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GUYANA | The IMF Gives Guyana a passing grade

Featured The International Monetary Fund The International Monetary Fund
WASHINGTON, DC, June 17, 2019 – Guyana’s onset of oil production in 2020 presents an opportunity to scale-up capital and current spending at a measured pace over the medium term to address that country’s infrastructure gaps and human development needs.

This is the word from ehe International Monetary Fund (IMF) as part of its annual Article IV consultations by a staff team from the International Monetary Fund (IMF), led by Mr. Arnold McIntyre, which visited Georgetown from June 3-14.

In his concluding statement at the end of the visit, Mr. McIntyre noted that Guyana’s Economic growth strengthened in 2018 with broad-based expansion across all major sectors. Real GDP grew by 4.1 percent in 2018, up from 2.1 percent in 2017, led by construction and services sectors.

Inflation remained steady at 1.6 percent at end-2018, on the back of stable food prices and exchange rate. For 2019, the mission projects real economic growth of 4.4 percent, driven by continued strength in the construction and services sectors ahead of oil production in 2020, and strong recovery in mining .

The IMF team said “the authorities do not foresee any significant spillovers from the crisis in Venezuela at present. However, the influx of migrants into the hinterland and rural areas could put socio-economic pressures on the local communities. “
The international finance agency pointed out that Weaker export performance and higher imports driven by high value imports related to oil productioncontributed to a weaker current account balance.

“In 2018, the current account deficit rose to 17.5 percent of GDP, from 6.8 percent in 2017. The deficit was largely financed by FDI related to the petroleum sector. Reserves stood at US$528 million in December 2018,” the IMF said.

Public finances improved in 2018. The central government’s deficit was 3.5 percent of GDP, lower than the budgeted 5.4 percent of GDP. The better-than-expected outturn was largely supported by stronger revenues arising from the pick up in economic activity, as well as continued improvements in tax administration and the tax amnesty program which relaxed interest and penalties on payments of outstanding taxes.

In addition, expenditure grew at a weaker pace due to slower capital spending as a result of capacity issues in both the public and private sector. In 2019, the fiscal stance is projected to be appropriately expansionary, at 5 percent of GDP, driven by significant need for infrastructure development and capacity building ahead of oil production.

TGhe International lending agency says Guyana’s medium-term prospects are very favorable. The commencement of oil production in 2020 presents an opportunity to scale-up capital and current spending at a measured pace over the medium term to address infrastructure gaps and human development needs, while attenuating debt sustainability concerns at the same time.

The mission welcomes the passage of the Natural Resource Fund (NRF) legislation for managing the country’s natural resource wealth; it underscores the authorities’ commitment to fiscal responsibility.

To ensure fiscal responsibility is achieved, the mission recommends complementing the NRF legislation with a fiscal framework that constrains borrowing and achieves a balanced budget in the near- to medium-term. To achieve this target, the annual non-oil deficit should not exceed the expected transfer from the NRF. This would ensure that excessive public expenditure will not lead to debt growing at the same time as the NRF accumulates. It is also necessary to preserve the spirit of the NRF framework, which appropriately aims to save part of the income from oil as net wealth for future generations.

"The pace of scaling-up public spending needs to be gradual to reduce bottlenecks from absorptive capacity constraints, avoid waste, and minimize macroeconomic distortions related to “Dutch” disease that has often inflicted economies experiencing sizable increases in resource-based income," the IMF said.

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  • Countries: Guyana

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