IMF commends Guyana on restrained borrowing

-economy bouncing back ahead of First Oil

DPI, Guyana, Wednesday, July 18, 2018

The International Monetary Fund (IMF) has described Guyana’s “prudence and restraint towards borrowing in anticipation of future oil revenue” as “commendable”.

In a July 13th report entitled “IMF Executive Board Concludes Article IV Consultation with Guyana” the fund states that this restraint comes even as the country’s “medium-term prospects are very favourable. Oil production is expected to commence in 2020, and additional oil discoveries have significantly improved the medium- and long-term outlook. Economic growth is projected to be 3.4 percent in 2018, driven by continued strength in the construction and rice sectors, and a recovery in gold mining.”

The IMF’s observation over prudent borrowing echoes concerns being expressed by the Ministry of Finance which is increasingly alarmed by the prospect of what is termed the “pre-source curse” in which unrealistic expectations over anticipated oil or commodity revenues can create among other issues, immediate demands for increased public sector wages or spending on infrastructure.

The IMF advises that “short-term financing needs should be carefully managed”. Guyana “should rely as much as possible on Multilateral Development Banks, including their non-concessional financing operations. Developing the domestic capital markets would provide a more stable source of financing and help meet the needs of domestic long-term institutional investors. Private external borrowing should continue to be avoided, and central bank financing should not be used at all. Staff welcomed the authorities’ intention to close the overdraft balances at the central bank in the near-term. Saving the one-off gains from the tax amnesty would reduce financing needs, and also help preserve external buffers.”

The IMF forecasts that “The current account deficit is projected to narrow to 6.1 and 4.3 percent of GDP in 2018 and 2019, respectively. The deficit will be financed largely by FDI inflows and donor-supported investment. The central government deficit is projected to widen to 5.4 and 5.1 percent of GDP in 2018 and 2019 due to the cost of restructuring the sugar sector and an increase in infrastructure-related capital expenditure. Public debt is projected to rise in the short-term, before declining with the onset of oil production.”