IMF shines spotlight on Guyana’s inadequate foreign reserves

…reserves fall short of int’l standard of 3 months’ import cover

As a rule of thumb, economists recommend that Governments keep enough foreign reserves to be able to cover three months of imports. In Guyana’s case, however, our reserves are enough to cover little over a month’s worth of imports.

This was a finding of the International Monetary Fund (IMF) during its recent article IV consultations in Guyana where it consulted with various stakeholders and analysed data to come up with economic projections and data on Guyana.
The report pointed out that gross reserve coverage declined to 2.1 months of imports, mainly owing to higher imports. According to the IMF, the balance of weaker exports and higher imports because of oil-related investments was such that the external current account deficit rose to 17.5 per cent of Gross Domestic Product (GDP).
According to the report, Guyana has projected 2019 official reserves of US$643 million— with this figure projected to rise to US$857.8 million by 2020. In terms of 2018, the figure was US$528.4 million.
However, there was good news when it came to public finance. According to the IMF, this improved in 2018, with the central government deficit being recorded as 3.5 per cent of GDP, lower than the budgeted 5.4 per cent of GDP.
Moving forward, the Fund recommended certain measures be taken to safeguard Guyana’s foreign reserves. It noted the role that maintaining exchange rate flexibility, which is a monetary policy determined by supply and demand, could play in this regard. The Fund also alluded to providing technical assistance.
“Exchange rate flexibility could play a greater role as part of the monetary policy framework for managing large and potentially volatile foreign inflows from oil production,” the IMF said in its report.
“Over the medium-term, developing the necessary infrastructure, supported by IMF Technical Assistance, for a suitable monetary policy framework with increased exchange rate flexibility would facilitate economic expansion and adjustment to oil price shocks while maintaining price stability and safeguarding foreign reserves”.
It was recorded last year that Guyana’s net foreign reserves, held by the central bank in foreign currency notes, had fallen to its lowest point since 2008, a recent report from the bank has highlighted.
In March of 2018, the foreign reserves stood at US$498.5M. In contrast, the reserves in 2012 stood at US$825M.
A perusal of the Bank of Guyana’s statistical abstract shows that from the lows of US$298.8 million ten years ago, Guyana’s foreign reserves were built up to 2012’s sum and then it started dropping— going to US$751.2 million in 2013 and US$652.2 million in 2014.
The slide continued with the foreign reserves being recorded at US$594.7 million at the end of 2015, before picking up in January of 2016 and being recorded at US$621.1 million. While the year 2016 saw the reserves fluctuate, it never strayed below the US$500 million mark until the end of the year.
In 2017, the reserves plunged well into the US$500 million range. By November of last year, the reserves were recorded at US$562 million and as of March 2018, for the first time since 2008, the net foreign reserves fell below the US$500 million benchmark.
As of this year, the Ministry of Finance’s mid-year report had found that total reserves at the Bank of Guyana were $75.3 billion.