Economic Growth Slowed in Guyana in 2017: IMF

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Real Economic Growth of 3.4 Percent Projected for 2018

WASHINGTON – The International Monetary Fund (IMF) says economic growth slowed in 2017, but became more broad-based as real gross domestic product (GDP) grew by 2.1 per cent, down from 3.4 per cent in 2016 in Guyana on the account of weaker than expected mining output and weak performance in the sugar sector.

“Nonetheless, non-mining growth rebounded to 4.1 per cent following a contraction in 2016,” according to an IMF mission headed by Marcos Chamon that ended a two week visit here.

The mission said that construction expanded significantly, buoyed by higher public and private investments, and rice production recovered from weather-related shocks in the previous year.

“In 2018, the mission projects real economic growth of 3.4 per cent, driven by continued strength in the construction and rice sectors, and a recovery in gold mining. Inflation remained subdued at 1.5 per cent at end-2017, largely driven by food items, while core inflation was close to zero,” it said in the statement.

According to the IMF mission that met with Finance Minister Winston Jordan, Natural Resources Minister Raphael Trotman, Central Bank Governor Gobind Ganga, as well as representatives of the private sector and the trade union movement, weaker than expected export growth and higher oil prices contributed to the current account balance turning negative.

It said in 2017, the current account recorded a deficit of 6.7 per cent of GDP from a 0.4 per cent surplus in 2016.

“That deficit was largely financed by FDI (foreign direct investment), particularly in the oil and gas sector, and higher loan disbursements to the public sector. Reserves stood at 3.2 months of imports, and the mission projects it to remain around that level in 2018–19.”

The IMF team said that the fiscal deficit remained stable in 201 and that the central government deficit was 4.5 per cent of GDP, lower than the budgeted 5.6 per cent.

“This better than expected outturn was largely supported by higher revenue arising from improvements in tax administration. In 2018, the deficit is projected to widen to 5.4 per cent of GDP due to the cost of restructuring the sugar industry, including severance payments to displaced workers, as well as an increase in infrastructure related capital expenditure.”

It said that Guyana’s medium-term prospects are favourable.

“The commencement of oil production in 2020 will be a turning point. The main direct effect on the domestic economy will be through higher fiscal revenue, and spill overs to supporting activities. The balance of payments will swing sharply to positive after 2020

“Oil revenue significantly improves the fiscal outlook, and is expected to place the public debt on a downward trajectory,” the IMF team said, welcoming the progress made on establishing a comprehensive fiscal framework for managing oil wealth.

It said that debt sustainability concerns are attenuated by future oil revenues, but the financing of short-term deficits should be carefully managed.

The IMF said that it supports the authorities’ prudence towards private external borrowing.

The authorities were encouraged to rely to the extent possible on development banks, including non-concessional financing, and to follow-up on their plans to develop the domestic bond market.

The IMF said it also stressed the importance of settling government balances at the Bank of Guyana (BoG), which will be achieved by the issuance of Treasury Bills and supports continued efforts by the authorities to enhance the quality and efficiency of government expenditure and tax administration.

It commended the steps taken in response to the Public Investment Management Assessment (PIMA) in 2017, but cautioned that scaling up public investment without addressing remaining shortcomings could undermine its effectiveness.

The IMF also recommended moderating spending increases and the consideration of an expenditure review which could provide opportunities for safety net reform and more effective action on inclusive growth.

It welcomed the authorities’ intent to conduct their third Public Expenditure and Financial Accountability (PEFA) assessment during 2018. In addition, reforms to modernize revenue administration and strengthen public financial management capacity ahead of oil production remain critical near-term priorities for the authorities, and are being supported by IMF Technical Assistance.

But it warned that productivity-enhancing reforms are needed to improve competitiveness, and facilitate inclusive growth. Infrastructure bottlenecks and high energy costs remain obstacles to growth.

“Meanwhile, notwithstanding significant upside benefits, the prospect of revenue from the oil sector could lead to real exchange rate appreciation, eroding competitiveness in some sectors. Therefore, regulatory and administrative measures should aim to reduce the relatively high costs of doing business in Guyana,” the IMF statement added. – CMC

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