Major sectors show ‘slower-than-expected growth’ – Central Bank

Sep 22, 2016 News

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-Finds export earnings for traditional sectors decreased
– Predicts Govt.’s revenue will increase by year-end due to stronger tax compliance mechanisms
In the past few months, Guyana’s financial system has faced a number of threats. Some of these risks

include the uncertainty in the global environment, de-risking by correspondent banks and the “slower” than expected growth in domestic economic activity.
Though the Central Bank acknowledges these, it is appeased by the fact that a number of fundamental macroeconomic indicators remain favourable to help reduce vulnerability in the financial system.
As for the details on the performance of the economy for the first half of the year, Central Bank Governor, Dr. Gobind Ganga, said that it grew by 2.0 percent. He said that it can be mainly attributed to the outstanding performance of the mining sector. This contention was in earlier months, supported by Finance Minister, Winston Jordan.
While gold production increased by 94.3 percent as a result of rising gold prices, the Central Bank has noted that other major productive sectors recorded slower than expected growth. It believes that this is due to weak global demand, inclement weather and unfavourable commodity prices.
The Bank of Guyana has also paid keen attention to the reduction in export earnings for Guyana’s major sectors. It noted that sugar export earnings amounted to US$20.8 million, 31.4 percent or US$9.5 million below the level in 2015. This was due to a decrease in export volumes.
Timber export receipts totaled US$19.4 million, 17.3 percent below the value for the corresponding period in 2015, owing to lower export volumes.
Rice export earnings amounted to US$88.3 million, 29.8 percent or US$37.4 million below the level in 2015, due to a decrease in the volume exported and a decline in the average export price.
Bauxite export receipts amounted to US$46.3 million; 13.1 percent or US$7.0 million below the value for the corresponding period in 2015, due to a reduction in the average export price for bauxite.
While export earnings have experienced a decline in major sectors, the country’s importation Bill has increased in a few areas.
According to the Bank of Guyana Mid-Year Report, the “consumption goods” category amounted to US$197.3 million. This is 4.7 percent or US$8.9 million more than the 2015 corresponding level.
The Central Bank said that this was mainly due to increases in beverages and tobacco, other semi-durable goods, clothing and footwear, other non-durable and durable goods.
It said, “The tepid growth together with subdued inflationary trend have the potential to negatively affect asset value of households and businesses and their ability to service debt. This can potentially impact banks’ asset quality requiring them to increase provisioning for bad loans and hence, profitability.”
In the meantime, the Central Bank Governor says that Government expenditure, particularly capital expenditure projects in the areas of construction, education, transport and communication, mining and agriculture will likely contribute to future growth and development to strengthen the financial system.
As it relates to the nation’s overall debt, Dr. Ganga said that this remains at a sustainable level. He said that this implies that there is fiscal space for taking on additional debt to provide developmental resources.
Concurrently, the Central Bank Governor said that government’s current revenue is projected to increase by the end of 2016 due to stronger tax compliance mechanisms.
According to the Central Bank Governor, the outlook for the remainder of 2016 suggests higher growth and a pick-up in the inflation rate that are expected to enhance the robustness of the financial system.
He noted that global economic recovery remained weak, uneven, and uncertain due to mediocre growth of advanced economies and impotent policy actions by national governments.
In addition, he said that global economic growth was further beset by additional fragilities that erupted from the outcome of the United Kingdom referendum to exit the European Union.
He revealed that Guyana’s financial system has been threatened by de-risking with Bank of America giving notice to a few banks of their intention to cease doing business with them. This was noted, too, in his mid-year report on the economy.
In that report, it was pointed out that although other banks showed an interest to fill the void, the conduct of international banks to terminate correspondent relations with legitimate clients (banks and non-banks) as a way of mitigating legal and other risks can be detrimental to the economic and financial health of economies such as Guyana.

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