Guyana’s economic outlook remains positive – IMF

The International Monetary Fund (IMF) says Guyana’s economic outlook remains positive for 2011, an election year, and through the medium term; but the Fund has warned about fiscal pressures arising from lagging productivity in the Guyana Sugar Corporation (GuySuCo), the need for the country to strengthen the finances of the National Insurance Scheme (NIS), and a possible fall-off in aid commitments.

Road projects, construction of a large hydropower plant at Amaila Falls (AFHP), and implementation of the Low Carbon Development Strategy (LCDS) should sustain growth levels above the long- run trend of three per cent, at around five per cent over the medium term, before tapering off in 2015 as one-off projects are completed, the multinational financial institution said in a report on Guyana last Friday.

According to the IMF, despite external and domestic shocks, the Guyanese economy demonstrated resilience and registered a fifth consecutive year of robust growth in 2010. Real Gross Domestic Product (GDP) expanded by around 3.4 per cent — slightly more than in 2009 — supported by expansion in the gold and services sectors, which helped offset lower output in the sugar sector. End year inflation rose to 4.4 per cent from 3.7 per cent in 2009, reflecting higher food prices.

Although the external current account deficit is estimated to have widened to 11.4 per cent of GDP, a steady inflow of public external financing and foreign direct investment was sufficient to finance the deficit and strengthen foreign reserves to the equivalent of five months of imports.

In 2010, the overall fiscal balance is estimated to have weakened by close to one percentage point of GDP, to 4.3 per cent of GDP, due to weak performance in public enterprises, not fully offset by a decline in investment and despite strong central government revenues. Public debt was broadly unchanged, at 61 per cent of GDP. Meanwhile, bank prudential indicators have remained stable, with banks generally liquid and well capitalized. In September 2010, the authorities started making payouts to Colonial Life Insurance Company (CLICO) policy holders, in line with their plans to minimize fiscal costs.

Executive Board Assessment

According to the IMF, directors commended the Guyanese authorities for macroeconomic policies that have supported resilience in the face of external and domestic shocks. They noted that the development of forestry-based environmental services, private sector plans for the exploitation of Guyana’s natural resources, and large infrastructure investments are supporting Guyana’s medium-term growth prospects.

It added that directors considered that prudent monetary management has been the key to macroeconomic stability, noting that there may be scope for early tightening if increases in commodity prices were to threaten the authorities’ inflation objective.

Directors agreed that Guyana’s exchange rate regime has served the country well. Going forward, some Directors supported a gradual approach toward greater exchange rate flexibility, while others considered the current policy to be appropriate.

Noting that financial sector indicators had improved, directors stressed the need for continued close, prudential oversight.

They welcomed the laws establishing the licensing and supervisory framework for credit bureau operations and bringing the mortgage bank under the supervision of the central bank.

Directors endorsed the authorities’ Low Carbon Development Strategy, which seeks to boost competitiveness and private investment. Its successful implementation, with international support, will lift Guyana’s long- term growth prospects and reduce poverty.

Considering the authorities’ intention to soon finalize the Poverty Reduction Strategy, directors encouraged a continued dialogue with all stakeholders to maintain consensus on the development agenda.

Directors noted the improvements in data quality achieved in 2010, and welcomed the authorities’ decision to subscribe to the Fund’s general data dissemination system.