The International Monetary Fund (IMF) has a most critical role in being one of the forecasters of economic growth or depression and helping to provide needed funds to its members to prevent a fiscal crisis or keep it at bay.
This organization consists of 188 countries. They all work to promote global financial cooperation, secure monetary stability, assist international trade, encourage high employment and sustainable economic growth and reduce poverty around the world.
But the IMF’s primary purpose is to ensure the stability of the international monetary system—the system of exchange rates and intercontinental expenditure that facilitates member states to conduct business with each other.
The Fund, as it is usually referred to, had its mandate updated in 2012 to include all macroeconomic and financial sector issues that bear on global stability. Created in 1945, the IMF conducts missions usually on an annual basis in its member states.
The consultations which are done during this period fall under Article IV of the IMF’s Articles of Agreement in the context of a request to use IMF resources (borrow from the IMF), as part of discussions of staff monitored agendas, or as part of the examination of monetary developments. Such missions have been conducted in Guyana, with the last report being in 2013.
However, one of the missions here in recent years led by Mr. Marcos Chamon lasted from February 24 to March 7 and provided a most insightful overview of Guyana’s economic standing. The team met with Finance Minister, Winston Jordan; Public Infrastructure Minister, David Patterson; Natural Resources Minister, Raphael Trotman; Central Bank Governor, Gobind Ganga and other senior officials.
The IMF team noted that Guyana’s economy remains resilient and continues to grow despite significant global headwinds. It recalled that in 2015, Guyana’s real Gross Domestic Product (GDP) grew at 3.0 percent, notwithstanding lower commodity export prices, holdups in financial plan executions and political indecision in the lead-up to general elections, which was held in May of that year. The members agreed that developments in the global economy remain a drag on growth, particularly for commodity exporters.
On the other hand, it stressed that growth is expected to increase due to gold production and public investment. It noted that the Guyana Government had projected a 4.4 percent growth in 2016, but based on its findings, a 4.0 percent growth rate should have been expected.
The Mission members noted that boosting private sector confidence is key for growth momentum and commended the authorities for maintaining macroeconomic stability. It was documented in their report that the steep decline in international oil prices narrowed the current account deficit.
They said that lower prices reduced the cost of fuel imports, which more than offset the impact of lower export costs. This led to a decline in the nation’s accounts by 4.6 percent of GDP in 2015 from 10.8 percent in 2014.
The team observed that reserves stood at 3.6 months of imports at the end of 2015 and was projected to increase over the medium-term, bolstered by foreign investment and donor support for public investment.
Meanwhile, the exchange rate, they noted, remained broadly stable due to offsetting positive and negative external shocks. But, in spite of the aforementioned, the IMF warned that Guyana remains vulnerable to movements in commodity prices due to a heavy reliance on oil that is imported, as well as the tunnel vision focus on a few products.
The mission noted that exchange rate flexibility would continue to make possible alterations to external developments and safeguard reserves. They noted that the fiscal balance improved in 2015, reflecting one-off factors.
The Mission members expressed that capital expenditure declined by almost 30 percent, demonstrating delays in the national investment programme. Going forward, it said that the deficit is expected to remain between five and six percent of GDP. The IMF staff said that the authorities have an ambitious investment strategy for environmentally sustainable and socially inclusive growth.
They asserted that improvements in transportation and telecommunication infrastructure and renewable power projects will enhance efficiency, mix distant municipalities, facilitate economic diversification and ease key impediments to growth. These investments, they stated, should stimulate economic activity, provide a powerful swell in competitiveness and make certain that the payback of growth is more broadly distributed.
The IMF team said that discussions with authorities centered on strategies to uphold economic sustainability while at the same time improving growth. They said that increasing current expenditure will crowd out space for public investment, despite significant donor support.
The mission suggested moderating the growth of wages along with reducing reliance on government support. In that regard, the improved financial performance of Guyana Power and Light (GPL) and the reforms proposed by the Commission of Inquiry for the Guyana Sugar Corporation are welcomed by the IMF.
The team stressed that the scope and pace of reform should take into account social implications. They said, too, that containing current expenditure would provide additional space for public investment while preserving debt sustainability.
It was found that the magnitude and sources of financing of the deficit have implications for growth. Statistics also indicate that domestic financing may crowd out credit to the private sector and raise interest rates.
The group said that Government’s exclusion of possible future hydrocarbon export income from their medium-term plans was also deemed to be commendable.
The IMF Mission commented that the monetary policy stance should remain accommodative. It said that lower prices for imported goods, including fuel, continue to restrain inflation.
The IMF team said that credit growth has moderated since 2015, mainly on account of reduced lending to businesses. Banks were found to be well capitalized, but heightened vigilance is warranted due to increases in nonperforming loans, they asserted.
It was noted that recent changes to credit reporting legislation are welcomed and the authorities are encouraged to continue to strengthen financial sector supervision. The mission suggested tightening provisioning requirements, limitations on related lending and loan classification rules.
A Financial Sector Assessment Program mission will also visit Guyana soon to provide a more granular analysis of the financial industry.
While recent steps towards strengthening the Anti-Money Laundering and Combating the Financing of Terrorism framework are welcomed, the Mission emphasized that the authorities should address remaining deficiencies promptly.
The IMF, in its analysis of the nation, spent considerable time on Guyana’s looming oil wealth.