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IMF Country Report No. 17/175

GUYANA

2017 ARTICLE IV CONSULTATION—PRESS RELEASE; STAFF REPORT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR GUYANA

June 2017

Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of the 2017 Article IV consultation with Guyana, the following documents have been released and are included in this package:

  • A Press Release summarizing the views of the Executive Board as expressed during its May 24, 2017 consideration of the staff report that concluded the Article IV consultation with Guyana.

  • The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on May 24, 2017, following discussions that ended on March 17, 2017, with the officials of Guyana on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on May 9, 2017.

  • An Informational Annex prepared by the IMF staff.

  • A Debt Sustainability Analysis prepared by the staffs of the IMF and the World Bank.

  • A Statement by the Executive Director for Guyana.

The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents.

Copies of this report are available to the public from

International Monetary Fund • Publication Services

PO Box 92780 • Washington, D.C. 20090

Telephone: (202) 623-7430 • Fax: (202) 623-7201

E-mail: publications@imf.org Web: http://www.imf.org

Price: $18.00 per printed copy

International Monetary Fund

Washington, D.C.

© 2017 International Monetary Fund

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GUYANA

STAFF REPORT FOR THE 2017 ARTICLE IV CONSULTATION

May 9, 2017

Key Issues

Background: Economic activity continued to expand but growth was uneven. In 2016, subdued agricultural commodity prices, adverse weather conditions and delays in public investment led to a contraction in non-mining sectors. Nevertheless, GDP increased by 3.3 percent buoyed by very large increases in gold output. Increased exports of gold and improved terms of trade helped the current account achieve a surplus of 0.4 percent of GDP from a 5.7 percent deficit in 2015. Guyana is expected to become an oil producer by mid-2020.

Focus of the discussions. Discussions focused on policies to preserve macroeconomic and financial stability and promote broad-based and inclusive growth.

Key policy recommendations:

  • Preservingmacroeconomicstability. The projected large fiscal deficits will lead to an increase in the debt to GDP ratio of over 10 percentage points before the start of oil production in 2020 reverses that trend. Staff argued for moderate fiscal consolidation of a cumulative 2½ percent of GDP spread over 2017–19 to slow debt accumulation and safeguard against adverse shocks in the near term, supported by moderating the growth of current expenditures and public enterprise reform. A fiscal framework for managing oil revenue should be in place before 2020 to guide fiscal policy after oil production starts. Exchange rate flexibility should play a more active role in mitigating external shocks. Monetary policy should gradually move from an accommodative to a neutral stance in 2017.

  • Strengtheningfinancialstability. The supervisory and regulatory frameworks should be brought further in line with the 2016 FSAP recommendations, including enforcing timely and effective remedial actions from banks. The high NPLs and under-provisioning in the banking sector need to be addressed. Operationalizing the crisis management framework will require proper sequencing and amendments of the Financial Institutions Act.

  • Supporting broad-based and inclusive growth. Further improvement of the business climate and structural reforms of key sectors are needed to remove longstanding impediments to growth.

Approved By

Jorge Roldos (WHD) and Andrea Richter-Hume (SPR)

The team, comprising Marcos Chamon (head), Abdullah AlHassan, Jacques Bouhga-Hagbe, and Kalin Tintchev (all WHD), visited Guyana during March 3–17. Daryl Cheong (OEDBR) participated in the meetings. The team met with Finance Minister Winston Jordan, Central Bank Governor Gobind Ganga, other senior government officials, representatives of the labor community, of the private sector, and members of the political opposition. Research support was provided by Chuan Li and Franz Loyola; editorial support was provided by Heidi Canelas (all WHD).

Contents

  • BACKGROUND

  • RECENT DEVELOPMENTS

  • OUTLOOK AND RISKS

  • POLICY DISCUSSIONS

  • A. Fiscal Policy

  • B. External Stability

  • C. Monetary Policy

  • D. Strengthening Financial Sector Resilience

  • E. Supporting Strong and Inclusive Growth

  • OTHER ISSUES

  • STAFF APPRAISAL

  • BOX

  • 1. The Reform of the EU Sugar Regime

  • FIGURES

  • 1. Comparative Regional Developments

  • 2. Real Sector Indicators

  • 3. External Sector Developments

  • 4. Fiscal Sector Developments

  • 5. Financial Soundness Indicators

  • 6. Monetary Developments

  • TABLES

  • 1. Selected Social and Economic Indicators

  • 2. Balance of Payments

  • 3a. Nonfinancial Public Sector Operations (in billions of Guyanese dollars)

  • 3b. Nonfinancial Public Sector Operations (in percent of GDP)

  • 4. Summary Account of the Bank of Guyana and Monetary Survey

  • 5. External Financing Requirements and Sources

  • 6. Indicators of External and Financing Vulnerability

  • 7. Medium-Term Macroeconomic Framework

  • 8. Risks Assessment Matrix

  • ANNEXES

  • I. Authorities’ Response to Past IMF Recommendations

  • II. Best Practices in Managing Oil Wealth

  • III. External Balance Assessment

  • IV. External Reserve Adequacy

  • V. 2016 FSAP Recommendations

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GUYANA

STAFF REPORT FOR THE 2017 ARTICLE IV CONSULTATION—INFORMATIONAL ANNEX

May 9, 2017

Prepared by

Western Hemisphere Department

Contents

  • FUND RELATIONS

  • BANK-FUND COLLABORATION UNDER THE JMAP AND RELATIONS WITH THE BANK

  • RELATIONS WITH THE INTER-AMERICAN DEVELOPMENT BANK

  • RELATIONS WITH THE CARIBBEAN DEVELOPMENT BANK

  • STATISTICAL ISSUES

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GUYANA

STAFF REPORT FOR THE 2017 ARTICLE IV CONSULTATION—DEBT SUSTAINABILITY ANALYSIS

May 9, 2017

Approved By

Jorge Roldos and Andrea Richter Hume (IMF) and Paloma Anos-Casero (IDA)

Prepared by the staff of the International Monetary Fund in consultation with the World Bank Staff.

Guyana’s risk of external debt distress remains moderate and debt service manageable.1 The update of the debt sustainability analysis (DSA) shows the indicators of external debt distress to remain under relevant thresholds in the baseline. The PV of external debt declines to 20 percent of GDP and debt service is 5 percent of revenue.

Nevertheless, stress tests indicate the vulnerability of public debt to adverse shocks. There are small breaches of the external debt threshold (within the borderline band) under a stress test shock to debt concessionality, suggesting a borderline moderate/low rating. An alternative approach that models the probability of debt distress shows a larger breach of threshold, which lends support to a moderate risk rating.

The medium-term outlook is favorable given the expected start of oil production by 2020. Guyana has ongoing negotiations with bilateral non-Paris Club and commercial creditors who did not participate in the Heavily Indebted Poor Countries (HIPC) Initiative with a view to settling these debts (about 5 percent of GDP). A positive outcome of the negotiations could help further reduce its external indebtedness.

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Press Release No. 17/253

FOR IMMEDIATE RELEASE

June 28, 2017

International Monetary Fund

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Washington, D. C. 20431 USA