USA / GUYANA – A staff team from the International Monetary Fund (IMF), led by Ms. Alina Carare, held discussions during August 28 – September 11 for the 2023 Article IV Consultation. The team met with vice-president Bharrat Jagdeo, finance minister Dr Ashni Singh, minister of parliamentary affairs and governance Gail Teixeira, Central Bank Governor Gobind Ganga, other senior officials, representatives from the private sector, banks, labor unions, and other stakeholders.
The Guyanese economy continues to grow very rapidly, supported by the government’s modernization plans, including the unparalleled oil sector expansion. Following record real GDP growth in 2022 -62.3 percent, the highest in the world – real GDP is expected to continue to grow extremely fast in 2023 (38 percent). Oil production is ramping up with the coming on stream of a third oil field, and growth in the non-oil sector is supported by the implementation of a fast-paced public investment program focused on providing transportation, housing, and flood management infrastructure, and raising human capital.
Spillovers from oil and construction are supporting growth in the services and supplies sectors, while agriculture, mining and quarrying are also performing well. After a strong 2022, in the first half of 2023 real non-oil GDP grew by 12.3 percent. CPI inflation reached 7.2 percent at end-2022, in line with other countries in the region, and declined to 1.2 percent on a y/y basis in July 2023, with the decline in transportation and communication prices. The external current account swung into a large surplus in 2022, of 23.8 percent of GDP, and another large surplus is expected in 2023. Banks are well-capitalized and liquid.
The outlook for medium-term growth is better than ever before. Oil production will continue to expand rapidly as three new approved fields will come on stream between 2024-27, and a sixth field is expected to come on stream in the first half of 2028. Sustained real non-oil GDP growth of 5.5 percent is projected, as the government continues its ambitious plans to address developmental needs.
Guyana’s favourable medium-term growth prospects are accompanied by upside and downside risks. On the upside, further oil discoveries would continue to improve growth prospects. Construction growth and strong public investment may support higher-than-expected short-term non-oil growth but could also lead to inflationary pressures and the appreciation of the real exchange rate beyond the level implied by a balanced expansion of the economy, overheating, and the crowding out of credit to the private sector. Adverse climate shocks, and volatile or lower-than-projected commodity prices, may also negatively impact the economy.
The fiscal and monetary policy mix is appropriate at this time. Staff view the current expansionary fiscal policy stance as appropriate, given the country’s development needs and the existing slack in the economy. Although there was robust employment growth in the oil, services and construction sectors, the unemployment rate was 12.4 percent in 2022, and staff estimates show that the output gap remains negative.
Monetary policy appropriately balances the expansionary fiscal stance. The increase in broad money of about 10 percent until June 2023 (since December 2022), and in credit to the private sector of about 5 percent in the same period, remain below the nominal growth of the non-oil economy. Although credit to the government is also increasing, it is not crowding out credit to the private sector. Bank of Guyana is monitoring macro-financial risks with eight indicators, including credit-to-GDP measures and the systemic risk matrix.
The authorities’ commitment to fiscal discipline is welcome and allows for a balanced growth path. Over the medium-term, moderating fiscal impulses are projected to achieve a zero overall fiscal balance by 2028. This will allow for an expansion of the economy (real GDP growth on average of 20 percent per year during 2024-28) without creating macroeconomic imbalances. Public investment is expected to be financed primarily by oil revenues in the medium term. Public sector debt is projected to decline gradually as a share of GDP over the medium term (after declining to 26 percent at end-2022, from 43.2 percent of GDP in 2021).
The real exchange rate is expected to appreciate, and inflation to increase, as the economy closes its development gap. Gross international reserves (excluding the National Resource Fund) are expected to continue to accumulate, with reserves coverage indicators continuing to strengthen. At the same time, substantial savings will accumulate offshore in the medium term in the Natural Resource Fund (NRF).
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 welcome the policies to sustain growth into the longer term while maintaining debt sustainability and a balanced growth path. Staff recommend continuing close monitoring of macroeconomic and financial indicators, tightening monetary policy stance and using macro-prudential tools as needed (e.g. loan-to-value ratio or debt-to-income requirements). In the medium term, staff recommends a review of the exchange rate framework to ensure that it best serves the economy.
Staff recommend adopting over the medium-term a comprehensive medium-term fiscal framework (MTFF), together with further modernizing the public investment management and public financial management (PIM and PFM) frameworks. The MTFF would contain a clear medium-term fiscal anchor, a transition path, and an operational target. As a fiscal anchor, staff recommend setting 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 and ensuring inter-generational equity. 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.
Staff strongly support the authorities’ efforts to maintain financial stability. Macro-financial risks are well monitored with a broad spectrum of indicators, including credit-to-GDP ratio and the systemic risk matrix. Staff welcome BoG’s asset quality reviews, the progress in conducting stress testing 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. Improving data collection and statistics on corporate and household balance sheets and real estate prices will also be critical to support strengthening banking supervision as well as the move towards broad-based risk-based supervision.
Staff commend the authorities’ progress in strengthening AML/CFT, governance, anti-corruption frameworks and support further advances in their effective implementation. The authorities have continuously engaged with the Caribbean Financial Action Task Force (CFATF) to prepare for the scheduled 4th round of mutual evaluation currently underway and are further strengthening the AML/CFT framework. 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 and introduced in parliament legislative amendments to the AML/CFT Act.
Several pillars of the anticorruption framework have been further strengthened, including the Integrity and Public Procurement Commissions and the National Procurement and Tender Administration Board. The efforts of the Integrity Commission led to a significant increase in the number of timely asset declarations of public officials. Moreover, Guyana’s authorities are working to further strengthen their anti-corruption efforts, undergoing 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).
Staff commend the authorities’ progress to strengthen the management of oil wealth and its fiscal transparency. The NRF Act, amended in 2021, enhanced transparency and accountability of the use of oil revenues. In 2022, the governance of the NRF was strengthened with the appointment of three critical bodies: the NRF Board of Directors, the Public Accountability and Oversight Committee, and the Investment Committee. The year 2022 was the first year when oil revenues were transferred from the NRF to the budget. The use of the funds is reported in the budget documents, and all receipts are published. The process continued with the 2023 budget.
At the same time, the authorities made progress in implementing the recommendations of the 2019 Extractive Industries Transparency Initiative (EITI) reports, notably on the reconciliation with the fiscal regime. Staff support the authorities’ efforts to address remaining gaps, including in moving towards electronic disclosure and adequate follow-up. The 1986 Petroleum Exploration and Production Act was modernized and approved by parliament in August 2023. The new Act enhances the regulation of exploration and production of oil, and further paves the way for developing the oil and gas industry. A new Profit Sharing Agreement (PSA) has been designed, will be used for the auction of 14 new oil and gas blocks, and will increase the government share of oil profits.
Staff laud the authorities’ climate efforts. The government successfully reinstated the Low Carbon Development Strategy (LCDS), which combines utilizing the natural resources in a sustainable manner to combat climate change, by maintaining forest coverage and preserving the sequestration rates of Guyana’s forests, and receiving income for 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 transactions in the world.
The strategy allows for using the funds for flood management, diversifying the energy matrix, and provides resources for Amerindian communities. Staff supports the government’s enhancement of the LCDS, LCDS 2030 – launched in July 2022, which 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.
Staff strongly support the authorities’ efforts to improve the business climate, and address labor shortages. The authorities are preparing and implementing a range of reforms designed to increase the digitalization of the economy and to boost labor and total factor productivity (such as single window processing of permits, digital ID and digital banking records). Staff support the authorities’ efforts to increase electricity supply through a diversified energy matrix, improve its reliability, and decrease its cost. The authorities are also making sustained efforts to address labor shortages through providing facilities for vocational training, resources for online training, and incentives to set up businesses outside the capital.
Staff welcome the authorities’ efforts to modernize official statistics, which the IMF is supporting through capacity development. CARTAC is supporting the authorities’ efforts to rebase GDP and CPI. Staff stand ready to provide additional capacity development assistance, including with the development of capital markets and other pressing areas.