All member countries of the International Monetary Fund (IMF) have to agree to subject their economic and financial policies to the review of the institution. This “surveillance” is conducted annually by a team of experts who interview government, opposition, private sector, banking, and a wide array of individuals to produce a report that is presented to the IMF management and board who discuss and then transmit its findings and recommendations to the country’s government.
Guyana just underwent this process and in light of trenchant criticisms from several quarters on aspects of the government’s economic and financial policies and performance, it might be useful to present the views of the IMF, as an impartial body. The following are excerpts:
“The Guyanese economy was negatively impacted by the pandemic, and 2021 floods, but has recovered well supported by the oil boom and policy actions. Following the pandemic-induced recession and delayed political transition in 2020, economic growth recovered in 2021, with non-oil Gross Domestic Product (GDP) growth reaching 4.6 percent. The war in Ukraine exacerbated inflationary pressures in 2022—due primarily to higher fuel and food prices—but the government implemented measures to mitigate the impact on vulnerable households and the economy. Even though the current account deficit widened significantly in 2021 in part reflecting increased capital imports, the foreign exchange (FX) reserve position improved, due to the new Special Drawing Rights (SDR) allocation.
“Guyana’s medium-term prospects are more favorable than ever before, with increasing oil production having the potential to transform Guyana’s economy. Oil production is expected to increase significantly with the coming on stream of two large oilfields in the Stabroek Block during 2022-26. Guyana’s commercially recoverable petroleum reserves are estimated to be well over 11 billion barrels, the third-largest in Latin America and the Caribbean, and one of the highest levels of oil reserves per capita in the world. This could help Guyana build up substantial fiscal and external buffers to absorb shocks while addressing infrastructure gaps and human development needs. However, increased dependence on oil revenues will expose the economy to volatility in global oil prices. A slowing global economy and the repercussions from the war in Ukraine could also adversely affect non-oil exports. On the other hand, higher global oil prices and additional gas and oil discoveries could significantly improve Guyana’s long-term economic prospects.
“Staff strongly support the authorities’ goals to transform the economy, address development needs in an inclusive way, and protect the long-term economic well-being of the country. Staff strongly support the authorities’ efforts to reduce electricity costs, improve transport infrastructure, diversify the economy, improve access to and quality of social services, and advance more broadly towards the Sustainable Development Goals. Staff commend the authorities’ efforts outlined in the Low Carbon Development Strategy 2030 to maintain the country’s forest coverage and address climate change challenges by shifting towards renewable energy sources while entering the international carbon credits market.
“Staff welcome the recent amendments to the National Resources Fund Act. The recent amendments to the 2019 Natural Resource Fund (NRF) Act set clear ceilings on withdrawals from the Fund for budgetary spending and promote transparency in the management and use of oil resources. Staff praise the authorities’ thorough review of the 2019 NRF Act before making amendments, and the restraint in using any oil revenues before the passage of the amendments.
“Staff recommend a feasible and moderate increase in public investment while further strengthening the medium-term framework for fiscal policy. Staff welcome the emphasis on public investment and policies to sustain growth into the longer term. Staff urge caution in determining the pace of ramping up public investment. While pressing development challenges still face the country, a large surge in public investment could add inflationary pressure, affect competitiveness of the non-oil economy, lead to an eventual loss in FX reserves, and might not be sustainable over the medium-term…Staff recommend setting annual budgets within a fiscal framework that, over the medium term, constrains the annual non-oil overall fiscal deficit (after grants) to not exceed the expected transfer from the NRF, to anchor fiscal policy in a sustainable way.”
