Guyana has weathered the impact of the global crisis well by regional and global standards. The current account deficit declined by 5 percent of GDP (to 8.5 percent of GDP), largely led by a reduction in imports, particularly of fuel. Macroeconomic policies have remained prudent. Monetary policy tightened somewhat in 2009, supporting the decline in inflation and external stability. Structural reform has continued to focus on further reducing vulnerabilities and entrenching long-term growth. The authorities have consolidated insurance and bank supervision at the central bank.

Abstract

Guyana has weathered the impact of the global crisis well by regional and global standards. The current account deficit declined by 5 percent of GDP (to 8.5 percent of GDP), largely led by a reduction in imports, particularly of fuel. Macroeconomic policies have remained prudent. Monetary policy tightened somewhat in 2009, supporting the decline in inflation and external stability. Structural reform has continued to focus on further reducing vulnerabilities and entrenching long-term growth. The authorities have consolidated insurance and bank supervision at the central bank.

I. Context

1. In recent years, Guyana has sustained a solid macroeconomic performance, supported by a strengthened policy framework. Newly released GDP series (based on 2006 prices) suggest that Guyana’s economic growth exceeded 4 percent a year on average during 2007-09—compared with 3½ percent in the previous GDP series (based on 1988 prices), while nominal GDP at market value is some 65 percent higher than before. This reflects, in part, the incorporation of new economic sectors, and of the previously large informal activity that moved into the formal sector since Guyana changed course in the late 1980s (Box 1). Inflation has declined steadily since the imported price shock of 2008, to around 3½ percent at end-2009. This performance owes much to the implementation of prudent policies, which have helped reign in public debt, while supporting growth and external stability.

Selected Caribbean Countries: Economic, Social, and Political Indicators

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Sources: World Bank; United Nations Development Programme; United Nations Conference on Trade and Development; World Economic Forum; and Transparency International.

Simple average.

Guyana’s GDP per capita is based on 1988 constant prices.

The lower, the better.

The higher, the better.

2. While Guyana has been adversely affected by the global crisis, it has weathered it significantly better than its Caribbean peers—and policy indicators have strengthened relative to regional standards. Guyana’s real GDP growth was generally below the regional average in the first half of the decade, but the pace of economic activity has picked up since 2006, and showed much higher resilience to the 2009 global crisis than the rest of the region (Figure 1). Inflation has been contained at lower levels than in other Caribbean commodity exporters, and the fiscal deficit has narrowed steadily in recent years. Concurrently, debt ratios have improved—also supported by debt relief—bringing external debt within the regional range, while domestic debt is low relative to the Caribbean average.

Figure 1.
Figure 1.

Guyana: Comparative Regional Developments 1/

Citation: IMF Staff Country Reports 2010, 292; 10.5089/9781455208470.002.A001

Sources: Country authorities; and Fund staff calculations.1/ Caribbean region measured assimple averages of corresponding variables.2/ Tourism-dependentCaribbean includes Antigua and Barbuda, Bahamas, Barbados, Belize, Dominica, Grenada, Jamaica, St. Kitts and Nevis, St. Lucia, and St. Vincent and the Grenadines.3/ Commodity-exporting Caribbean includes Suriname and Trinidad and Tobago.

II. Recent Developments

3. Economic activity strengthened in 2009, and inflation declined. Real growth was about 3¼ percent in 2009, up from 2 percent in 2008 (Figure 2).1 Economic activity was affected during the first half of the year by difficulties with the start-up of the new large public sugar plant at Skeldon, and the impact of the global and weather shocks on the sugar and bauxite industries. In the second half, economic growth benefited from robust activity in the non-tradable sectors and a recovery in agriculture and gold production (see Attachment I: “The Impact of the Global Crisis through the Real Channel”). End-year inflation fell to 3½ percent from 6½ percent in 2008, reflecting the decline in world commodity prices.

Figure 2.
Figure 2.

Guyana: Real Sector Indicators

Citation: IMF Staff Country Reports 2010, 292; 10.5089/9781455208470.002.A001

Sources: Bank of Guyana; Ministry of Finance; and Fund staff estimates.

4. In 2009, the external current account deficit narrowed, while the international reserve position strengthened significantly. The current account deficit fell by some 5 percent of GDP, to 8½ percent, driven by a reduction in imports—particularly fuel imports—and notwithstanding the adverse effect of global conditions on exports and remittances (Figure 3) and the phasing out of sugar price preferences by the EU in October (see Attachment II: “Guyana: Elimination of the EU Sugar Preferences”). In the capital account, steady short-term inflows, including by commercial banks that brought back assets held abroad to benefit from higher domestic interest rates, helped offset a decline in FDI. These developments, together with the SDR allocation, led to a large increase in gross reserves, to US$623 million at year-end.2

Figure 3.
Figure 3.

Guyana: External Sector Developments

Citation: IMF Staff Country Reports 2010, 292; 10.5089/9781455208470.002.A001

Sources: Bank of Guyana; and Fund staff estimates and projections.
A01ufig01

Official Reserve Adequacy 1/

(percent)

Citation: IMF Staff Country Reports 2010, 292; 10.5089/9781455208470.002.A001

1/ Dotted lines denote value before SDR allocation (US$108.6 million) in 2009.

5. Monetary policy tightened, supporting the decline in inflation. Growth of broad money—the monetary policy anchor—fell to 9.7 percent in December (y/y), compared to 12.7 percent a year earlier. T–Bill rates rose in real terms—turning from being negative in 2008 to positive in 2009 as inflation declined, leading commercial banks to increase their holdings of government securities, in the context of a slow demand for credit. The nominal currency has remained broadly stable against the U.S. dollar.

6. The pace of fiscal consolidation strengthened in 2009, helping contain public debt. The NFPS deficit (after grants) is estimated to have declined to 3.3 percent of GDP in 2009 from 4.7 percent in 2008, on the back of strong fuel excise collections that offset a modest under-performance by public enterprises and a shortfall in official grants. This outturn was equivalent to a deficit of 5.3 percent of (old) GDP—below the budget target of 6½ percent of (old) GDP. Owing to this retrenchment, public debt (net of savings of PetroCaribe-related disbursements) declined by about 1 percent of GDP to 56¾ percent of (new) GDP.

Nonfinancial Public Sector Operations

(In percent of GDP)

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Sources: Ministry of Finance; and Fund staff estimates.

The Rebased GDP Figures

GDP data have been rebased from 1988 to 2006. As a result of these changes, 2009 GDP at market prices is higher than previously estimated by 64 percent. Preliminary estimates suggest that the new GDP per capita reached US$2,630 as of end-2008, up from US$1,504 in the old series. The rebasing project benefited from technical assistance from the U.S. Census Bureau (under an IDB project) and CARTAC. The establishment of the new base year aimed at capturing changes in relative industrial costs and price structures, the large informal sector that has gradually formalized itself since the late 1980s, and the emergence of new economic activities. The project has improved the national accounts compilation system.1

A01ufig02

Weights, 2009

(percent)

Citation: IMF Staff Country Reports 2010, 292; 10.5089/9781455208470.002.A001

The change in sectoral composition reflects better accounting of activity in key sectors. The rebased GDP includes higher weights for several sectors. For example, the government services sector now captures statutory bodies. Health and education services—formerly classified under the government sector—are now separated and expanded to include private sector activities. The distribution sector has an expanded coverage of commodity flows (using data on imports and domestic production), and an improved estimation of trade margins. The mining and quarrying sector now reflects a larger share of gold and diamond production, and a lower share of bauxite. The new benchmark for manufacturing reflects the use of an expanded index of 47 products; and the “other services” sector captures new categories, including hotels and restaurants, and professional services.

A01ufig03

Nominal GDP

(G$ billion)

Citation: IMF Staff Country Reports 2010, 292; 10.5089/9781455208470.002.A001

The transportation and communications sector saw several important coverage enhancements—for instance, the scope of communications was broadened to include cell phone activities, and internet service providers and TV broadcasting. The operations of mini buses, taxis, lorries, domestic air services and coastal speedboats, and the services provided by air/sea ports and bridges are now in the transportation sector.

A01ufig04

Real GDP Growth

(percent)

Citation: IMF Staff Country Reports 2010, 292; 10.5089/9781455208470.002.A001

The importance of the sugar sector in total output declined. As an industry, sugar’s calculations are robust, since they draw on data from the public company. However, the old series used an arbitrary split in the value added between agriculture and manufacturing, while the new series draw on actual employment costs, while sugar manufacturing was reclassified into manufacturing.

There were no major changes in the coverage of financial services, as commercial banks’ activities are generally well measured. However, the new series introduce enhanced estimation techniques. Going forward, there is scope for improving measurements of the insurance sector.

1 The project was developed in the context of a CARICOM agreement for harmonizing the base of the GDP series across member countries to inform policy decisions and advance regional integration.

7. The impact of the global crisis on the financial sector has been limited so far, but private sector credit has slowed. In early 2009, banks tightened their lending standards and private sector credit growth slowed to about 6 percent by December (y/y), down from nearly 22 percent in 2008. Banks remain liquid and well capitalized. Although NPLs for the banking sector have declined significantly over the last decade, they remain relatively high (at 8¼ percent), while provisions are low (at 54 percent). Loan concentration is high for the banking sector (at about 35½ percent loan portfolio); while the more contained related-party lending remained broadly unchanged (y/y) at around 4.5 percent as of end-December. The resolution process for CLICO is underway, with a potential fiscal cost to the government of 2-3 percent of GDP, largely arising from investments by the National Insurance System. To date, banking sector asset losses from CLICO’s collapse have been very modest, and limited to one bank.3

A01ufig05

Credit to the Private Sector

Citation: IMF Staff Country Reports 2010, 292; 10.5089/9781455208470.002.A001

Based on latest available monthly data for 2009 for each country.

Financial Soundness Indicators, 2004-09

(In percent)

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Sources: Guyanese authorities.

8. The authorities have undertaken reforms to address fiscal and financial risks:

  • Fiscal Sector. To enhance the accounting and transparency of public investment, a modern chart of accounts for capital expenditure has been introduced into the integrated financial management system (IFMAS); in addition, the authorities are piloting an exercise with IDB support to integrate donor projects into the IFMAS. Efforts to improve the Guyana Revenue Authority (GRA) also continue, including by consolidating the new functional organization, completing the rolling out the integrated tax information system (TRIPS), and the improvements in filing, refund, arrears collection and audit functions. The zero-rated VAT list has not been expanded, and the authorities are adhering to the existing system of rules-based tax exemptions, which has remained broadly unchanged in the last year.

  • Financial Sector. To deepen financial sector surveillance, the authorities have legally consolidated insurance and bank supervision at the central bank, incorporated risk-based supervision, and issued new guidelines on risk management. The authorities are also publishing regularly key financial soundness indicators for licensed deposit-taking institutions. In addition, the AML/CFT Act and the Money Transfer Agencies Act were enacted in 2009, while the bill for authorizing the operation of Credit Bureaus was tabled in Parliament.

9. The agenda has also focused on achieving sustainable long-term growth and alleviating poverty:

  • Sugar sector. Reforms continued to focus on modernizing the sugar sector through ensuring that the new plant at Skeldon becomes fully operational, and by raising overall efficiency.

  • Low Carbon Development Strategy (LCDS). Recent progress includes a model agreement signed with Norway, which would provide US$250 million in 2010–15 in exchange for the preservation of Guyana’s rainforests. These resources would support, inter alia, the development of non-traditional economic sectors and the reconversion of Guyana’s fuel-dependent energy sectors.

  • Infrastructure. The government is spearheading key projects as Public-Private Partnerships (PPPs) to help close the infrastructure gap. These include the construction of a hydropower plant at Amalia Falls (with private sector financing for some 23 percent of GDP from China and the IDB), and a 450 km. road, connecting Guyana’s interior to Brazil (11–16 percent of GDP). Public investment plans include an access road to Amalia Falls, and improving electricity generation and distribution.

  • Business climate The authorities computerized business registration and incorporated the records into the Deeds Registry in 2009. In addition, the authorities provided support to small enterprises through the creation of facilitation programs providing advisory services (including with IDB support) and the improvement of community market infrastructure.

  • Poverty reduction. The authorities are finalizing the 2008–12 Poverty Reduction Strategy Paper (PRSP). This proposes seven strategic pillars:(i) economic growth led by broad-based job creation; (ii) environmental protection; (iii) stronger institutions and better governance; (iv) investment in human capital and emphasis on basic education and primary health; (v) investment in physical infrastructure; (vi) improved safety nets, and (vii) special intervention programs to address persistent pockets of poverty. The development of a monitoring and evaluation system (with support of the UNDP and the IDB) will enhance the effectiveness of public spending.

Guyana: Selected Social and Poverty Indicators

(In percent)

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Source: Guyana, 2010 Budget.

Key Policy Recommendations of the 2008 Article IV Consultation

Staff’s advice centered on the need to:

  • Continue implementing a sound policy framework. A more gradual deficit reduction than previously envisaged was appropriate, given the global slowdown. A faster convergence than planned to the previous fiscal framework was recommended over the medium term. While the exchange rate was broadly in line with fundamentals, some additional flexibility was desirable.

  • Enhancing financial system surveillance. While there were no signs of financial distress, staff recommended intensified monitoring of the sector, the development of a crisis response plan, and enhancing the reporting of standard prudential indicators.

  • Implementing structural reform. Given the importance of the sugar modernization plan, it was imperative to address business and labor relations, and prepare contingency measures. Continuing to address the high cost and unreliability of energy generation was also considered important. In addition, it was recommended to avoid a further expansion of the zero-rated VAT list, adhering to a system of rules-based exemptions and continue improving the revenue administration.

  • Pressing ahead with the poverty reduction agenda, through ensuring consistency between the medium-term framework and the PRSP, while establishing an effective system for its monitoring and evaluation.

Authorities’ views. The authorities broadly shared the staff’s assessment and welcomed the policy advice. They expressed their readiness to implement measures to contain the deficit and achieve the inflation target as needed. They planned to enhance financial sector supervision and implement the structural reform agenda. They noted that they would continue to favor exchange rate stability, since greater flexibility could lead to excessive volatility, which could be disruptive in their view.

III. Medium-term Outlook and Risks

10. The baseline macroeconomic outlook remains positive for 2010 and the medium term. Guyana would benefit from the global recovery, the coming on stream of the Skeldon sugar plant, and the start-up of public investment projects, which would spur average growth to 4-5 percent in the medium term. Growth is projected to gradually converge to its potential rate of 3¼ percent over the long term.4 While fully financed, the external current account deficit would widen somewhat in 2010—led by rising world oil prices, the elimination of sugar price preferences by the EU, and the up tick in domestic demand—before narrowing in subsequent years.

Medium-Term Macroeconomic Framework

(In percent of GDP, unless specified otherwise)

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Sources: Ministry of Finance; and Fund staff estimates and projections.

Revenue including grants.

11. Risks appear tilted to the downside in the near term, but are balanced over the longer term. Key downside risks include those linked to a weaker or delayed global recovery, higher-than-envisaged oil prices, and further delays in completing the modernization of the public sugar company—which is critical to the baseline growth projection. The recent elimination of preferential sugar prices by the EU, which will increasingly expose Guyana to the volatility of world market prices for its sugar exports, could also complicate the outlook, notwithstanding the recent firming of sugar prices in the world market. Upside potential hinges on the sound completion of key large investment projects through PPPs, the eventual exploitation of Guyana’s oil reserves (expected to begin in 2014), and on the potential benefits from the global carbon credit markets on account of the country’s rainforests in the context of the LCDS.

IV. Policy Discussions

12. Discussions took place against the backdrop of strengthened economic prospects, despite remaining vulnerabilities and risks to the outlook. Thus, the focus was on establishing:

  • Macroeconomic Policy Framework to Support Growth and Protect Sustainability. The newly rebased GDP series, coupled with a stronger-than-envisaged fiscal consolidation in 2009, have revealed a larger space for fiscal policies to accommodate key investment spending and remain supportive of growth. It will be important to strike a balance between allowing for a more gradual fiscal consolidation while staying the course of prudent policies to consolidate fiscal and debt sustainability. In this context, monetary policy should remain cautious to ensure price stability.

  • Agenda to Further Reduce Vulnerabilities, Entrench Growth, and Alleviate Poverty. Reducing vulnerabilities would require measures to restrain fiscal risks linked to public investment and PPPs, and further strengthening the financial sector. Reforms to modernize the sugar industry, diversify the productive base, and enhance the business climate are critical to sustaining long-term growth and speeding up poverty reduction.

A. A Macroeconomic Policy Framework to Support Growth and Protect Sustainability

Fiscal Policies

13. The authorities plan to maintain prudent fiscal policies in the near and medium term to protect sustainability. Following an important upfront consolidation effort in 2009, the 2010 budget and medium term plans envisage a somewhat slower fiscal tightening. The path would maintain the NFPS deficit at around 3.2 percent of GDP in 2010–11, and gradually converge to a deficit of 2.2 percent of GDP by 2014. While this stance entails a positive fiscal impulse in 2010–12, the presence of a negative (albeit narrowing) output gap would help contain inflation risks (See Attachment III: Assessing Guyana’s Fiscal Structural Policies). The authorities noted that this strategy would allow for a reduction in the net debt-to-GDP ratio, while providing some space to support growth through public investment.

A01ufig06

Public Debt and Fiscal Balance

(percent of GDP)

Citation: IMF Staff Country Reports 2010, 292; 10.5089/9781455208470.002.A001

14. Staff agreed that the fiscal stance was appropriate, but noted that risks call for heightened caution. While the rebased GDP data has revealed a lower debt overhang than considered earlier, Guyana still faces a risk of moderate debt distress.5 Moreover, the revised consolidation path could entail a somewhat pro-cyclical fiscal stance in the medium term. These and other downside risks (including those related to the sugar sector and world fuel prices) require exercising fiscal prudence, including through contingency planning. The authorities stressed that the fiscal effort of 2009 had aligned the outturn with the consolidation path agreed at the time of the 2008 Article IV consultation earlier than envisaged. In addition, the fiscal impulse would shield growth against downside risks, while upside risks to potential output from productive infrastructure spending also lessened the urgency for faster consolidation. They expressed their readiness to implement expenditure measures, if needed, to meet the fiscal targets and protect debt sustainability. They also concurred with staff that a balanced package of structural measures to further strengthen the revenue administration and to secure the long-term viability of the National Insurance System—including through parametric reform—along with a phased reduction of non-priority spending would be critical to maintain a low fiscal deficit. This, along with the continued savings of a large share of the PetroCaribe disbursements would help gradually bring the PV of public debt closer to the DSA benchmark of 40 percent of GDP.6

A01ufig07

Overall Fiscal Deficit

(percent of GDP)

Citation: IMF Staff Country Reports 2010, 292; 10.5089/9781455208470.002.A001

A01ufig08

Public Debt Comparison

(percent of GDP)

Citation: IMF Staff Country Reports 2010, 292; 10.5089/9781455208470.002.A001

Monetary and Exchange Rate Policies

15. The monetary stance appears appropriate to maintain macroeconomic stability. Staff noted that while inflation is currently low, it will be important to prevent the rekindling of inflationary pressures through an early monetary policy easing. The authorities noted that they would continue conducting monetary policy through open market operations,7 and agreed that the high liquidity available in the system should provide a buffer to satisfy a pick up in the demand for private sector credit, as global conditions recover further. The authorities stressed their readiness to tighten monetary policy—should inflationary pressures develop—to ensure compliance with their inflation objective of 4 percent.

16. Staff observed that a move toward greater exchange rate flexibility would provide a useful buffer against external shocks, but noted that there was space to implement this gradually. The still high volatility in prices for Guyana’s commodity exports provides some rationale for following a gradual approach to prevent disruptive exchange rate fluctuations from temporary shocks given the still volatile global conditions—particularly as international reserves remain comfortable. At the same time, greater flexibility would contain fiscal costs linked to sterilization and enhance the effectiveness of monetary policy. As in the past, the authorities expressed a preference for exchange rate stability—noting that, in their view, volatility could be disruptive, including because of the still relatively thin market and Guyana’s exposure to commodity price shocks. Guyana’s real effective exchange rate is assessed to be broadly in equilibrium (Box 3).

B. An Agenda to Lower Fiscal Risks, Entrench Growth, and Alleviate Poverty

17. There was agreement that implementing a sound investment framework would be critical to minimizing fiscal risks and protecting sustainability.

  • Public investment should be of high quality. Projects should ensure a high value-for-money, and help enhance Guyana’s growth and debt-repayment capacity. In the sugar sector, there was agreement on the urgency of ensuring the full operation of the Skeldon plant, increasing mechanization and planning against weather shocks, and establishing a stable framework to address labor conflicts. The authorities are enhancing the fiscal accounting and transparency of investment projects with the IDB, and undertaking detailed cost-benefit analysis of all of the large donor projects, to ensure their feasibility. Staff recommended gradually expanding these initiatives to all public investment. There was agreement that continued access to high concessional terms remains critical to protect sustainability. There was also agreement that the LCDS may play a pivotal role in catalyzing green funds for the development of new sectors.

  • Minimizing fiscal risks from PPPs will require close attention to international best practice. While PPPs can facilitate private participation, they can also pose sustainability risks, particularly in the presence of sovereign guarantees. Staff urged the authorities to ensure that PPP contracts provide a fair balance of risks between the private and public sectors, limit fiscal contingencies, and prevent renegotiation risks, observing that these features could eventually be entrenched into a comprehensive legal framework for PPPs. The authorities agreed to reflect any firm or contingent liabilities from upcoming PPP contracts in the public debt statistics. They also noted that the hydropower plant at Amalia Falls should go a long way in limiting exposure to world oil prices and improving reliability, while clarifying that the IDB is still assessing the economic and environmental viability for the project under the new global conditions. Likewise, the Brazilian authorities continue to evaluate the Brazil-Guyana road project, also with IDB technical support. Prospects for starting oil extraction in 2014 remain positive.

  • Other contingent liabilities should be limited. In this context, the fiscal costs related to the resolution of CLICO should be minimized.

Surveillance Decision: External Sustainability Assessment

Guyana’s real effective exchange rate has been depreciating since its peak in January 2008. The real depreciation of 10 percent between end-January 2009 and November 2009 has reversed the sharp real effective appreciation of the Guyanese dollar of 11 percent that took place in the second half of 2008, and largely reflects the volatility of the U.S. dollar (which the Guyanese dollar follows closely) vis-à-vis the Euro and other major currencies.1

A01ufig09

Exchange Rates

Citation: IMF Staff Country Reports 2010, 292; 10.5089/9781455208470.002.A001

CGER-type of analysis suggests that the Guyanese dollar is broadly in equilibrium. The assessment relies on the external sustainability (ES) and macroeconomic balance (MB) approaches.2 In a baseline scenario, the results indicate that the real effective exchange rate is broadly in line with fundamentals. Under both methodologies, results show an estimated misalignment in both directions of less than 5 percent in each case.

Sensitivity analysis confirms these results. Given the well-known uncertainties linked to the CGER-analysis, a number of sensitivity tests were conducted, based on changes to key parameters, for both the ES and MB approaches. The results indicate, in all cases, that the deviation of the REER from equilibrium is moderate (of less than 10 percent) in both directions in the stress tests.

Sensitivity Analysis of REER Gap to Assumptions

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An assessment based on the financial account suggests that sustainability risks are balanced. Staff projects a gradual decline in external financing needs after a temporary widening of the current account deficit in 2010. Private and official capital inflows are expected to be sufficient, as FDI and remittances have not been drastically affected by the global crisis, while large IFI and bilateral disbursements are being secured to finance key infrastructure projects in the next few years. Sustainability has been buffed up through the SDR allocation. Higher oil prices, while raising current account pressures, would be mirrored by financial inflows from PetroCaribe; Guyana could become a net oil exporter in 2014.

1 The Fund classifies Guyana’s exchange rate regime as a stabilized arrangement.2 The approach of the equilibrium real exchange rate could not be applied given the lack of reliable data on productivity indicators.

18. The authorities plan on a prompt publication of the PRSP. With the soon-to-be-published PRSP based on 2006 data, they are working towards including an updated macroeconomic framework and an MDG costing exercise in subsequent PRSPs.

C. An Agenda to Address Financial Sector Vulnerabilities

19. Staff stressed the need to continue monitoring commercial banks closely. Recent data suggest that the banking system as a whole would withstand a series of shocks before becoming vulnerable, although resilience varies across individual banks (see Attachment IV: Guyana—The Financial Sector). While the authorities stressed their ongoing efforts to enhance financial supervision, staff urged them to require banks to increase provisions, and tighten the legislation on the exposure to large borrowers and related-party lending. It would also be important to ensure that all banks prepare crisis management plans of sufficient quality. The authorities noted that existing legislation embeds a reliable framework to provide liquidity support and deal with troubled licensed financial institutions; staff noted the importance of ensuring that these provisions—including, for instance, the eligibility requirements for liquidity support—remained consistent with the evolving structure of the financial system. A program that extends tax and reserve requirement exemptions on small mortgages also requires monitoring, to avoid excessive exposures from developing in households’ balance sheets.

20. While welcoming efforts to deepen the financial system, staff noted that strict regulatory standards are critical for non-bank financial institutions. As most licensed non-bank financial institutions are now under central bank supervision, staff encouraged the authorities to bring credit unions and cooperatives within the same regulatory perimeter. Staff also recommended that draft legislation to bring the mortgage institution NBS under direct central bank supervision be tabled in Parliament. There was agreement that ongoing efforts to reduce the large interest rate spreads, including though the development of new financial instruments (with IDB technical support) would help deepen financial sector intermediation.

D. Data Provision

21. The authorities have made important efforts to improve data quality in the past year, but the timely availability of data is still an issue. Staff noted the very significant progress entailed in the finalization of the rebased GDP. New CPI series, also prepared with CARTAC assistance, are being compiled in line with a new basket. Staff urged the authorities to complement these efforts by expanding and accelerating data provision, and to subscribe to the General Data Dissemination System (GDDS). The authorities agreed to review the GDDS requirements, and are considering an eventual subscription to the system.

V. Staff Appraisal

22. With a fresh perspective on its economic stance at hand, Guyana is at a cross-road. New GDP series suggest that economic performance in recent years has been stronger than previously considered, while inflation has declined to low levels since the 2008 food price shock. Guyana has weathered the global crisis well, in part owing to the implementation of prudent policies. Going forward, it will be important to strike an appropriate balance between using the fiscal space to entrench the economic recovery, and protecting sustainability, given persistent vulnerabilities and risks to the outlook.

23. Modernizing the sugar sector and diversifying Guyana’s productive base are critical to sustaining growth. Staff welcomes the innovative plans under the Low Carbon Development Strategy, and those to finalize the modernization of the sugar sector. Given its key role in the Guyanese economy, it will be critical for the public sugar company to implement its recovery measures, and ensure the rapid operation of the plant.

24. In the period ahead, the authorities’ commitment to prudent policies should be underpinned by a heightened fiscal caution, given the risks to the outlook. Staff welcomes the consolidation effort exerted in 2009, which provides a buffer to debt sustainability, while opening space for medium-term fiscal policies to remain supportive to growth, including by accommodating key infrastructure spending. While the authorities’ overall fiscal stance in the near and medium term is broadly appropriate, it will be critical to prevent debt and inflation risks that could emerge from pro-cyclical fiscal policies. In this context, staff commends the authorities’ readiness to take expenditures measures, if needed, to meet their fiscal targets, support price stability, and protect debt sustainability. Pressing ahead with the implementation of ongoing or planned structural reforms in the revenue administration and the National Insurance System should serve this objective well.

25. Minimizing fiscal risks from public investment and public-private-partnerships will be critical to ensuring debt sustainability. Public projects should ensure a high value-for-money, and help enhance Guyana’s growth and debt-repayment capacity. Staff welcomes efforts to enhance the economic assessment, fiscal accounting, and transparency of investment projects from donors, which could gradually be expanded to all public investment. Staff commends the authorities’ commitment to seeking access to high concessional terms to protect debt sustainability. Minimizing fiscal risks from PPPs will require close attention to international best practices, particularly to limit risks linked to sovereign guarantees. It will also be critical to reflect any firm or contingent liabilities from PPPs in the public debt statistics. The authorities’ decision to minimize the fiscal cost from the resolution of CLICO is welcome.

26. It will be important to prevent an emergence of inflationary pressures as the recovery ensues. In this context, the authorities’ decision to maintain a tight monetary policy stance is adequate, especially since the high liquidity level in the system provides a buffer to satisfy a pick up in the demand for private sector credit. While moving toward greater exchange rate flexibility would provide a buffer against shocks, a gradual approach would help prevent disruptive exchange rate fluctuations stemming from temporary terms of trade shocks and Guyana’s still thin foreign exchange market—particularly as international reserves remain comfortable.

27. The balance of risks calls for a careful monitoring of the domestic financial system. So far, the banking system has remained broadly resilient to the global crisis. However, the level of NPLs, provisioning, borrower concentration and related-party credit raise concerns. In this context, staff welcomes the forthcoming reporting and monitoring guidelines for financial institutions, and urges the authorities to require banks to step up their provisioning levels, and to tighten the legislation on the exposure to large borrowers and related-party lending. While the recent initiatives to deepen financial intermediation (such as the forthcoming law on Credit Bureaus) are commendable, the program that extends tax exemptions and reserve requirements on mortgage loans should be monitored closely, to avoid developing exposures in households’ balance sheets. Staff welcomes the recent amendment to bring insurance supervision under the purview of the central bank; and recommends to gradually bring credit unions and cooperatives under the same regulatory perimeter of other nonbank financial institutions, and to bring the mortgage institution NBS under direct central bank supervision.

28. The authorities’ long-standing commitment to poverty reduction calls for a prompt publication of the PRSP. Given the importance of including an updated macroeconomic framework and an MDG costing exercise in subsequent PRSPs, staff welcomes ongoing work with donor support to cost the achievement of the MDGs.

29. The important improvements in data quality achieved in the recent year should be accompanied by a further strengthening in data availability. Staff commends the very significant progress entailed in the finalization of the rebased GDP and CPI series. Staff also welcomes the authorities’ decision to review the requirements of the General Data Dissemination System (GDDS) with a view of considering a future subscription.

30. Staff recommends that the next Article IV consultation with Guyana be held on the standard 12-month cycle.

Figure 4.
Figure 4.

Guyana: Fiscal Sector Developments

Citation: IMF Staff Country Reports 2010, 292; 10.5089/9781455208470.002.A001

Sources: Ministry of Finance; and Fund staff estimates and projections.
Figure 5.
Figure 5.

Guyana: Monetary Developments

Citation: IMF Staff Country Reports 2010, 292; 10.5089/9781455208470.002.A001

Source: Bank of Guyana Financial Statistics.
Table 1.

Guyana: Selected Social and Economic Indicators

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Sources: Guyanese authorities; UNDP Human Devt. Report 2009; and Fund staff estimates and projections.

Including official transfers.

After delivery of HIPC assistance and MDRI and excluding Petrocaribe savings in 2007-11.

Includes SDR allocation.

Table 2.

Guyana: Balance of Payments

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Sources: Bank of Guyana; Statistical Bureau of Guyana; Ministry of Finance; and Fund staff estimates and projections.

Includes the IDB’s stock of debt operation in 2007

Includes capital flows of PetroCaribe financing.

Includes capital flows to finance the Berbice bridge and short-term capital flows

Includes the debt forgiveness on IDB loans in 2007 as the result of the MDRI.

Table 3.

Guyana: Nonfinancial Public Sector Operations

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Sources: Ministry of Finance; and Fund staff estimates and projections.

Includes fiscal consolidation measures.

Reflects interest and amortization after debt stock operations.

Includes debt service savings under the MDRI.

Includes statistical discrepancies.

Table 4.

Guyana: Summary Account of the Bank of Guyana and Monetary Survey

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Sources: Bank of Guyana, and Fund staff estimates and projections.

Includes Fund debt relief.

Includes G$1.8 billion, a share of GUYMINE debt transferred from foreign assets to government credit in March 2006.

Table 5.

Guyana: External Financing Requirements and Sources

(In millions of U.S. dollars)

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Source: Fund staff estimates and projections.

Scheduled amortization of NFPS before HIPC relief through 2003.

Includes the unspent portion of PetroCaribe financing

Including change of commercial banks NFA, short-term flows and trade credits, net foreign direct investment, and errors and omissions of balance of payments.

Table 6.

Guyana: Indicators of External and Financial Vulnerability

(In percent, unless otherwise indicated)

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Sources: Bank of Guyana; and Fund staff estimates and projections.

Reflects debt relief under O-HIPC, E-HIPC and MDRI as of 2007.

Imports of the current year excluding those related to the GUYSUCO investment project.

Excludes the letter of credit used for financing the sugar restructuring project for comparability with the debt definition for the NPV of external debt ceiling.

Excluding the unspent portion of PetroCaribe in 2007–14.

Table 7.

Guyana: Medium-Term Macroeconomic Framework

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Sources: Guyanese authorities; and Fund staff estimates and projections.

Includes debt service savings under HIPC and MDRI.

Reflects interest and amortizations after debt stock operations.

After delivery of HIPC and MDRI and excluding the unspent portion of PetroCaribe loans in 2007-14.

Table 8.

Guyana: Medium-Term Balance of Payments

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Sources: Bank of Guyana; Statistical Bureau of Guyana; Ministry of Finance; and Fund staff estimates and projections.

Includes the IDB’s stock of debt operation in 2007

Includes capital flows of PetroCaribe financing.

Includes capital flows to finance the Berbice bridge and short-term capital flows

Includes the debt forgiveness on IDB loans in 2007 as the result of the MDRI.