IMF: oil boom contributes to Guyana’s economic recovery

The International Monetary Fund (IMF) says Guyana’s economy, which was negatively impacted by the coronavirus (COVID-19) pandemic and floods last year, has recovered well, buoyed by the oil boom and political actions.

He said following the pandemic-induced recession and delayed political transition in 2020, economic growth picked up in 2021, with non-oil gross domestic product (GDP) growth reaching 4.6. %.

The Washington-based financial institution said the war in Ukraine has exacerbated inflationary pressures this year, mainly due to rising fuel and food prices, but the government has implemented measures to ease the inflation. impact on vulnerable households and the economy.

“Even though the current account deficit has widened significantly in 2021, partly reflecting increased capital imports, the foreign exchange (FX) reserve position has improved, owing to the new allocation of trading rights. (SDRs),” the IMF said, noting that a mission, led by incoming mission chief Alina Carare and including outgoing mission chief Meredith McIntyre, had held virtual discussions during the consultation on the Article IV from May 18 to June 1 for this year.

The IMF said that after deteriorating markedly in 2020, the fiscal position remained sufficiently favorable in 2021 and that in response to the pandemic, the authorities reallocated spending towards grants and cash transfers and projects. ‘ready-to-go’ public investment schemes, mainly improving road networks and providing affordable housing and easing the tax burden of the most vulnerable.

He said public debt stood at 42.9% of GDP at the end of last year, “one of the lowest in the region”.

The financial institution noted that due to the political situation in the country following the vote of no confidence in December 2018 and the controversial general elections in March 2020, the new administration did not take office until August 2020.

“As a result, the 2020 budget was only approved in September, affecting confidence and forcing increased reliance on direct central bank financing. oil production with the potential to transform Guyana’s economy.

The IMF said oil production is expected to increase significantly with the commissioning of two large oil fields in the Stabroek block during 2022-26 and that Guyana’s commercially recoverable oil reserves are estimated at well over 11 billion barrels, the third largest in Latin America and the Caribbean, and one of the highest levels of oil reserves per capita in the world.

“This could help Guyana build significant fiscal and external buffers to absorb shocks while addressing infrastructure gaps and human development needs. However, increased dependence on oil revenues will expose the economy to global oil price volatility,” the IMF warned.

He said a slowdown in the global economy and the repercussions of the war in Ukraine could also have a negative effect on non-oil exports.

“On the other hand, rising global oil prices and new gas and oil discoveries could significantly improve Guyana’s long-term economic prospects. Staff strongly supports the authorities’ objectives to transform the economy, address development needs in an inclusive manner, and protect the country’s long-term economic well-being.

The IMF said the mission “strongly supports the authorities’ efforts to reduce electricity costs, improve transport infrastructure, diversify the economy, improve access to and quality of social services, and make broader progress towards the sustainable development goals”.

The mission also commended the authorities’ efforts outlined in the 2030 Low Carbon Development Strategy to maintain the country’s forest cover and address the challenges of climate change by turning to renewable energy sources, while entering the international market for carbon credits. Staff welcome recent amendments to the National Resources Fund Act.

The IMF said recent amendments to the Natural Resources Fund (NRF) Act 2019 set clear ceilings on withdrawals from the Fund for budgetary expenditures and promote transparency in the management and use of petroleum resources.

The IMF also welcomes the focus on public investment and policies to support long-term growth, but urged caution in determining the pace of accelerating public investment.

“While the country still faces pressing development challenges, a sharp increase in public investment could add inflationary pressure, affect the competitiveness of the non-oil economy, lead to a possible loss of foreign exchange reserves and may not be sustainable in the medium term.”

The IMF urges Guyana to simultaneously strengthen public investment management capacity, based on the recommendations of the 2017 PIMA report, recommending annual budgets within a fiscal framework that, over the medium term, limits the overall annual non-oil fiscal deficit, after subsidies, not to exceed the expected transfer from the FRN, to anchor the budgetary policy in a sustainable manner. “This rule will also ensure that fiscal spending, including capital spending, will be increased at a measured pace, to meet development needs without macroeconomic imbalances,” the IMF said, also recommending “further analysis of fiscal rules. transfer of oil, in order to ensure the long term”. sustainability of the FRN and intergenerational equity”.

The IMF has stated that Guyana’s financial sector is well capitalized and stable. Macro-financial risks are well monitored with eight indicators, including credit to GDP measures and the systemic risk matrix. He said the capital-to-risk-adjusted assets ratio, at around 29%, is well above the regulatory minimum of 8%.

Guyana has recently strengthened the Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) framework and recommends further progress in this area.

He noted that Guyana had been removed from the Caribbean Financial Action Task Force (CFATF) and European Commission money laundering blacklists.