IMF projects accelerated growth in run up to oil production

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…gives favourable assessment of Guyana’s economic health 2017-2018

On June 15, 2018, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Guyana as it relates to its economic health for 2017 through 2018.

It was noted that economic growth slowed in 2017, but became more broad-based. In fact, the economy grew by 2.1 percent, down from 3.4 percent in 2016, on the account of lower than expected mining output and weak performance in the sugar sector. Nonetheless, non-mining growth rebounded to 4.1 percent following a contraction in 2016. Inflation remained stable at 1.5 percent at the end of 2017, largely driven by food items, while core inflation was close to zero. The external balance turned negative, due to weaker than expected export growth and higher oil prices. In 2017, the current account recorded a deficit of 6.7 percent of GDP from a surplus of 0.4 percent in 2016. The financial account improved due to Foreign Direct Investment, particularly in the oil and gas sector, and higher loan disbursements to the public sector. Gross reserve cover stood at 3.2 months of imports at the end of 2017. The Central Government’s deficit remained stable, at around 4.5 percent of GDP in 2017 Inflation remained stable at 1.5 percent at the end of 2017, largely driven by food items, while core inflation was close to zero. The external balance turned negative, due to weaker than expected export growth and higher oil prices. In 2017, the current account recorded a deficit of 6.7 percent of GDP from a surplus of 0.4 percent in 2016. The financial account improved due to Foreign Direct Investment, particularly in the oil and gas sector, and higher loan disbursements to the public sector. Gross reserve cover stood at 3.2 months of imports at the end of 2017. The Central Government’s deficit remained stable, at around 4.5 percent of GDP in 2017.

be key drivers of economic growth over the medium-term. Reducing the costs of doing business, strengthening private sector confidence, and advancing productivity-enhancing reforms are essential for sustaining growth in the short-term and for reaping the full benefits of the oil windfall once it materializes.

Short-term financing needs should be carefully managed. The authorities’ prudence and restraint towards borrowing in anticipation of future oil revenue is commendable. They should rely as much as possible on Multilateral Development Banks, including their non-concessional financing operations. Developing the domestic capital markets would provide a more stable source of financing and help meet the needs of domestic long-term institutional investors. Private external borrowing should continue to be avoided and central bank financing should not be used at all. The staff welcomed the local authorities’ intention to close the overdraft balances at the central bank in the near-term. Saving the one-off gains from the tax amnesty would reduce financing needs and also help preserve external buffers.

The exchange rate should play a more active role in cushioning external shocks going forward. Guyana remains vulnerable to external shocks given the concentration of its exports in a few commodities and its reliance on imported oil in the short-term. Over the long-term, building an adequate buffer stock of savings from the oil revenues would also help cope with external shocks.

Significant progress has been made in implementing  the 2016 Financial Sector Assessment Programme (FSAP) recommendations, but further progress is needed in some areas. Ensuring the internal consistency of supervisory function from routine supervision to intervention and resolution remains a priority. Other important areas where work still needs to be finalized include: eliminating reduced provisioning requirements for “well-secured” portions of Non Performing Loans; refining the definition of “related parties” with the international standards; reducing the reliance on overdraft lending; clarifying the upstream and downstream ownership of institutions; raising minimum capital adequacy requirement to 12 percent; and reducing the banks’ large exposure limits.

 

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