IMF predicts improved GDP growth for 2018

– says fiscal outlook will improve with oil revenue

Although Guyana has recorded one of the lowest economic growths in 2017, the International Monetary Fund (IMF) has now predicted real economic growth of 3.4 per cent for 2018. The IMF said this will be driven by continued strength in the construction and rice sectors, and a recovery in gold mining.
This announcement was made in the IMF’s published report following a visit by a team led by Marcos Chamon, who visited Georgetown from April 23–May 3 to hold discussions for the 2018 consultation.
The team met with Finance Minister Winston Jordan, Natural Resources Minister Raphael Trotman, Central Bank Governor Gobin Ganga, other senior officials, representatives from the Private Sector, the opposition party, labour unions, and other key stakeholders.
They reported that inflation remained subdued at 1.5 per cent at the end of 2017, largely driven by food items, while core inflation was close to zero. Further to that, weaker than expected export growth and higher oil prices contributed to the current account balance turning negative.
In 2017, the current account recorded a deficit of 6.7 per cent of Gross Domestic Product (GDP) from a 0.4 per cent surplus in 2016. That deficit was largely financed by foreign direct investment, particularly in the oil and gas sector, and higher loan disbursements to the Public Sector. Reserves stood at 3.2 months of imports, and the mission projects it to remain around that level in 2018–19.
The IMF noted that fiscal deficit remained stable in 2017. The Government deficit was 4.5 per cent of GDP, lower than the budgeted 5.6 per cent. This better than expected outturn was largely supported by higher revenue arising from improvements in tax administration.
In 2018, the deficit is projected to widen to 5.4 per cent of GDP due to the cost of restructuring the sugar industry, including severance payments to displaced workers, as well as an increase in infrastructure related capital expenditure.
Guyana’s last best growth rate was 5.2 per cent in 2013. World Bank records show Guyana’s growth rates in 2014 was 3.8 per cent, 2015 3.2 per cent, and 2016 3.3 per cent. Finance Minister Winston Jordan had claimed that the poor performance was linked the dismal figures to sectors including sugar.
“Sugar, we had budgeted at 208,000 tonnes, came in at only 137,307 tonnes. Bauxite again did not do quite well. We had budgeted 1.7 million tonnes. Bauxite came in at 1.4 million. Gold (was a) major disappointment. We budgeted at 694,000 ounces. It came in at 653,674 ounces,” he stated.
But amid the slowdown in economic activity in 2017, the Bank of Guyana’s accommodative monetary policy stance is appropriate, according to the IMF. The major financial institution said however, as the economic recovery strengthens, monetary policy should gradually revert to a neutral stance. Exchange rate flexibility should continue to help cushion external shocks.

Fiscal outlook
As the IMF focused on the fiscal outlook for Guyana’s in its recent report, it noted that the country’s medium-term prospects are favourable. The commencement of oil production in 2020 will be a turning point. The main direct effect on the domestic economy will be through higher fiscal revenue, and spillovers to supporting activities. The balance of payments will swing sharply to positive after 2020.
“Oil revenue significantly improves the fiscal outlook, and is expected to place the public debt on a downward trajectory. The mission welcomed the progress made on establishing a comprehensive fiscal framework for managing oil wealth,” it explained.
An important point made by the IMF was the fact that debt sustainability concerns are weakened by future oil revenues, but it warned that the financing of short-term deficits should be carefully managed.
“The mission supports the authorities’ prudence towards private external borrowing. The authorities were encouraged to rely to the extent possible on Development Banks, including non-concessional financing, and to follow-up on their plans to develop the domestic bond market,” it added. Meanwhile, notwithstanding significant upside benefits, the prospect of revenue from the oil sector could lead to real exchange rate appreciation, eroding competitiveness in some sectors.
Therefore, the IMF said regulatory and administrative measures should aim to reduce the relatively high costs of doing business in Guyana. The mission noted the small improvement in the World Bank’s Doing Business indicator that measures the Distance to Frontier of regulatory best practice.
It said accessing Guyana’s natural gas for power generation could provide a cleaner and more affordable energy alternative, meeting immediate needs while renewable energy initiatives are pursued.