IMF projects 3.5% 2017 economic growth; says sustaining growth hinges on improved business climate

Following a recent visit to Guyana, staff of the International Monetary Fund (IMF) have noted that although growth was uneven, Guyana’s economy continues to expand.

The team in its preliminary statement, pointed out that in 2016, subdued agricultural commodity prices and adverse weather conditions led to a contraction of agriculture, with negative spillovers to manufacturing and services. Additionally, it pointed out that delays in public investment remained a drag on construction; something which was mentioned by the Minister of Finance during the presentation of the National Budget 2017.

Nevertheless, it was noted that the Gross Domestic Product (GDP) was buoyed by vast increases in gold output, including from new mines, with total real GDP increasing by 3.3 percent despite a contraction in non-mining GDP.

In 2017, the mission projects “real economic growth of 3.5 percent driven by an increase in public investment, continued expansion in the extractive sector, and a recovery in rice production.”

However, it was emphasised that sustaining growth “hinges upon improvements to the business climate, private sector confidence, reinvigorating construction activity and productivity-enhancing reforms in key sectors, including agriculture.”

The mission welcomed the progress in liberalising the communications industry, and the authorities’ plans to increase low-cost renewable energy, improve transportation links, and modernise the payment system. It is the Financial body’s view that addressing these long-standing structural impediments will stimulate construction, help raise productivity in traditional sectors, facilitate diversification into higher added-value activities, and make growth more inclusive.

It also encouraged the authorities to press ahead with the overhaul of the sugar industry, while “being mindful of the large social impact and providing a safety net to protect those affected by that process.”

In 2016, it was noted that despite slower than expected growth, fiscal revenue increased due to improvements in tax administration and higher royalties from the mining sector. Additionally, expenditure increased less than projected mostly due to “lower than budgeted public investment.”

In 2017, the deficit is projected to increase to about 7% of GDP, due in part to delayed capital spending from 2016 and the reclassification of subsidies to state-owned enterprises as financing instead of revenue to the receiving enterprise.

The Government was urged to continue to strengthen public procurement, and public investment management in line with international best practices since “improving the appraisal, selection and execution of projects could enhance the efficiency, timeliness and quality of public investment.”

The IMF welcomed Government’s move to draft legislation for a fiscal regime for oil revenues and the establishment of a sovereign wealth fund.

It projected the country’s debt-to-GDP ratio to reach 61 percent of GDP by 2019. However, debt sustainability risks remain moderate. Local authorities noted that the debt to GDP ratio would decline rapidly after the start of oil production, dropping to under 50 percent by 2020, however, the mission recommended a fiscal adjustment to safeguard against downside risks.

The IMF urged that the monetary policy stance remains accommodative given low inflationary pressures and weakness in economic activity. However, pass-through from the VAT reform to inflation should be carefully monitored.

“The inter-bank foreign exchange market appears segmented and illiquid, and could be further developed, including by enhancing the transparency of market activity,” the IMF team says. As such, it recommends that any official foreign exchange purchases and sales use a market mechanism similar to the one used for auctioning treasury bills.

A staff team from the International Monetary Fund (IMF), led by Mr. Marcos Chamon, visited Georgetown during March 6–17 to hold discussions for the 2017 Article IV Consultation. Ms. Srobona Mitra, the FSAP mission chief, joined the concluding meeting. The team met with Finance Minister Winston Jordan, Natural Resources Minister Raphael Trotman, Public Infrastructure Minister David Patterson, Central Bank Governor Gobind Ganga, other senior officials, representatives from the private sector, the opposition party, labour unions, and other stakeholders during March 6–17.