Guyana
Recent Economic Developments

This paper focuses on economic developments in Guyana during the 1990s. By 1991, economic performance had turned around in response to the shift in economic policies and the improved incentive framework. Following sizable reductions in 1989–90, real GDP grew by about 7 percent a year in 1991 and 1992, mainly owing to a recovery of export-related production and new foreign investments in the bauxite, gold, and forestry sectors. By 1992, inflation had declined markedly; the fiscal and external deficits were reduced substantially; and private and official capital inflows had risen significantly.

Abstract

This paper focuses on economic developments in Guyana during the 1990s. By 1991, economic performance had turned around in response to the shift in economic policies and the improved incentive framework. Following sizable reductions in 1989–90, real GDP grew by about 7 percent a year in 1991 and 1992, mainly owing to a recovery of export-related production and new foreign investments in the bauxite, gold, and forestry sectors. By 1992, inflation had declined markedly; the fiscal and external deficits were reduced substantially; and private and official capital inflows had risen significantly.

I. Background

1. Guyana, an open and predominantly agricultural economy with considerable natural resources, had virtually a state-run economic system for over two decades following its independence in 1966. Under this system, major productive sectors (sugar, rice, bauxite, and gold) and financial institutions were brought under government control, prices were extensively controlled, foreign exchange was rationed, and government-owned consumer and marketing agencies were established. As a result, private sector growth languished, a parallel economy emerged, government administration became overburdened, and the public finances deteriorated.

2. Following sluggish growth during the 1960s and 1970s, the economy suffered from a steady decline in output and large macroeconomic imbalances during the 1980s. Real GDP fell at an average rate of 3 percent per annum during the 1980s. Inadequate policy responses to a sharp deterioration in Guyana’s terms of trade and weak external demand for its major exports (bauxite, rice, and sugar) led to lower production, large fiscal deficits, high inflation, depletion of external reserves, and rise in external indebtedness. By 1988 external payments arrears (mainly on debt service) had accumulated to about US$500 million or 315 percent of GDP.

3. In mid-1988 the government adopted a medium-term Economic Recovery Program (ERP), with the assistance of the Fund and other donors, which aimed at fundamentally shifting the economy toward a market-oriented system. In mid-1990, Guyana cleared its overdue obligations to the Fund and negotiated a one-year Stand-By Arrangement and the first three-year arrangement under the Enhanced Structural Adjustment Facility (ESAF). During 1989–91 the government eliminated virtually all price controls (except for sugar and utilities); adjusted public sector tariffs closer to cost recovery levels; abolished import prohibitions and simplified the tariff structure in line with the CARICOM common external tariff (CET); unified the exchange rates; and introduced treasury bill auctions which formed the basis for market-determined interest rates. The government sold some 14 public enterprises, placed the state-owned sugar and bauxite companies under private management contracts and transferred the rice sector to private ownership. In addition, the efficiency of the public sector was substantially enhanced through broadening the tax base, curbing current expenditure, reducing current transfers to public enterprises, and rationalizing public administration with a reduction in the number of ministries from 18 to 11.

4. By 1991 economic performance had turned around in response to the shift in economic policies and the improved incentive framework. Following sizable reductions in 1989–90, real GDP grew by about 7 percent a year in 1991 and 1992, mainly due to a recovery of export-related production (particularly sugar and rice) and new foreign investments in the bauxite, gold, and forestry sectors. By 1992 inflation had declined markedly (to 28 percent from about 90 percent in 1989); the fiscal and external deficits were reduced substantially; and private and official capital inflows had risen significantly. Section II below reviews economic developments since 1993. Structural reforms relating to the public sector, financial system, and external sector, are detailed in Sections IIIV. Appendices IIII cover the reorganization of the central bank, the new legislations for the insurance and securities sectors and the current tax system.

II. Recent Economic Developments

A. Developments During 1993–97

5. Assisted by adjustment programs supported by the Fund and World Bank, Guyana’s economy continued to grow strongly in the period 1993–97 (Figure 1). Real GDP grew by an average of 7 percent a year during the period with a strong growth in agriculture (particularly rice and forestry), mining (bauxite and gold), construction, transport, and telecommunications (Tables 14). Structural reforms, with emphasis on private sector ownership and management, helped increase the production of rice and sugar (despite the negative or low growth of both sugar crops in 1997 due to the El Niño-related adverse weather). Increased confidence in the economy boosted investment (particularly foreign investment) in the bauxite, gold and forestry industries. Light manufacturing (e.g., clothing and processed food and seafood) also registered growth. Inflation declined from 100 percent in 1991 to an average of 10 percent a year in 1993–97 (4 percent in 1997), supported by generally restrained monetary and fiscal policies, structural reforms, and a relatively stable exchange rate (Table 6).

Figure 1.
Figure 1.

Guyana: Selected Economic Indicators, 1993–98

Citation: IMF Staff Country Reports 1999, 052; 10.5089/9781451816730.002.A001

Sources: Data provided by the Guyanese authorities; and Fund staff estimates and projections.1/ Contribution to liquidity growth.2/ 1996 projection includes the effect of the debt relief provided in May.3/ Excluding official transfers.4/ In percent of exports of goods and nonfactor services.
Table 1.

Guyana: Value Added by Sector

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Source: Bureau of Statistics.
Table 2.

Guyana: Value Added by Sector at Current Prices

(In millions of Guyana dollars)

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Source: Bureau of Statistics.
Table 3.

Guyana: Value Added by Sector at Constant 1988 Prices

(In millions of 1988 Guyana dollars)

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Source: Bureau of Statistics.
Table 4.

Guyana: GDP by Expenditure at Current Prices

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Sources: Bureau of Statistics; Bank of Guyana; and Fund staff estimates.

Including errors and omissions.

Table 5.

Guyana: Savings and Investment

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Sources: Bureau of Statistics; Bank of Guyana; and Fund staff estimates.
Table 6.

Guyana: Consumer Prices

(Percentage change, period average)

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Sources: Bureau of Statistics; and Fund staff estimates.

Staff estimates of the inflation rate are based on price data collected by the Bureau of Statistics representing about 60 percent of the old CPI basket for 1991-93. Publication of the consumer price index was resumed in 1994.

6. National savings increased to 16 percent of GDP in 1997 (Table 5). Public sector dissavings of 1.7 percent of GDP in 1993 turned to a saving of 9.4 percent of GDP by 1997, as tax collections improved, and current public expenditure was restrained. Private savings relative to GDP also increased in the period 1994–97 as inflation declined, the exchange rate stabilized and real interest rates turned positive.

7. Public finances improved substantially during the period 1993–96. The overall deficit of the public sector fell from 21 percent of GDP in 1993 to 3 percent of GDP in 1996, reflecting substantial improvements in the finances of both central government and public enterprises (Tables 914). Given the relatively high ratio of tax revenues to GDP, improvements in the central government finances originated more from curbing expenditures than from increasing revenues. Tax revenue declined from 35½ percent of GDP in 1993 to 32 percent in 1996 despite the measures taken to strengthen tax administration and reform the tax system (mainly through the simplification of the tax system, increasing indirect taxes, and alleviating the tax burden on individuals and corporations). However, the decline in revenue was more than offset by cuts in central government current expenditure (from 31½ percent of GDP in 1993 to 24 percent of GDP in 1996)—mainly reductions in transfers to the public and private sectors, decline in interest payments due to debt relief, and the containment of wages. However, central government capital expenditure increased (by 2 percent of GDP between 1993 and 1996) and focused on infrastructure (urban and rural roads, drainage, and irrigation) and social sectors (especially education and health facilities). The overall balance of the public enterprises improved from a deficit of 5.2 percent of GDP in 1993 to a surplus of 2.7 percent of GDP in 1996, mainly due to divestment, liquidation of unviable entities, and engagement of private management.

Table 7.

Guyana: Population Estimates

(In thousands)

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Source: Bureau of Statistics.

Total births minus total deaths.

Table 8.

Guyana: Employment in the Public Sector

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Sources: Bureau of Statistics; and State Planning Secretariat.

Excludes staff of the Guyana Police Force, Guyana Defense Force, Guyana Fire Service, Guyana Prison Service, Guyana National Service, Teachers, Open Vote Workers, and staff of entities receiving subsidies and contributions.

Employment figures represent permanent employees. Guysuco has also employed temporary workers totaling 1,537, 1,529, and 2,250 in 1996, 1997, and 1998, respectively.

Table 9.

Guyana: Summary of the Operations of the Public Sector

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Sources: Ministry of Finance; and Fund staff estimates.

Current account balance.

Current expenditure of the central government.

Table 10.

Guyana: Operations of the Central Government

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Sources: Ministry of Finance; and Fund staff estimates.

Includes taxes paid by state enterprises.

Cash payments.

Includes on lending to public enterprises.

Table 11.

Guyana: Central Government Revenues

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Sources: Ministry of Finance; and Fund staff estimates.

Includes revenue from nonfinancial public corporations.

Table 12.

Guyana: Central Government Expenditures

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Sources: Ministry of Finance; and Fund staff estimates.

Includes rent, electricity, fuel, travel, postage, telephones, and other miscellaneous expenses.

Interest paid.

Table 13.

Guyana: Summary of the Operations of the Public Enterprises

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Sources: Ministry of Finance; and Fund staff estimates.

Taxes paid by enterprises.

Amortization payments are consolidated with central government amortization repayments.

Table 14.

Guyana: Operations of the Public Corporations

(In millions of Guyana dollars)

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Sources: Ministry of Finance.