US$186.9 Million or 27.7 percent below 2015 levels. Furthermore, higher net purchases caused the Guyana dollar to remain stable against the United States dollar at GYD$206.50.
Total foreign currency transactions increased by 11.8 percent to US$6,926.2 Million in 2016 from US$6,194.2 Million in 2015. Purchases and sales in the market were US$3,501.9 Million and US$3,424.3 Million respectively. Net purchases were US$77.6 Million in 2016 compared with net purchases of US$93.0 Million in 2015.
The licensed bank and non-bank cambios, which accounted for 44.4 percent of the total volumes, recorded a 9.2 percent increase in turnover to US$3,108.6 Million. The combined transactions of the six bank cambios were US$3,002.4 Million, an increase of US$253.9 Million or 9.2 percent over the 2015 level.
Interbank transactions totaled US$25.1 Million, a decrease of US$50.8 Million or 66.9 percent from the US$75.9 Million for the preceding year. The thirteen non-bank cambios’ transactions amounted to US$106.2 Million, an increase of US$8.6 Million or 8.8 percent. Non-bank cambios’ market share remained negligible at 3.5 percent. Hard currency transactions conducted at the Bank of Guyana totaled US$922.8 Million, an increase of US$107.1 Million or 13.1 percent over the previous year. Purchases and sales were US$460.3 Million and US$462.5 Million respectively.
This represented an increase in receipts of US$87.5 Million or 23.5 percent. The Bank also recorded an increase in net hard currency outflows of US$19.6 Million or 4.4 percent. Fuel imports constituted 56.6 percent of total payments.
The Bank sold US$28.2 Million to commercial banks, an increase of US$22 Million over the 2015 level. The Banks’ share of all transactions declined marginally to 13.3 percent from 13.2 percent in 2015.
The balances on approved foreign currency accounts increased by 19.1 percent to US$2,683.4 Million. The major category of activities included nonresident transactions, mining and dredging, insurance/finance, fishery, rice and shipping. The debits and credits to these accounts totaled US$1,339.3 Million and US$1,344.1 Million respectively, compared with the previous year’s amounts of US$1,123.7 Million and US$1,130.0 Million respectively. The Bank approved applications for eleven new foreign currency accounts in 2016.

The Exchange Rates
The weighted mid-rate, based on the rates of the three largest banks’ turnover, remained stable at GYD$206.50 at the end of 2016. The un-weighted mid-rate using the same method depreciated by 0.12 percent to GYD$205.75 compared with GYD$205.50 in 2015. The commercial banks and non-bank cambios’ average buying and selling rates were higher during the review period. The commercial banks’ cambios’ average buying and selling rates were GYD$207.21 and GYD$209.74 compared to GYD$206.67 and GYD$209.49 respectively in 2015. The non-bank cambios’ average buying and selling rates were GYD$206.40 and GYD$208.04 from GYD$205.42 and GYD$208.68 respectively.
The disparity between the buying rates of the bank and non-bank cambios contracted from GYD$1.25 to GYD$0.81 in 2016. The difference in the selling rates was higher at GYD$1.70 from GYD$0.81 in 2015. The average market spread was GYD$2.08 compared with GYD$3.04 in 2015. The bank and non-bank spreads were lower at GYD$2.53 and GYD$1.64 from GYD$2.83 and GYD$3.26 respectively in the previous year. In the cambio market, the majority of foreign currency transactions involved the United States dollar accounting for 96.1 percent of the total trades. The Canadian Dollar, Pound Sterling and Euro each held 1.6 percent, 1.5 percent, and 0.8 percent respectively of the market shares.

CARICOM Currencies
The CARICOM currencies traded on the market increased to US$24.4 Million or 20.8 percent in 2016. The main currencies transacted on the market were the Barbados dollar, Trinidad & Tobago dollar and the Eastern Caribbean dollar. The Barbados dollar comprised US$12.0 Million or 49.2 percent of the overall regional volume. The Trinidad & Tobago dollar and Eastern Caribbean dollar accounted for US$8.9 Million or 36.5 percent and US$3.5 Million or 14.3 percent respectively. The exchanges rates of the Barbados and Eastern Caribbean dollars remained fixed against the US dollar. The Trinidad & Tobago currency depreciated against the US dollar by 5.1 percent to TT$6.75, while the Jamaican dollar depreciated by 6.7 percent to J$127.98.

Money Transfer Activities
The Bank licensed five new agencies for a total number of certified agents of 223. Of the ten Administrative Regions in Guyana, Region Four held 38.9 percent of the total registered agents, Region Six held 20.5 percent, Region Three held 14.8 percent, and Region Ten totaled 5.7 percent. The remaining six Regions accounted for 30.1 percent. The aggregated value of transfers by money transfer entities amounted to US$186.9 Million, 27.6 percent over the last year. Inbound and outbound transactions were US$134.5 Million and US$52.4 Million respectively. The highest volume of transfers occurred in the months of April, July and December 2016.

Outlook for 2017
The exchange rate of the Guyana dollar to the US dollar is expected to remain relatively stable due to a net supply of foreign exchange to the market as a result of an improved balance of payment position. The Bank is projecting purchases of US$406.4 Million from the Guyana Gold Board and GUYSUCO. Sales to accommodate imports and debt servicing are projected at US$603.9 Million. Foreign exchange flows to the market are expected to adequately cover imports and support a stable exchange rate.

Statistics and data provided by Central Bank and Ministry of Finance

 

(Article taken from the Guyana Inc. Magazine Issue 27)

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