Guyana: 2023 Article IV Consultation-Press Release; and Staff Report
Author: International Monetary Fund. Western Hemisphere Dept.
Publication Date:
04 Dec 2023
eISBN:
9798400260384
Language:
English
Keywords:
debt carrying capacity; transmission mechanism; U.S. dollar; GDP ratio; government projection; Fiscal stance
Download PDF (2.1 MB)

1. Guyana is a small state with large oil production and development needs. After oil production commenced in end-2019, the Guyanese economy has tripled in size. GDP per capita1 increased from one of the lowest in the Latin America and Caribbean (LAC) region in the early nineties to US$18,342 in 2022. Guyana’s commercially recoverable petroleum reserves—over 11 billion barrels and expected to last 40 years—are one of the highest per capita levels in the world (chart). Although GDP soared, development needs remain large. Life expectancy (see chart) and the UN education index remain lower than the median for the region, and over 5 percent of the population lacks access to electricity.

Abstract

1. Guyana is a small state with large oil production and development needs. After oil production commenced in end-2019, the Guyanese economy has tripled in size. GDP per capita1 increased from one of the lowest in the Latin America and Caribbean (LAC) region in the early nineties to US$18,342 in 2022. Guyana’s commercially recoverable petroleum reserves—over 11 billion barrels and expected to last 40 years—are one of the highest per capita levels in the world (chart). Although GDP soared, development needs remain large. Life expectancy (see chart) and the UN education index remain lower than the median for the region, and over 5 percent of the population lacks access to electricity.

Context

1. Guyana is a small state with large oil production and development needs. After oil production commenced in end-2019, the Guyanese economy has tripled in size. GDP per capita1 increased from one of the lowest in the Latin America and Caribbean (LAC) region in the early nineties to US$18,342 in 2022. Guyana’s commercially recoverable petroleum reserves—over 11 billion barrels and expected to last 40 years—are one of the highest per capita levels in the world (chart). Although GDP soared, development needs remain large. Life expectancy (see chart) and the UN education index remain lower than the median for the region, and over 5 percent of the population lacks access to electricity.

uA001fig1
Sources: IMF, World Economic Outlook Database; U.S. Energy Information Administration; OPEC; and UNDP.1/ Estimated based on assumption of oil price increasing at 0.6 percent per year and discount rate of 3 percent (similar to the expected long-run returns to Guyana’s NRF, as per the NRF Act).

2. Oil production is ramping up rapidly, supporting extraordinarily high real GDP growth. With the coming on stream of Liza-2, Guyana more than doubled its oil production in 2022, to about 400,000 thousand barrels per day (bpd; chart). As a result, Guyana recorded the highest real GDP growth rate in the world, 62.3 percent. Going forward, oil production will almost triple by 2028 to about 1 million bpd as four new approved fields will come on stream by 2028.2

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Oil Production in Guyana

(Thousands of barrels per day, per field, and cumulative daily production 2019-28)

Citation: IMF Staff Country Reports 2023, 379; 10.5089/9798400260384.002.A001

Sources: Staff estimates based Exxon, Hess, Guyana’s Government projections.

3. The government has two sets of rules based on which it receives and saves a large share of oil proceeds to avoid building up rapid macro economic imbalances. One set of rules governs how oil proceeds are shared with the Exxon consortium (2016 Profit Sharing Agreement, PSA). Since oil extraction requires large upfront investments, recoveries for exploration and development costs received by the private sector companies represent a high share of the oil receipts in the first years, reducing the portion of oil production considered as profit. Once costs are fully recovered, a larger portion of oil production will be considered profit and an increasingly large share of oil proceeds will be received by the government.3 The second set of rules are laid out in the Natural Resource Fund (NRF) Act, approved in 2019 and amended in 2021, which establishes a sovereign wealth fund, the NRF, to delink public spending from the volatility in natural resource revenues, to “ensure that natural resource revenues do not lead to a loss in competitiveness, to transfer natural resource wealth across generations fairly, and to use natural resources wealth to finance national development priorities and any initiatives aimed at realizing an inclusive green economy.” Withdrawals from the NRF to the budget are subject to annual ceilings and parliamentary approval, and can be used only to finance national development priorities and “essential projects that are directly related to ameliorating the effect of a major natural disaster.” In 2020 the first oil proceeds were received and deposited in an offshore account of the NRF, and in 2022 the first funds were transferred to the budget (just over 4 percent of GDP).

4. The government is implementing its ambitious plans to transform the economy primarily financed by oil receipts. The administration is focused on ensuring the country, including the next generations, benefit from the nation’s oil wealth. Most of the 2022 increase in government spending was concentrated on capital spending to address urgent needs (investment in social housing or roads rehabilitation) and start of multi-year projects to raise potential output (infrastructure and human capital projects) and increase resilience to climate effects.4

5. The key challenges are managing large resource revenue inflows to ensure macroeconomic stability and sustainability, while investing steadily in people, physical infrastructure, and institutions.5 The public investment plans detailed in W relate mainly to the need to invest in physical infrastructure. Since the country is prone to natural disasters (flooding) and adverse climate change effects (the majority of the population lives in the low coastal areas), those plans include public spending related to increasing the economy’s resilience to climate effects. The policy sections of this report detail the discussion with the authorities on these key challenges.

Recent Developments and Policies

6. The very high real GDP growth in 2022, 62.3 percent, was supported by strong oil and non-oil developments. Oil GDP growth was 124.8 percent, and non-oil GDP growth also expanded very strongly (11.5 percent) due to the excellent performance in agriculture,6 livestock, forestry, bauxite and diamonds. Construction and the production of basic construction materials continued to be very strong, including in the first half of 2023, when real non-oil GDP grew by 12.3 percent compared to end-December 2022.

7. There are no signs yet of inflationary pressures. Consumer price index (CPI) inflation reached 7.2 percent on a year-on-year (y-on-y) basis at end-2022, due to rising global shocks in food and transport prices (Figure 1). The government introduced fiscal measures during March-December 2022 to contain inflation and announced additional measures in July 2023.7 CPI inflation declined rapidly, reaching 1.2 percent on a y-on-y basis in July 2023, owing to lower food, transport and utilities prices. The CPI housing component (including rent) remained low and reached -0.6 percent on a y-on-y basis in July 2023. Data shows slack remains in the economy,8 particularly the labor market. Although there was employment growth in the oil, services, and construction industries, the slack in the labor market remains unemployment rate was estimated to be 12.4 percent in 2022, and the youth unemployment rate to be 25 percent.

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Commercial Bank Credit to the Economy 1/

(In GYD millions)

Citation: IMF Staff Country Reports 2023, 379; 10.5089/9798400260384.002.A001

Sources: Bank of Guyana; IMF staff calculations.1/ Includes net interbank (float) and unclassified items.

8. Credit to the private sector was supportive to economic growth. Broad money grew by 14.5 percent in 2022, around 3 percent below the nominal growth rate of the non-oil GDP. Although credit from commercial banks to the government increased noticeably (chart), it was in line with nominal non-oil GDP growth, and most of the credit increase went to the private sector, remaining concentrated in the business and trade services sectors (charts). These trends continued in the first half of 2023.9

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Guyana: Monetary Developments

Citation: IMF Staff Country Reports 2023, 379; 10.5089/9798400260384.002.A001

Source: Bank of Guyana; and IMF staff calculations.

9. Despite much higher capital spending, the fiscal deficit as a share of GDP improved in 2022, due to oil revenues. Public capital expenditures more than doubled to 20.3 percent of nonoil GDP,10 while current expenditures remained roughly constant. For the first time, oil revenue were transferred from the NRF (in line with the maximum allowed) and accounted for almost 30 percent of total central government revenues (10 percent of non-oil GDP). The non-oil primary deficit (as a share of non-oil GDP) more than doubled, to 21.5 percent, from 9.8 percent in 2021. The overall fiscal deficit (after grants) as a share of non-oil GDP increased by 1¾ percent, to 12.2 percent, but it declined as a share of GDP, from 7.2 to 5.1 percent, with the rapid increase of the overall economy. The share of external financing of the fiscal deficit almost tripled, to 38.7 percent, but total public debt fell sharply, from 43.2 to 26.0 percent of GDP.

10. Guyana’s current account swung to a surplus of 23.8 percent of GDP in 2022, as the strong growth in oil exports more than offset higher imports, which increased largely due to commodity prices. While the financial account recorded a net outflow, due to repatriation of investment by oil operators, inflows of FDI remained high in the oil sector.

11. Commercial banks remain well capitalized and continue to improve their loan portfolios. At end-June 2023, banks’ capital adequacy ratio (CAR), of 18.4 percent was well above the regulatory minimum of 8 percent, and the ratio of nonperforming loans to total loans was 3.4 percent down from 7.8 percent at end-2021. Returns on assets and equity have also improved slightly. The Bank of Guyana (BoG) has advanced in major reform areas, specifically in: (i) revising AQR guidelines (including revised credit classification and provisioning for the loss category) and (ii) implementing some pillars of Basel II and III.11

12. Guyana’s external position at end-2022 is assessed to be moderately stronger than the level implied by fundamentals and desired policies (Annex I). The nominal and real effective exchange rates appreciated in 2022 by 4.7 and 3.0 percent, respectively, due to U.S. dollar appreciation against the currencies of Guyana’s other trading partners and to higher inflation in Guyana relative to most trading partners.12 Guyana accumulated gross international reserves (GIR) in 2022, about US$120 million. The GIR coverage related to total imports deteriorated slightly to 1.1 months and to 50.4 percent of the Assessing Reserve Adequacy (ARA) Emerging Markets (EM) metric.13

Outlook and Risks

13. The near-term growth outlook remains very positive. In the near term (2023-24), oil production is projected to increase further, to about 550,000 bpd (about 200 million barrels per year) as the third field, Payara, comes on stream. In addition, good prospects in agriculture are expected with the rehabilitation and expansion of sugar plants following the 2021 floods. Construction and services are expected to continue to strongly support non-oil GDP growth. As a result, in 2023 real GDP growth is projected to reach 38.4 percent, and non-oil real GDP growth about 9.1 percent.

14. The outlook for medium-term growth is extremely strong. Private investment for the growing oil and gas, and service industries are expected to further support growth.14 Public capital spending is expected to remain elevated (on average about 6½ percent of GDP per year), to meet the economy’s development needs, and the increase will be financed mostly by the expected oil revenue transfers (about G$278 billion on average, or 15 percent of non-oil GDP and 5 percent of GDP per year). In staff’s projections, the economy is expected to double in size by 2028. Inflation is projected to rise15 but not to jeopardize price stability, given the moderation in fiscal impulses every year, the slack in the economy, and the authorities’ efforts to ease capacity constraints. Given staff projections for inflation in Guyana and its trading partners, a steady real appreciation in the real exchange rate is expected.

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Source: Ministry of Finance, IMF staff calculations.

15. The external position is expected to continue to strengthen. Investment imports related to the oil sector will remain high ramping up oil production, sustaining current account surpluses going forward. All GIR coverage indicators will continue to strengthen, and the GIR stock is expected to reach about 10 percent of GDP by 2028 (chart). In addition, savings in the NRF are expected to reach about US$11 billion (36.5 percent of GDP) by 2028 (charts).16

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Gross International Reserves, NRF Balance, and Adequacy Metrics

(US$ billions)

Citation: IMF Staff Country Reports 2023, 379; 10.5089/9798400260384.002.A001

Source: Ministry of Finance, IMF staff calculations.

16. Guyana’s very favorable growth prospects are accompanied by upside and downside risks (Annex III). On the upside, further oil discoveries would continue to improve Guyana’s long-term economic prospects.17 A construction boom may support higher short-term non-oil GDP growth than projected, but with a short- and medium-term downside risk of higher inflationary pressures, an appreciation of the real exchange rate beyond the level implied by the projected balanced expansion of the economy.18,19 Global risks include highly volatile commodity prices that could adversely affect growth, fiscal performance, and external buffers. Adverse climate shocks could also weaken the macroeconomic outlook.

Authorities’ Views

17. The authorities agreed that medium-term growth prospects are better than ever before and broadly agreed with the risks to the economy. The authorities agreed that their modernization plans, and the unparalleled expansion of oil production will contribute to a very rapidly growing economy, including the non-oil sector. They also highlighted their efforts to ensure a balanced growth path. The authorities broadly agreed with the upside and downside risks to the outlook and emphasized that they are vigilant and working towards mitigating the potential downside risks, including the main one rising from overheating, leading to inflationary pressures and appreciation of the real exchange rate beyond the level implied by a balanced expansion of the economy.

Policy Discussions

Policy discussions focused on the authorities’ ambitious plans to rapidly transform Guyana using revenues from the oil extraction, while ensuring macroeconomic and financial stability, mitigating risks, addressing governance vulnerabilities, and adapting to climate change.

A. Ensuring Fiscal Sustainability

18. The 2023 budget is dominated by another year of strong oil revenues and high public investment spending. The 2023 budget projects a continued expansionary stance, driven by a further increase in public investment, from 8.5 to 13.8 percent of GDP,20 while non-interest current expenditures grow in line with non-oil GDP. Total revenues are projected to grow strongly as well, driven by (i) an increase in oil revenues, to about US$1 billion (6 percent of GDP), which will finance more than one-quarter of the 2023 budget, and (ii) capital revenues and carbon credit inflows (1 percent of GDP). The overall fiscal deficit after grants is projected to increase to about 15.5 percent of non-oil GDP and 6.7 percent of GDP.21 Staff views this stance as appropriate, given the country’s development needs, absence (as of now) of any evidence of macroeconomic imbalances, and low public debt, but urges vigilance and adoption of a comprehensive fiscal policy strategy.

19. To ensure fiscal sustainability, fiscal policy complies with several self-imposed constraints. The limits posed by the recently amended NRF Act, together with the Fiscal Management and Accountability Act of 2003, provide constraints on fiscal policy in practice. Debt sustainability is also ensured by the authorities’ commitment to maintain Guyana’s risk of debt distress at a moderate (or lower) level. In addition, Guyana has statutory ceilings on domestic and external debt, which could be recalibrated to reflect the economy’s evolving financing needs. However, these constraints do not constitute a fiscal anchor embedded in a medium-term fiscal framework.

20. Guyana’s debt-sustainability analysis (DSA) indicates that the risk of (overall and external) debt distress remains moderate, with debt dynamics improving significantly with incoming oil revenues. Guyana’s debt carrying capacity, for both overall public debt and public external debt, is now ‘medium,’ mostly reflecting an improvement in gross official reserve coverage of imports from 2023 onwards, as well as the current low level of external debt. The authorities’ commitment to fiscal discipline (zero overall fiscal balance by 2028) grounds the baseline scenario (Tables 1-8, and DSA). As a result, after peaking in 2023 the non-oil primary deficit in percent of non-oil GDP is expected to improve from 28.8 percent in 2023 to about 11 percent in 2028, and public debt as a share of GDP to decline from about 30 percent to 26 percent in 2028.22

21. A comprehensive medium-term fiscal framework would help attain all fiscal policy objectives with spending decisions being based on a medium-term fiscal framework (MTFF) for resource rich countries. Such framework would encompass further modernizing the public financial management and public investment management (PFM and PIM) frameworks. Staff recommends assessing the speed with which these development needs can be addressed without creating macroeconomic imbalances or jeopardizing fiscal sustainability, through an expenditure review.23 Another integral part of such a comprehensive framework would be aligning the existing annual budgetary withdrawals from the NRF with the medium-term expenditure and fiscal frameworks. Staff and CARTAC stand ready to support the authorities in this endeavor.

22. The framework would also contain a clear medium-term fiscal anchor, a transition path, and an operational target. The literature and international experience suggest using the non-oil primary balance as a fiscal policy anchor, to ensure (i) that fiscal imbalances do not arise in the non-oil economy, (ii) intergenerational equity, and (iii) fiscal sustainability. Staff recommends designing a path for the non-oil primary balance (as a percent of non-oil GDP) that is consistent with the NRF ceilings on withdrawals of oil revenues. Staff simulations show that the spending path consistent with steadily moving towards zero overall fiscal balance by 2028 will be more than adequate to meet the country’s development needs24 and implement the government’s ambitious plans, while also being consistent with intergenerational equity and fiscal sustainability (see simulations of the permanent income hypothesis, and other approaches, including the staff recommendation to transition to zero overall fiscal balance by 2028 in Annex IV).25 This fiscal policy path results in the non-oil primary deficit as a percent of non-oil GDP improving steadily from its trough in 2023, and declining debt, while closing the output gap, and being financed mostly by the withdrawals from the NRF. Therefore, staff recommends this path, as long as there are no absorptive capacity constraints and/or overheating pressures. The public spending path should be regularly reviewed in light of new information and updated with analysis of the economy’s capacity constraints and absorption limits.

Authorities’ Views

23. The authorities reaffirmed their commitment to fiscal discipline, while also addressing Guyana’s physical infrastructure and human capital needs as rapidly as possible without generating macroeconomic imbalances. The authorities affirmed that the limits on oil revenue withdrawals to the budget imposed by the 2021 amendments to the NRF Act, together with the ceilings imposed by Parliament on domestic and external public debt, provide effective constraints on fiscal policy in practice. Moreover, debt sustainability is ensured by their commitment to maintain Guyana’s risk of debt distress at a moderate (or lower) level, and wealth is being preserved for the next generation. The authorities agreed to closely monitor possible bottlenecks and shortages, and build-up of macroeconomic imbalances, that could arise from their ambitious public investment plans. They agreed with staff on the need for a comprehensive medium-term fiscal framework that would encompass updating public financial management framework, as it will reflect the continuing efforts to modernize the economy. The authorities agreed on the need to set a path for the non-oil primary balance (as a percent of non-oil GDP) over the medium-term and stressed the need to allow for higher public expenditures during a transition period, while moving steadily towards zero overall fiscal balance as an anchor for fiscal policy, by 2028.

B. Monetary and Exchange Rate Policies

24. Monetary policy was appropriately tight in 2022, to counterbalance the expansionary fiscal policy. As pandemic-related accommodative measures expired, reserve requirements increased to 12 percent, from 10 percent, in September 2022. At the same time, the increase in broad money remained below the rate of nominal non-oil GDP growth.26 Staff advise vigilance in the monetary policy stance, continuing to counterbalance the large increases in fiscal spending, and tightening monetary policy if signs of overheating or imbalances arise.27 Close monitoring of the absorption of large FX inflows and their impact on the economy should be continued as increasing oil receipts are brought onshore to the budget. The authorities maintain a set of eight indicators, including credit-to-GDP measures, banking stability index and systemic risk matrix to assess developments, and mainly to monitor financial stability.28 Appropriate macroprudential tools, such as loan-to-value ratios or debt-to-income requirements, should be used if needed to contain credit growth or signs of overheating.

25. In the medium term, the monetary policy and exchange rate framework should be reviewed to ensure it serves best the economy.29 Staff supports the authorities’ view that the exchange rate should continue to serve as the nominal anchor in the near term, given the underdevelopment of domestic financial markets, related weakness of the monetary policy transmission mechanism, and accumulation of substantial buffers in the NRF (which supports Guyana’s ability to maintain a stable exchange rate). This will need to be concurrent with increased efforts to deepen financial markets to ensure effective functioning of the interbank, domestic debt, and FX markets and to strengthen the monetary policy transmission mechanism. Over the medium term, consideration should be given if a more flexible exchange rate could serve best the economy needs.

Authorities’ Views

26. The authorities agreed on the need to maintain macroeconomic stability and an appropriate policy mix. The authorities agreed on continuing to closely monitor macroeconomic and financial indicators, tightening monetary policy stance, and using macroprudential tools as needed. The authorities noted that exchange rate stability serves best Guyana’s current needs of a nominal anchor and over the medium-term, a review of the exchange rate framework will ensure what framework best serves the economy. The authorities reinstated their commitment to a step-by-step approach to deepen the interbank, domestic debt, and FX markets to strengthen the monetary policy framework and transmission mechanism. The authorities stressed that they will closely follow up with the Fund on needed capacity development.

C. Financial Sector Policy

27. The authorities are systematically implementing financial sector recommendations from the 2016 FSSA report (Annex V). The BoG expanded the supervisory and regulatory perimeter and is making progress in updating Crisis Management and Supervision Guidelines. The remaining FSAP recommendations include closely monitoring sectoral lending exposures, related party lending, banks’ ownership structure and increasing competition in the banking sector. Improving data collection and statistics on corporate and household balance sheets and real estate prices will also be critical to support strengthening banking supervision. The authorities remain committed to completing the implementation of the FSAP recommendations including strengthening crisis management measures and preparedness.

28. Maintaining financial stability is paramount to support economic growth (see Annex VI). The main macro-financial risk is related to the government’s ambitious spending plans possibly leading to inflationary pressures and an overvalued real exchange rate, beyond what is expected in the baseline scenario, and crowding out private sector lending. In addition, given the structure of the economy, real shocks, in particular adverse weather conditions, continue to play a large role in negatively impacting agricultural production, exports and banks’ credit portfolios. Over the medium term, nominal shocks, predominantly commodity price fluctuations, could affect exports and gross international reserves. Staff support the authorities’ efforts to improve systemic risk monitoring, including through stress testing with more macro-financial scenarios provided by the Caribbean Regional Technical Assistance Center (CARTAC). Staff support the authorities’ efforts to continue: (i) strengthening financial sector supervision, and (ii) implementing asset quality reviews as needed. Staff support the authorities’ consideration to further enlarge the supervisory perimeter beyond the banking sector to include quasi-financial institutions and credit unions and increase the efficiency of supervision, including the adequacy of stress testing.

29. In 2022, Guyana embarked on many financial development initiatives. The authorities developed a National Financial Inclusion Strategy, fully integrated the Real Time Gross Settlement and Central Securities Depository Systems with the National Payment System and finalized and enforced two new regulations to safely trade securities on the Central Security Depository.30

Authorities’ Views

30. The authorities are committed to continuing to maintain financial stability and implementing financial reforms. The authorities will continue to fully monitor macro-financial risks and their work on completing the implementation of the 2016 FSAP recommendations. The authorities agreed that improving data collection and statistics on corporate and household balance sheets and real estate prices will be critical to support strengthening banking supervision as well as their continued move towards broad-based risk-based supervision. They stressed that their digitalization of banking records could enhance smooth functioning of the financial system, increase productivity and lower lending rates.

Climate Policies, Structural Reforms, and Governance

A. Climate Policies

31. Significant progress has been made on climate actions, with Guyana becoming a world leader in forest conservation and supporting global climate change mitigation. The government reinstated the Low Carbon Development Strategy (LCDS), which combines a low carbon pathway with earnings from maintaining forest coverage and with it preserving the sequestration rates of Guyana’s forest. Guyana is committed to maintain its vast forest coverage and monetize these efforts. For example, in 2022, after Guyana was awarded the first jurisdiction scale certification of carbon credits, Guyana sold 37.5 million carbon credits for US$750 million, to be paid during 2022-32 (a third of the credits Guyana will receive over 2016-30), one of the largest carbon credit transactions in the world.

32. The LCDS 2030—a more comprehensive concept to protect Guyana’s natural ecosystems—was launched in July 2022. LCDS 2030 expands the focus of nature conservation to include biodiversity conservation, watershed management, and the ocean economy, both for protection and by receiving payments for these efforts (Annex VIII).

Authorities’ Views

33. The government is advancing on the implementation of its Low Carbon Development Strategy (LCDS) 2030. The government is staunchly committed to continuing to preserve forest coverage, the sequestration rates of Guyana’s forests, as well as biodiversity and ocean diversity for the benefit of current and future generations, in Guyana, and for the world at large. The LCDS 2030 allows Guyana to receive income for these efforts through the carbon credit markets, enhancing the government’s revenues streams over the medium- to long-term, and funding flood and watershed management, diversification of the energy matrix, resources for Amerindian communities and biodiversity conservation.

B. Structural Reforms, Competition and Business Climate

34. Staff supports the authorities’ plans to implement structural reforms including to diversify the economy and to support higher and inclusive growth (Annex VII). Measures focus on (i) addressing potential labor shortages and skill mismatches (through training, creating incentives to set up business outside the capital, and targeted immigration of skilled labor unavailable domestically among others, (ii) improving infrastructure, (iii) expanding the generation and transmission capacity of the energy sector, (iv) improving the business environment and (v) continuing to diversify the economy, by expanding the hospitality industry, light manufacturing, and agribusiness.

35. The government advanced in modernizing the oil and gas industry operating framework. The modernized Petroleum Exploration and Production Act was approved by parliament in August 2023, and it enhances the regulation of exploration and production of oil. The government is auctioning 14 new offshore blocks for oil and gas exploration and discovery, based on a new Production Sharing Agreement (PSA) which includes: (i) increased royalties to 10 percent from 2 percent, (ii) lower cost recovery ceiling, to 65 percent; the sharing of profits after cost recovery will remain 50/50 between the government and the contractor, and (iii) the introduction of a new corporate tax of 10 percent applied to profits.

36. The new Local Content Act has been brought into operation in 2022, establishing the regulations on utilizing local employment and contractors in the energy sector by introducing a floor on local labor usage and contractual terms, including payments to local suppliers. The Local Content Secretariat (LCS) has been established and the Local Content Register put in place. The Register now includes 876 Guyanese companies as of end-June 2023, and the Secretariat has approved over 43 five-year local content master plans to date.

37. Staff also discussed with the authorities’ other reform and plans to improve the business environment. Staff welcome authorities’ efforts to strengthen the legal framework and process for dealing with insolvency and judicial liquidation, including by addressing labor shortages in the judicial sector. Staff see benefits in reducing the time for permits and inspections through a single digital window, through the recently implemented measures. Staff welcome the authorities’ efforts to increase electricity supply, and its reliability, and reduce its cost and time to accessit.

Authorities’ View

38. The authorities stressed that they took significant steps to boost the non-oil economy, by providing support to the expansion of the hospitality industry, light manufacturing, and agribusiness. The authorities stressed their successful efforts to implement a range of reforms that will increase the digitalization of the economy and labor and total factor productivity. They also emphasized that the construction of the gas to-shore pipeline has commenced, supporting the increase in electricity supply, reducing its costs, and increasing its reliability. The authorities acknowledged the need to strengthen the legal framework and processes for dealing with insolvency and judicial liquidation, where there is a backlog of cases still pending to be resolved. They are working in this respect, both on the framework and on addressing staffing shortages.

39. The authorities stressed that they are working actively to improve efficiency and reduce mismatches in the labor market. The authorities recognize the importance of an efficient and responsive labor market given the scale and pace of the economic expansion and structural changes occurring in the economy. The authorities highlighted their strong investment in human capital development, including through providing basic facilities for vocational training, resources for online training and incentives to set up business outside the capital, both to ensure an adequate supply-side response to emerging demands, especially in the market for skilled labor, and to reduce skill and labor mismatches. Additionally, work has begun with the support of an expert to gather critical data to inform strategic interventions aimed at addressing labor market mismatches.

C. Governance and Anti-Corruption Reforms

40. Guyana continues to strengthen its AML/CFT framework. Guyana is undergoing its 4th round mutual evaluation by the Caribbean Financial Action Task Force (CFATF) in 2023-2431 which focuses on technical compliance and the effective implementation of FATF’s 40 Recommendations. Guyana has approved a National Policy and Strategy for Combating Money Laundering, Terrorism Financing which addresses the risks identified in its 2021 National Risk Assessment. Staff welcome the authorities’ efforts to strengthen AML CFT Act through its recently enacted legislative amendments in August 2023.

41. Guyana is complying with the recommendations of the Extractive Industries Transparency Initiative (EITI), and more progress is needed. In 2022, Guyana went through its third EITI validation process, for the year 2019. The assessment was positive, highlighting key achievements in developing multi-stakeholder discussions over the governance of the extractive industries and innovative outreach and dissemination channels. There are public demands for information beyond the mining, oil, and gas sectors, and enlarging the scope of the EITI implementation. Staff support the authorities’ efforts to address remaining gaps, including in moving towards electronic disclosure and adequate follow-up reporting (see Annex VIII).

42. The governance framework was strengthened, through the appointment of three critical entities for the NRF governance in 2022: the NRF Board of Directors, the Public Accountability and Oversight Committee, and the Investment Committee. Furthermore, to ensure full transparency and accountability, notifications of receipts of petroleum revenues have been published in the Official Gazette since April 2022. The government also strengthened the procurement framework as the Public Procurement Commission, had five new commissioners sworn in and the National Procurement and Tender Administration Board (NPTAB) designed a comprehensive training program in procurement, and commenced the design of a management information system to improve its operational efficiency. As a next step, to build on these efforts the authorities could consider collecting beneficial ownership information as part of all tender processes, or as a centralized registry, which may require legislation updates.32

43. The anti-corruption framework is being strengthened. The Integrity Commission, operationalized with resources reflected in the 2023 budget, managed to increase compliance with asset declarations of public officials in the year ending in August 2023 and plans to step up its efforts to ensure further compliance.33 Guyana is also a review of the United Nations Convention Against Corruption (UNCAC) and the 6th round in the Follow-Up Mechanism for the Implementation of the Inter-American Convention against Corruption (MESICIC).34

Authorities’ View

44. The authorities stressed their numerous efforts on strengthening governance, anticorruption and AML/CFT frameworks and fiscal transparency. The authorities highlighted the ongoing work to strengthen governance and anti-corruption, including through the Integrity and Public Procurement Commissions and the National Procurement and Tender Administration Board and the work with the United Nations Convention Against Corruption (UNCAC), the Follow-Up Mechanism for the Implementation of the Inter-American Convention against Corruption (MESICIC) and the Caribbean Financial Action Task Force (CFATF). The authorities also agreed that following up adequately on EITI recommendations is essential, with capacity building and legislation efforts to follow concurrently.

Data and Capacity Development

45. Data provided to the Fund is broadly adequate for surveillance purposes. Since last year’s Article IV, the authorities’ progress in improving data provision to the Fund has been slow, and timeliness, reliability, and coverage, as the Statistics commission is focused on conducting the once a decade census.

46. Capacity development needs continue to be large, and they need to be addressed. In line with the rapid economic transformation improving GDP and CPI statistics (continuing work with CARTAC) will be key, along with other indicators needed to assess build-up of imbalances. Furthermore, CD on developing capital markets (financial market infrastructure) is needed.

Authorities’ View

47. The authorities concurred with staff on the need to strengthen crucial statistics, widen the capacity development efforts, and prioritize accordingly.

Staff Appraisal

48. The Guyanese economy continues to experience record growth, supported by the government’s modernization plans and unparalleled oil and gas sector expansion. Guyana’s external position at end-2022 is assessed to be moderately stronger than the level implied by fundamentals and desired policies. Guyana’s debt-sustainability analysis (DSA) indicates that the risk of (overall and external) debt distress remains moderate, with debt dynamics improving significantly with incoming oil revenues. Overall real GDP growth is projected to grow 38.4 percent in 2023 and on average of 20 percent per year during 2024-28. Guyana’s very favorable medium-term growth prospects are accompanied by upside risks—key among them being further oil discoveries that would continue to improve growth prospects—and downside risks—inflationary pressures and the appreciation of the real exchange rate beyond the level implied by a balanced expansion of the economy. Adverse climate shocks, and volatile or lower than projected commodity prices, may also negatively impact the economy. The key challenges are managing large resource revenue inflows to ensure macro-economic stability and sustainability, while investing steadily in people, physical infrastructure, and institutions.

49. Given the medium-term risks of inflationary pressures and real exchange rate appreciation beyond the level implied by a balanced expansion of the economy, staff recommend a continued focus on maintaining macroeconomic stability through an appropriate policy mix. Staff assess the 2023 policy mix to be appropriate, with fiscal policy increasing public investment to address the large development needs, and broad money growing in line with non-oil GDP. Staff welcome maintaining debt sustainability and a balanced growth path through moderating fiscal impulses over the medium-term, while continuing to address development needs.

50. The authorities’ commitment to fiscal discipline is welcome and allows for a balanced growth path, with moderating fiscal impulses projected to achieve a zero overall fiscal balance by 2028. Gross international reserves and substantial saving in the National Resource Fund are expected to continue to accumulate in the medium-term.

51. Staff recommend adopting over the medium-term a comprehensive medium-term fiscal framework (MTFF). As a fiscal anchor, staff recommend setting a path for the non-oil primary balance (as a percent of non-oil GDP) consistent with the ceilings the withdrawals from the NRF of oil revenues which aim to ensure inter-generational equity. The MTFF should encompass further modernizing the public financial management framework, to contain a clear medium-term fiscal anchor, a transition path, and an operational target. Staff recommend periodic expenditure reviews to ensure macroeconomic stability and preserve competitiveness by setting the pace of public investment to take into account absorption and institutional capacity constraints of the economy.

52. Staff recommend continuing close monitoring of macroeconomic and financial indicators, tightening monetary policy stance, and using macroprudential tools as needed. In the medium term, staff recommends a review of the exchange rate framework to ensure that it best serves the economy.

53. Staff support the authorities’ efforts to maintain financial stability and recommend completing the implementation of the 2016 FSAP recommendations. Staff welcome BoG’s asset quality reviews, the progress in conducting stress tests exercises, and the authorities’ strategies to promote financial inclusion. Staff strongly support the authorities’ commitment to complete the implementation of the 2016 FSAP recommendations, including closely monitoring sectoral lending exposures, related party lending, banks’ ownership structure and increasing competition in the banking sector.

54. Staff commend the authorities’ progress in strengthening AML/CFT, governance, anticorruption frameworks and support further advances in their effective implementation.

55. Staff commend the authorities’ progress to strengthen the management of oil wealth and its fiscal transparency and recommend addressing remaining gaps. In particular it is important to implement the recommendations of the 2019 Extractive Industries Transparency Initiative (EITI) reports, including in moving towards electronic disclosure and adequate follow-up.

56. Staff welcome the authorities’ climate efforts implemented through LCDS 2030, which maintains forest coverage and preserves sequestration rates, and aims to enhance nature conservation, by including biodiversity conservation, watershed management, and the ocean economy, and receive payments for these efforts.

57. It is proposed that the next Article IV consultation takes place on the standard 12month cycle.

Figure 1.
Figure 1.

Guyana: Comparative Regional Developments 1/

Citation: IMF Staff Country Reports 2023, 379; 10.5089/9798400260384.002.A001

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

Guyana: Real Sector Indicators

Citation: IMF Staff Country Reports 2023, 379; 10.5089/9798400260384.002.A001

Source: Bank of Guyana; Ministry of Finance; and IMF staff calculations
Figure 3.
Figure 3.

Guyana: External Sector Developments

Citation: IMF Staff Country Reports 2023, 379; 10.5089/9798400260384.002.A001

Sources: Bank of Guyana; and IMF staff calculations.
Figure 4.
Figure 4.

Guyana: Fiscal Sector Developments

Citation: IMF Staff Country Reports 2023, 379; 10.5089/9798400260384.002.A001

Sources: Ministry of Finance; and IMF staff calculations.1/ Computed as total revenue less current expenditures.
Figure 5.
Figure 5.

Guyana: Financial Soundness Indicators

Citation: IMF Staff Country Reports 2023, 379; 10.5089/9798400260384.002.A001

Source: Bank of Guyana.
Figure 6.
Figure 6.

Guyana: Monetary Developments

Citation: IMF Staff Country Reports 2023, 379; 10.5089/9798400260384.002.A001

Source: Bank of Guyana.
Table 1.

Guyana: Selected Social and Economic Indicators, 2021-28

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Sources: Guyanese authorities; UNDP Human Development Report; World Bank; and IMF staff calculations and projections.1/ Since 2015-16, public debt to GDP ratios have been adjusted to reflect unsettled government balances at the central bank.2/ The external current account for 2018 onwards includes high value imports of oil goods and services.3/ Gross reserves in months of projected imports of goods and services. From 2017, these are affected by high value imports of oil goods and services.
Table 2.

Guyana: Medium-Term Macroeconomic Framework

(Annual percent change)

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Sources: Guyanese authorities; and IMF staff calculations and projections.1/ Includes debt service savings under HIPC and MDRI.2/ Reflects interest and amortizations after debt stock operations.3/ Since 2015-16, public debt to GDP ratios have been adjusted to reflect unsettled government balances at the central bank.4/ Gross reserves are in months of projected imports of goods and services. For 2017 onward, these are affected by high value imports of oil goods and services.
Table 3.

Guyana: Balance of Payments, 2020-28 1/

(In Millions of U.S. dollars, unless otherwise specified)

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Sources: Bank of Guyana; and IMF staff calculations and projections.1/ Table has been revised to BPM6 presentation.2/ Includes oil receipt flows to and from the Natural Resource Fund.3/ Includes cost recovery by oil operators for approved projects and projects in development.4/ The external current account for 2018 onwards includes high value imports of oil goods and services.5/ Gross reserves are in months of projected imports of goods and services. For 2017 onward, these are affected by high value imports of oil goods and services.
Table 4a.

Guyana: Public Sector Operations, 2020-28

(In percent of GDP, unless otherwise specified)

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Sources: Ministry of Finance; and IMF staff calculations and projections.1/ Reflects interest and amortization after total debt relief.2/ Includes statistical discrepancies.
Table 4b.

Guyana: Public Sector Operations, 2020-28

(In billions of Guyanese dollars, unless otherwise specified)

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Sources: Ministry of Finance; and IMF staff calculations and projections.1/ Reflects interest and amortization after total debt relief.2/ Includes statistical discrepancies.
Table 4c.

Guyana: Public Sector Operations, 2020-28

(In percent of non-oil GDP, unless otherwise specified)

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Sources: Ministry of Finance; and IMF staff calculations and projections.1/ Reflects interest and amortization after total debt relief.2/ Includes statistical discrepancies.
Table 5.

Guyana: Summary Account of Bank of Guyana and Monetary Survey, 2020-28

(In billions of Guyanese dollars, end of period, unless otherwise specified)

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Sources: Bank of Guyana, and IMF staff calculations and projections.