IMF growth forecast for Guyana needs to be taken with a pinch of salt – Ali

Analyzing the International Monetary Fund’s (IMF’s) projection for Guyana’s economy, former People’s Progressive Party (PPP) Government Minister Irfaan Ali has said the projected 3.5 percent growth in 2017 must be taken with a pinch of salt for several important reasons.
Ali said the macroeconomic outlook projected by IMF is based on past economic performance, and the positive outlook projected by the IMF for 2017 is attributed largely to the uninterrupted series of economic growth experienced under the PPP Administration.
“Under closer review, it can be coherently concluded that based on the first quarter performance of our economy, contrary to the IMF, the probability of an increase in public investment, expansion in the extractive sector, and a recovery in rice production remains very slim,” he stated.
Even though an increase in public investment may increase aggregate demand, a reduction in private investment will neutralize that effect, Ali claimed, stating that in Guyana the damped economic climate and heavy tax burden will likely absorb private investment.
With respect to the extractive sector, with the exception of gold, bauxite during the first quarter of 2017 contracted by 21.5 percent when compared to 2016, and 6.6 percent and 28.8 percent when compared to 2015 and 2014 respectively. This, according to him, is evident that this industry is on the decline.
Another area of concern is the temporary foreign market provided for rice. Alli said even though production may likely increase by the end of December, the increase in foreign revenue generated may not fully offset the shock of a precipitous fall in sugar output.
“Compounding this abysmal performance, other traditional sectors, such as forestry, may reduce significantly. During the first quarter of 2017, the forestry sector exported 22,400 cubic metres — 3,293 cubic metres less than what was exported in 2016 during the same period,” he explained.
In monetary terms, foreign currency has contracted by US$1.7 million to US$7.6 million with respect to 2016. When compared to 2015, the amount lost in foreign revenues is even more startling at US$5.6 million. Overall, the economy may likely contract based of the underperformance of key sectors.
Nevertheless, the former minister said the IMF should be commended for their astute and shrewd recommendations submitted.
On the notion to preserve macroeconomic stability, according to IMF, large fiscal deficit is anticipated to increase debt-to-GDP ratio to 61 percent by 2020. However, Ali said it is worthy to note that the projection is a conservative estimate, given the fact that debt will likely increase even further as government continues to seek additional funding from several international banks, to help cushion the shortfall in domestic revenues.
Just over a decade ago, as reported by the IMF, Guyana’s debt-to-GDP in 2003 was 186 percent. However, due to prudent macroeconomic policies by the government and over a decade of uninterrupted growth, total indebtedness fell to 69 percent in 2009, and subsequently 49.6 percent in 2016.
In addition, the IMF stated that safety nets should be provided for persons affected by the reform of the sugar and electrical companies. Moreover, Ali said improvements to the business climate, diversification efforts, and structural reforms of key economic sectors must be addressed urgently to support more broad-based and inclusive growth.