IMF praises Guyana for ‘recovering well’ from deteriorated economy in 2020
…advises Govt to move at “cautionary pace” in public spending
In its preliminary findings published on Friday, the International Monetary Fund (IMF) has lauded the Guyana Government on many fronts for its policies implemented and initiatives taken to transform the local economy, which the institution said had deteriorated in 2020 but has since “recovered well”.
The IMF explained that the Guyanese economy was negatively impacted by the pandemic, and 2021 the countrywide 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,” the report noted.
It added that “After deteriorating markedly in 2020, the fiscal position remained appropriately supportive in 2021. In response to the pandemic, the authorities reallocated expenditures towards cash grants and transfers and ‘shovel ready’ public investment projects, primarily improving road networks and providing affordable housing, and eased the tax burden on the most vulnerable. Public debt stood at 42.9 percent of GDP at end-2021, one of the lowest in the region.”
While noting that oil production is expected to increase significantly, the IMF indicated that Guyana’s commercially recoverable petroleum reserves are estimated to be well over 11 billion barrels, the third-largest in Latin America and Caribbean, and one of the highest levels of oil reserves per capita in the world.
The IMF noted that 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,” the institution cautioned.
Meanwhile, the IMF highlighted that it is strongly supportive of the authorities’ efforts to reduce electricity costs, improve transport infrastructure, diversify the economy, improve access to and quality of social services as well as advance more broadly towards the Sustainable Development Goals.
As such, the government was commended for its 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.
Natural Resources Fund
The IMF went on further to laud the authorities for the recent amendments to the Natural 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 praised 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,” the report said.
The IMF also highlighted that several pillars of the anticorruption framework have been recently strengthened in Guyana.
These include the Integrity and Public Procurement Commissions (IC and PPC) and the National Procurement and Tender Administration Board (NPTAB).
The IMF added that asset declarations of a large number of public officials are submitted annually, and public procurement tenders are streamed live.
The IMF also noted that government made progress in implementing the recommendations of the 2019 and 2021 EITI (Extractive Industries Transparency Initiative) reports, notably on the reconciliation with the fiscal regime.
“Some progress has also been made on information sharing and publication of extractive industries’ financial statements, and the authorities are strengthening capacity to address remaining gaps, including in moving towards electronic disclosure and adequate follow-up,” the institution observed.
On another note, while the international financial institution praised the government for several of its initiatives, it also recommended that it moves at a cautionary pace in 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,” the IMF said.
In this regard, the institution urged government to simultaneously strengthen the capacity to manage public investment, based on recommendations from the 2017 PIMA report. It also recommended that government set 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.
“This rule will also ensure that fiscal spending, including capital spending, is increased at a measured pace, to address development needs without macroeconomic imbalances,” the institution said while also recommending that further analysis of the oil transfer rules be done, to ensure the long-term sustainability of the NRF and intergenerational equity.