IMF executive board concludes 2022 Article IV consultation with Guyana

USA / GUYANA – The executive board of the International Monetary Fund (IMF) concluded the Article IV consultation with Guyana.

Following the pandemic-induced recession in 2020, and protracted political transition, non-oil economic growth recovered in 2021, despite being negatively impacted by floods. Inflation increased markedly since 2021 owing to the floods and supply-side disruptions, as well as continually rising fuel and food prices.

Oil production has increased significantly. Oil GDP is expected to grow over 100 percent in 2022, and by about 30 percent on average per year during 2023-26. Oil production has the potential to transform profoundly Guyana’s economy (overall real GDP growth rate is projected to be 57.8 percent in 2022). Guyana’s commercially recoverable petroleum reserves is expected to reach over 11 billion barrels, one of the highest levels per capita in the world.

This could help Guyana build up substantial fiscal and external buffers to absorb shocks while addressing infrastructure gaps and human development needs. Main downside risks to the outlook include volatility in global oil prices, a slowing global economy, or rapid increases in investment which could lead to macroeconomic imbalances, while upside risks include higher global oil prices and additional gas and oil discoveries.

Executive board assessment

Executive directors agreed with the thrust of the staff appraisal. They welcomed the broad-based economic recovery in 2021, following a protracted political transition and the pandemic-induced recession in 2020, and the unprecedented high real GDP growth, supported by a steep rise in oil production and accommodative policies. Directors highlighted that the increasing oil production could help transform the economy, address development needs, and build substantial buffers to absorb shocks.

Nevertheless, considering the potential challenges related to volatility in global oil prices and effective management of natural resources, they highlighted the need for continued prudent policies and structural reforms, assisted by Fund technical assistance, to avoid buildup of macroeconomic vulnerabilities, ensure inclusive growth and intergenerational equity, as well as address structural weaknesses and climate challenges.

Directors welcomed the significant decline in public debt and favorable debt dynamics going forward, the authorities’ commitment to maintain debt sustainability and stressed the importance of anchoring fiscal policy in a medium-term framework. They welcomed the restraint in using oil revenues before the passage of the recent amendments of the Natural Resource Fund Act and encouraged continued prudent management of oil revenues. Directors called for moderately ramping up public investment by constraining the annual non-oil overall fiscal balance to not exceed the expected oil transfers. They also encouraged the authorities to continue improving the targeting of social spending.

Directors agreed with the authorities that exchange rate stability serves Guyana’s current needs best and emphasized the importance of taking measures to further develop and deepen financial and foreign exchange markets, as the oil production increases. They saw merit in revising the monetary policy framework over the medium to long-term to ensure it is well suited for the economy’s needs, and that it allows more flexibility in the exchange rate to absorb shocks and help maintain competitiveness.

Directors commended the authorities’ efforts to maintain financial stability and promote financial inclusion. They welcomed the progress in implementing the 2016 FSAP recommendations and the commitment to fully implement the recently strengthened AML/CFT framework, while encouraging further efforts in this area, in particular to strengthen the regulation of digital payments.

Directors called for the continuation of broad-based reforms to address structural weaknesses and diversify the economy, emphasizing the significant human development and infrastructure needs. They commended the authorities’ progress in strengthening Guyana’s anti-corruption framework and fiscal transparency and encouraged continued progress on implementation of the recommendations provided by the Extractive Industries Transparency Initiative (EITI). Directors commended the authorities’ efforts to build resilience to climate change as envisioned under their Low Carbon Development Strategy.