IMF report ‘ringing bells’ about state of the economy – Jagdeo

A recent report from the International Monetary Fund (IMF) has highlighted the dire state of the Guyanese economy, which Opposition Leader Bharrat Jagdeo says careful attention should be paid to.
Having looked at the report in its entirety, Jagdeo said it has highlighted some important facts and is also “ringing some bells about our future and state of our economy.”
In referring to some content of that report, Jagdeo noted that the report has highlighted the fact that credit to business sector grew by 0.9 per cent in 2017, which is less than one per cent.
“That’s less than inflation. That there is a high level of nonperforming loans. That we have a large exposure as a percentage of capital,” he read from the report.
Jagdeo bemoaned the fact that the report noted that the IMF looked at several countries where the average is 20 per cent, but in Guyana’s case it is 160 per cent of capital (level of exposure).
He also pointed to another fact in the report is the low level of provisioning coverage as a percentage of non-performing loans. “So if you have to provide for them, it will affect seriously the profitability of most of our banks. These are very important points in that report,” he added.
In addition to that, the report also pointed to corresponding banking relationships still being an issue.
The IMF noted that fiscal deficit remained stable in 2017. The Government deficit was 4.5 per cent of Gross Domestic Product (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.
However, 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.
Nevertheless, Jagdeo and his party has long argued that the coalition Government does not have what it takes to manage the affairs of the local economy.
He has spoken repeatedly about the increasing debt portfolio by constantly borrowing millions ahead of the impending oil and gas sector.
The former Head of State maintains that the People’s Progressive Party is best suited to handle both the economic and social affairs of the country on any given day.