Guyana: Staff concluding statement of the 2022 Article IV Mission

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GUYANA / USA – A staff team from the International Monetary Fund (IMF), led by Alina Carare (incoming mission head) and Meredith McIntyre (outgoing mission head) held virtual discussions during May 18 – June 1st, for the 2022 Article IV Consultation. The team met with finance minister Dr Ashni Singh, minister of parliamentary affairs and governance Gail Teixeira, Central Bank Governor Gobind Ganga, other senior officials, representatives from the private sector, banks, the opposition party, labor unions, and other stakeholders, including Guyana’s international development partners.

The Guyanese economy was negatively impacted by the pandemic, and 2021 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.

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.

Guyana’s medium-term prospects are more favorable than ever before, with increasing oil production having the potential to transform Guyana’s economy. Oil production is expected to increase significantly with the coming on stream of two large oilfields in the Stabroek Block during 2022-26. Guyana’s commercially recoverable petroleum reserves is 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. 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.

Staff strongly support the authorities’ goals to transform the economy, address development needs in an inclusive way, and protect the long-term economic well-being of the country. Staff strongly support the authorities’ efforts to reduce electricity costs, improve transport infrastructure, diversify the economy, improve access to and quality of social services, and advance more broadly towards the Sustainable Development Goals. Staff commend the authorities’ efforts outlined in the 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.

Staff welcome the recent amendments to the National 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 praise 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.

Staff recommend a feasible and moderate increase in public investment while further strengthening the medium-term framework for fiscal policy. Staff welcome the emphasis on public investment and policies to sustain growth into the longer term. Staff urge caution in determining the pace of 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.

Staff urged the authorities to simultaneously strengthen the capacity to manage public investment, based on recommendations from the 2017 PIMA report. Staff recommend setting 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. Staff also recommend further analysis of the oil transfer rules, to ensure the long-term sustainability of the NRF and intergenerational equity.

The financial sector is well capitalized and stable. Macro-financial risks are well monitored with eight indicators, including credit to GDP measures and the systemic risk matrix. The capital to risk-adjusted assets ratio at about 29 percent is much higher than the regulatory minimum of 8 percent. The Bank of Guyana (BoG) has advanced in major reform areas, specifically in (i) revising the guidelines of asset quality reviews (including revised credit classification and provisioning for the loss category) and (ii) implementing some pillars of Basel II and III. Non-performing loans declined from 10.8 percent at end-2020 to 6.75 percent as of end-March 2022.

Guyana has recently strengthened the AML/CFT framework and staff recommend further advances in this area. Guyana has been removed from the Caribbean Financial Action Task Force (CFATF) and the European Commission’s Money-Laundering Blacklists. It is further strengthening the AMF/CFT framework, and it will be mutually evaluated again by end-2023. Similarly, the National Risk Assessment is completed, and the BoG is working on its recommendations with the requested support from the Caribbean Regional Technical Assistance Center (CARTAC).

Staff agree with the authorities that exchange rate stability serves Guyana’s needs best currently. The use of the exchange rate as the nominal anchor is currently appropriate, concurrent with increased efforts to diversify the non-oil economy and deepen the domestic financial markets. The accumulation of substantial buffers in the NRF will strengthen Guyana’s headroom to maintain a stable exchange rate. Over the medium- to long-term, as Guyana becomes a major oil producer, staff support the authorities’ aims to deepen financial markets and recommend revising the monetary policy framework to ensure it is well suited for the economy’s needs, including allowing the exchange rate to absorb shocks and increase its flexibility to maintain competitiveness.

Staff commend the authorities’ good progress in strengthening Guyana’s anti-corruption framework and fiscal transparency and supports further advances. Several pillars of the anti-corruption framework have been recently strengthened, including the Integrity and Public Procurement Commissions (IC and PPC) and the National Procurement and Tender Administration Board (NPTAB). Audit reports of public expenditures, including for COVID, are published, and their recommendations are followed up on. Asset declarations of a large number of public officials are submitted annually, and public procurement tenders are streamed live.

The authorities 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 Fund is ready to assist the authorities’ capacity development needs. This includes technical assistance on macroeconomic and fiscal management, development of financial market infrastructure, and strengthening of statistical capabilities.

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